The CFO's formula that will determine the future of your SDR team

Should you reduce the size of your SDR team?

Many companies have already done so. More are asking themselves this question right now. And a few folks share, behind close doors, that soon, the SDR role will be automated out of existence.

Last Friday, I had a fascinating lunch with ?? Andy Mowat , an great friend and one of the best Ops leaders in B2B tech. I asked him what he thought about this. Buckle up, it gets nerdy!

Automation does not need to do better than the SDR team to be adopted.

Andy shared: "Lots of folks think SDR teams will be automated when AI and automation perform better than humans. The truth is that it will happen sooner. It will happen when the lift in conversion rate from SDR outreach is insufficient to justify the cost of the SDR team. This, unfortunately, is the trigger point CFOs are looking at."

Let's say you have 5 SDRs doing prospecting. If you try to automate their work, you can expect the conversion from "people contacted to meetings booked" to be lower than the one you had with your 5 SDRs (hopefully!). The question your CFO will have is: "So what? How much lower does the conversion rate from automation have to be to justify the cost of your SDRs?".

The CFO formula

I was playing around with the maths and it appears that there is an actual formula that decides the economics of automation (see picture above for calculations).

The Outbound formula:

ACV is the average contract value, and "Opp2CW" is the conversion rate from Opp-to-Closed-Won.

For example, if the SDR team costs $50k per month, the ACV is $50k, and an Opp-to-Closed-Won rate of 20%, your SDR team needs to generate at least 5 incremental opportunities per month compared to automated prospecting.

The Inbound formula:

MQL2Opp is the conversion rate from MQL-to-Opp MQLs is the number of MQLs worked by the SDR team per month.

For example, if the SDR team handles 5,000 MQLs per month for a cost of $50k per month, the ACV is $50k, and an Opp-to-Closed-Won rate of 20%, the SDR team needs to show a MQL-to-Opp conversion rate at least 0.1 percentage point higher compared to an automated workflow.

What those formulas tell us

Those formulas help us answer the CFO's question about our SDR team. But interestingly, it also tells us that:

1. The critical factors that determine how much lift the SDR team needs to show to justify their cost are (a) ACV and (b) Opp-to-Closed-Won rate (and for inbound (c) SDR cost per MQLs).
2. Automation is less attractive when the values of those factors are high.
3. Those factors impact linearly the requirement on SDR lift. For example, if the ACV of the opps from your SDRs doubles, the lift your SDRs need to show against automation is divided by 2.

In other words: automation can perform worse than SDRs but it might still be the best option, from the CFO perspective, when ACV is low and the quality of the opps created is low. And conversely.

What to tell your CFO about the cost of the SDR team vs. automation

The question of SDR vs. Automation is not a great question. Personally, I believe the SDR role is going to evolve dramatically and it is here to stay. A better question is "where and what we should automate?".

The formulas above give us a clear answer as to where we need SDRs and where we should automate:

1. SDRs -> work accounts with significant ACVs and a great fit.
2. Automation -> work the other leads (lower ACVs or lower fit)

(Small plug: MadKudu can help with both 1 and 2)

Regarding the question of "what we should automate", we would need to talk about "augmented SDRs" vs. "Automated SDRs". This will be for another post!

What do YOU think is the future of the SDR profession?