Considering investing in a BDR team?

Chances are that at some point you experienced being contacted by someone you don’t know, offering you something you didn’t ask for. If that happened, you’ve been contacted by a Business Development Representative (BDR*) executing a “cold-call”.

How long did you let them speak? Have you ever taken them up on what they were offering? Many would answer “not long” and “no”. However, if the question was instead: “Have you ever worked in a company that employed BDRs?”, the answer would probably be “Yes”.

So, what drives the deployment of BDRs? Should you consider investing in BDRs for your business?

Briefly answering the latter question, the more of the following boxes you can tick, the more likely it is, that investing in BDRs would yield a positive return for your business:

? You are already doing everything you can, to maximise referrals and inbound demand (i.e. your marketing team cannot provide a decent return on additional investment)

? You have more inbound demand than your sales team can handle and it would be useful and feasible to have more junior people do some initial screening of that inbound demand

? Your sales team spends most of its time & effort closing deals, as opposed to generating new ones

? The average revenue from BDR-sourced deals would be greater than the BDR’s annual cost

? Your solution is relevant for a very large number of companies

? Your sales team’s efficiency can be improved if a cheaper-than-a-salesperson resource can realistically help the sales team research & develop their prospective clients

Going back to the former question of “what drives the deployment of BDRs?”: The normal logic roughly follows these steps, starting from the bottom line and working backwards:

• Revenue needs to grow → for which new business sales needs to grow (note: there’s an implied assumption here that growth needs to come from new business. Although it’s a fairly common assumption, it’s not always correct - but that’s a topic for another post)

• To grow new business sales you need to create more qualified opportunities (a.k.a. SQLs or “Sales Qualified Leads”) in your pipeline. Assuming pipeline conversion from an early stage SQL to a closed-won deal is known → you’d know roughly how many SQLs need to be created (For illustration, let’s use 20% conversion from SQL to closed-won deal - a.k.a. “win rate” → so, on average, you’d need 5 SQLs to close-win 1 deal)
• To create new sales qualified opportunities you need new “leads” - i.e. people who would, at least potentially, be interested in your offering. Assuming the conversion rate from a new lead to a SQL is also known → you’d know how many leads need to be generated (For illustration, let’s use a 33% lead-to-opportunity - a.k.a. “LTO” ratio → so, on average, you’d need 3 new leads to create one SQL)

Hence, with the illustrations above, the conclusion is: “we can get a new deal won for every 15 more leads we create”. And where can more leads come from? One possible source (and almost always the best one) is referrals - either from your customers and / or your employees. Other sources are your sales team’s known contacts (their “rolodex”) and your marketing team’s work, which is normally the main source for “inbound” leads. If you think that these sources have been utilised to their fullest, you might think that adding BDRs would be the answer.

While the above reasoning is logical and could be correct, there are a number of pitfalls to watch-out for before concluding if the investment in BDRs is going to make sense for your business:

1. The first and most important pitfall is to do with the unit economics of BDR-sourced leads and opportunities, which in itself includes a number of relevant and important variables. Let’s look at the key ones:

i) The cost of the BDRs: This would be determined mainly by the base-salary you would need to offer a BDR, given local market conditions. For example, while a base salary for a BDR in London could be ￡30,000 p.a., a person with similar experience and ability in New York might require a base salary of $60,000 p.a. For illustration, let’s use $60,000 as your annual cost per BDR

Other factors that would impact your BDRs’ cost are:

• Related overhead (e.g. individual contributing BDRs would need a manager, HR resources, etc.)
• Variable pay you’d offer (e.g. commission / bounty per lead); and
• The usual cost overheads you’d have for every employee (e.g. National Insurance / Health Insurance)

ii) The BDRs’ expected “input”: namely how many connections they’ll make. While a “connection“ can be a phone call, there are other valid and often at least equally useful formats to connect (e.g. email, LinkedIn - see more below).?

For illustration, if you assume:

• 8 connections per hour (i.e. a new connection every 7.5 minutes)
• 6 net connecting hours per working day (i.e. excluding 121s, team & company meetings, training etc.)
• 48 net working weeks per year (i.e. 4 weeks for various forms of leave)

Then each BDR would be expected to make just over 11,500 connections per year (more on this number later)

iii) The BDRs’ expected “output”: namely the number of new leads created, how many of them become new business opportunities (SQLs) and, ultimately, what is the value of the closed-won deals. For illustration, if you assume:

• 1.5% conversion from “connection” to “lead” Note: remember that your BDRs would most likely need multiple “connection” attempts for each individual person. If you assume 5 connections per person, on average, then a 1.5% conversion from “connection” to lead means you get a new “lead” from every 13 people your BDR tries to reach
• 15% conversion from “lead” to new business opportunities (SQLs - see note on this point further down)
• 15% win rate (from SQL to closed-won deal)
• a revenue value of $60,000 per closed-won deal

iv) The extent of double-counting when computing BDR Return-On-Investment (RoI). For example:

• Unless BDR-sourced deals get closed without a sales person, then the revenue value of these deals will also be counted in your sales team’s ROI calculations
• If your BDRs work on marketing sourced inbound demand generation, then the value of these leads and their resulting revenue will also be counted in your marketing team’s ROI calculations

With all of the above assumptions, you’ll get roughly $4 in gross revenue return for each $1 of BDR cost, though this ratio can vary wildly with any changes made to any of the above variables. Once you work out the expected ratio for your business (see tool here), you need to decide if it’s a ratio you’re happy with and proceed accordingly.

Before moving on to the second possible pitfall, it’s worth bearing in mind that the concept of cold-calling - be it over the phone or using other media - is predicated on a premise of hitting a large volume of targets, with low effort and getting low(ish) hit-rate. The ratios used above are in line with that premise. The last checkpoint mentioned at the top (about the sales team’s efficiency being improved through R&D) implies an opposite approach: one of low volume of targets, high effort and high hit-rate. E.g. imagine that instead of expecting a BDR to make 240 connections per week which would result in 3-4 leads, you’d expect them to thoroughly research 5 companies per week, getting to know what key relevant issues it’s facing, where your solution would be relevant and 5 or more key stakeholders, per company, who would be interested in your solution. Such an approach could dramatically change all of the above ratios.

2. A second possible pitfall is assuming that the pre-BDR ratios you are familiar with, will be the same for your BDRs. This is often not the case. For example, the leads and opportunities that originate from BDRs, especially if they are the result of cold calling, tend to have meaningfully lower conversion rates from Lead-to-Opportunity (LTO) and from opportunity to closed-won-deal (“win rate”). Hence, if you assume that the conversion rates would mimic the average you have from other sources, like referrals or sales-sourced, you’re likely to significantly over-estimate the BDRs’ efficiency. The same could be true for the value per BDR-sourced closed-won deal.

3. A third potential pitfall is assuming you’ll have a sufficiently large volume of possible targets to provide to your BDR team. If, for example, your company has come up with a Microsoft-Office replacement tool, then your volume of possible targets is almost limitless. However, if your company provides a high value solution for large mobile network operators in a given country, then your volume of possible targets is significantly lower. Going back to the BDR expected input example above, where we concluded that each BDR would make just over 11,500 connections per year - you need to consider whether you can provide your BDRs with a sufficient volume of targets, to allow them to do so. The factors to bear in mind are:

• How many companies do you expect to credibly target, for your BDR demand generating effort? When working this number out, bear in mind factors like language skills (e.g. can you expect an English speaking BDR to approach targets in Germany?) and relevant time zones (e.g. Should you expect an Ireland-based BDR to approach targets in Japan?)
• How many targeted individuals, that can credibly be converted to leads, do you expect to have in each company you target?
• How many connections do you expect to be required, per targeted individual, before they are either converted to a lead or assumed no-longer-worth-pursuing?

4. A fourth pitfall is neglecting to fully consider the impact the conditions you create, combined with human-factors, would have on behaviour. For example, consider the following possible conditions:

• You decide to give the BDRs a certain bonus for every lead - e.g. every call they schedule for a sales person → it’s likely that in balancing quality vs. quantity, the BDRs would err on the side of the latter

Or

• You decide to give the BDRs a certain bonus only if the lead is qualified by a salesperson, who converts it to an opportunity (SQL) → it’s possible that, not wanting to hurt their BDR colleague’s earning potential, the salesperson would be amenable to creating an opportunity even in questionable cases, particularly if the salesperson isn’t measured on their conversion rate. Such behaviour would manifest itself in decent-to-high LTO conversion rate followed by either a very low win rate and / or forever-open opportunities.

5. A fifth potential pitfall is making your sales team overly reliant on BDRs, in that they start working less than you expect them to, on their personally-sourced leads and opportunities.?

Being aware of these possible pitfalls and considering how you answer or address each of them, would ensure that if & when you decide to invest in a BDR team, you’d be more likely to make it a successful one.

* BDR stands for Business Development Representative and is normally (and is used here as) synonymous with SDR, which stands for Sales Development Representatives. These BDRs tend to be (though aren’t always) people at the start of their career, hoping to use their BDR experience as a stepping stone towards becoming a sales person. They normally serve as either [1] the company’s “cold callers” and / or [2] “inbound” leads follow-upers. Note the 2 options are not mutually exclusive. “Cold-calling” would mean they’d be tasked with contacting a large volume of prospective customers, who normally do not know they’ve been designated as such and know neither your company nor the BDR who’s attempting to contact them. An “inbound” lead is essentially someone you don’t know, who learnt about your company and service somehow (e.g. through a referral, from seeing an advert, etc.) and is actively contacting you