What Is the Cost of Appointment Setting?

The topic of appointment setting services cost has been well-discussed by CIENCE Chief Marketing Officer Eric Quanstrom in his article about the average cost per lead metric. However, not every B2B company tracks the return on investment (ROI) of their sales development process and can easily find ways to improve it. For many CIENCE clients, outbound prospecting has become the solution to drive bigger ROI and decrease the appointment setting services cost. 

In this article, we will take a look at sales development ROI for software as a service (SaaS) companies and other subscription-based B2B organizations to help answer the question of how much appointment setting services cost.

appointment_setting_services_cost_image_3What Is the Cost of Appointment Setting Services? 

When evaluating the success of outbound prospecting, many companies focus solely on the number of set appointments and price per lead. While we admit that these two metrics are important, our own experience proves that there are more crucial but less obvious stats to prioritize when planning your sales development initiatives. 

When it comes to appointment setting, quality is more important than quantity: The right prospect who fits the ideal customer profile perfectly can generate a higher ROI than a dozen prospects from moderately fitting companies. Here are the main metrics to take into account when defining the price of an appointment setting for your business: 

1. Minimum profitable price per appointment

Being a provider of outbound prospecting services for over six years, we’ve learned that to calculate the price of an appointment for SaaS and subscription-based businesses, one should begin by defining the minimum profitable price of an appointment. This metric defines the minimum cost of one meeting that keeps the business profitable. It is calculated by dividing the total sales development expenses (SDE) by the number of appointments set and comparing it with the average net income from one contact.

Cost of appointment setting services - formula

In the article mentioned above, Eric explains what to include in the sales development expenses. His formula is as follows:

What is included in expenses on Sales Development?

In this example, the average annual SDE is $131,158 or $10,930 per month. This figure is divided by the average number of appointments achieved each month across all industries (6.8, rounded up to seven) to calculate the price of one meeting—$1,561.

Although this number can vary across industries, the price defined gives a clear overview of how much money you should expect to spend with an in-house sales development team. Furthermore, you can calculate your own SDE and appointment costs using the formula above.

2. Customer lifetime value vs. customer acquisition cost

Subscription-based businesses including SaaS companies often neglect to track if their total expenditures are generating profit over a certain period of time. The common mistake is spending too much on acquiring your client at the beginning of the product’s cycle and not taking into account the long-term results. Under these circumstances, there’s uncertainty about the future of the business: Will it eventually grow and succeed, or will it fail?

To find an answer to this question, David Skok, a specialist in SaaS start-ups growth, offered to calculate the “golden ratio” between two important metrics—customer lifetime value (CLV, or LTV) and customer acquisition cost (CAC). 

He studied multiple SaaS companies and proved that successful start-ups had a ratio of three or more. This means that the net profit you gain from an average customer over the period of their subscription (CLV) should be at least three times more than the cost of acquisition (CAC).

In venture capital circles, this ratio is fairly known as a leading indicator for high-growth companies. Having a CLTV-to-CAC ratio greater than three indicates that your business is not only viable but high-growing and potentially worthy of investment:

CAC to CLV ratio

In outbound prospecting, this ratio is used to calculate the maximum cost of one appointment that will guarantee the profitability of a subscription-based business.

There’s no consensus on how to calculate the CAC and CLV between marketers. David Skok and his partner Stan Reiss have done incredible work putting down the complex formula for customer lifetime value, which considers discount rate, gross margin, the growth rate of remaining customers, and churn rate:

CLV formula - Customer Lifetime Value

The equation for customer acquisition cost is somewhat simpler:

CAC formula - customer acquisition cost

Here, sales and marketing expenses include

  • Salaries of the respective employees
  • Overheads related to the marketing and sales team
  • The costs of software and tools

appointment_setting_services_cost_image_1

3. CAC marketing expenses 

In the CAC formula mentioned above, it is not entirely clear what exactly to count as marketing expenses. Besides that, it might seem illogical to add marketing expenses into appointment costs generated purely by the sales development team efforts. However, this is not entirely true. 

Marketers support sales at every stage of the sales funnel. Besides that, 87% of thought leaders admit that aligning sales and marketing teams enables critical business growth. That is why we suggest including up to one-third of your marketing expenses in the acquisition cost of customers brought by outbound efforts when calculating the appointment setting services cost.

4. Price of a profitable appointment 

To get a better idea of the profitable appointment price, you also need to distinguish the sales development expenses from other sales expenses. The formula is as follows:

CAC formula for Sales Development

This leads to:

calculating sales development expenses

Now, you can easily calculate if the cost of one appointment is actually profitable:

What is the Price of Appointment

By substituting SDE with the (⅓ CLV *Number of New Customers – Remaining Sales Expenses – ⅓ Marketing Expenses) from above, you can find the answer to the following equation:

appointment_setting_services_cost_10

If the values of these two expressions are equal, your business is doing well. If your actual price of appointment (PoA) is bigger than your minimum profitable price of appointment, you are doing more than well. If the PoA is significantly smaller, your business has a problem and you need to fix it immediately.

A few more things to state here is that the equations provided are the combination of descriptive (CAC, SDE, PoA, number of customers, etc.) and predictive (CLV) analytics. This means that we interpreted the past expenses—set appointments, customers won, churn rate, growth rate—in order to predict future revenues.

When it comes to sales and marketing expenses, the values are usually fixed (thus, budgeting is established for a period of one year in most companies). However, the CLV, the number of appointments set, and the number of new customers might change significantly over the year (e.g., seasonality). While it creates some uncertainty for your predictions, it also provides a chance for a business to improve the minimum profitable PoA.

How to Make the Price of Appointment Profitable for Subscription-Based B2B

Let’s take a quick look at the formula once again:

appointment_setting_services_cost_10

There are two types of variables in it: directly and inversely proportional to the minimum profitable price of the appointment. Here is the table of variables used in this formula according to their effect in MPPoA:

Direct – Increase MPPoA

Inverse – Decrease MPPoA

Customer Lifetime Value

Remaining Sales Expenses

Number of New Customers

Marketing Expenses and Their Share

 

Number of Appointments


As a result, the increase in remaining sales expenses won’t impact the price of appointment setting services because the total SE stays the same. In this case, we suggest replacing RSE with the following calculation: Sales Expenses – Sales Development Expenses.

There is one more thing to take into account: Remaining sales expenses (RSE) is a constant variable. As we mentioned before, the annual budgets for sales teams are fixed. There’s only one way to actually change them—by decreasing sales development expenses and investing this money into RSE:

Minimum profitable Price of Appointment

Consequently, the table of variables will look as follows:

Direct – Increase MPPoA & PoA

Inverse – Decrease MPPoA & PoA

Customer Lifetime Value

Sales Expenses

Number of New Customers

Marketing Expenses and Their Share

Sales Development Expenses

Number of Appointments

The goal of any business is to increase the minimum profitable price of an appointment and decrease the actual price of an appointment. The gap between these two metrics will give your business the “space” for inevitable mistakes and neutralize the losses.

Overall, your goal is to minimize the sales development expenses and increase the number of appointments. When it comes to MPPoA, you need to raise the CLV and number of new customers while trying to spend less on sales and marketing. 

How to Decrease Sales Development Expenses

To minimize the appointment setting services cost, you should follow two basic goals:

  • Spend less on outbound prospecting while making more high-value appointments.
  • Increase the number of customers and their lifetime value.

Read More Tips About Appointment Setting Services for B2B

It might seem like an easy task to achieve, but each of these variables is a complex metric. CLV depends on multiple aspects, including the period of customers’ retention (which correlates with the quality and type of your service, market fit, and competitors), their churn rate, the expansion of accounts, and the price of your services.

The number of customers and appointments are also not that simple to calculate. What’s better, setting up a hundred appointments and gaining ten customers, or fifty appointments and nine customers?

While it might seem that ten customers can bring you more money than nine, the sales expenses on a hundred appointments are two times greater than on fifty. And that’s why increasing the number of appointments decreases the minimal profitable price of appointments.

So, while it’s important to make more customers for a better MPPoA and more appointments for a better PoA, it’s even more crucial to keep a good ratio between these two metrics. The rule to remember is to spend less on appointment setting while gaining better conversions.

Sales development expenses for in-house teams depend on the on-target earnings of SDRs, the prices of software, and the sales tools used. If you want to dig deeper into the current state of sales development in the US, you can check our analysis of the Bridge Group Report (a bi-annual survey known as the “golden standard” in the sales development space).

appointment_setting_services_cost_image_4

There are not many obvious strategies that will decrease the SDE of your in-house team:

  • If you hire SDRs with less experience, you’ll have a longer ramp time and a higher risk of hiring the wrong person for the position.
  • If you buy cheaper tools (or use freemiums), it will decrease the SDRs’ efficiency.
  • If you spend less time training, you risk having poorly qualified sales representatives.
  • If you cut the time of your managers on sales development needs, the sales process will become less controllable.
  • If you spend less on overhead, this will cause all your employees to quickly burn out.

A more apt strategy is to simply outsource your sales development. In this case, you will have more experienced SDRs, and avoid spending money on tools, managerial allocation, overheads, training, and hiring.

Learn More About Saving Costs with Lead Gen Companies

Define Your Appointment Setting Services Costs

appointment_setting_services_cost_image_2

To calculate the appointment setting services cost of your business, it is not enough to simply apply the proposed formulas from this article. You need to adapt them to your needs and use those variables from your business model. 

CIENCE specialists can guide you through the tricky path of making these calculations. Our sales team members have been trained to analyze your business and determine your MPPoA.

Contact Us for More Details!

Editor’s note: This post was originally published in November 2018 and has been completely updated for accuracy and comprehensiveness.

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