Cost Per Lead Metrics Exposed — An Insider’s Look at Sales Development
In the Sales Development department of most businesses, there is one number that dominates all others by an order of magnitude — the number of meetings set (usually measured per month) — and the associated price per appointment (some refer to as Cost Per Lead).
This is the number that most Sales Development Representative (SDR) quotas are set to. This is the outcome virtually all sales development managers (and their bosses — the Chief Revenue Officer / VP of Sales; the Chief Marketing Officer) focus on. It is the yardstick that determines the success or failure of any SDR. Most everything else comes in a distant second… Stuff that is mere details on the bigger theme of generating meetings and the formula for price per lead associated with doing so — it all comes back to the atomic Cost Per Lead number.
So it comes as no surprise that appointment setting prices, or more specifically, the cost to generate a single qualified meeting or sales opportunity is of great interest. And yet… there are a dearth of writings, information, deconstruction, or assessment of what an average Cost Per Meeting (Cost Per Lead Formula) should be.
Disclaimer: This will be controversial because we’re taking a thorough look at costs (obvious and hidden) that comprise cost per meeting, as set by SDRs. These job functions are also interchangeably referred to as Business Development Representatives, Account Development Representatives, Inside Sales Representatives, or Market Development Representatives (BDRs, ADRs, ISRs, or MDRs). We will look at costs averaged across industries, across size of company and across geographies (all USA).
Please understand that your own mileage may vary ~ we are looking at costs, averaged, to get an overall sense of expectations.
Sales Development Background
Building an inside sales organization is not for the faint of heart. And yet there is a dramatic increase in the number of Sales Development Reps being hired (37,000+ vacancies as of this writing). The popularity of this go-to-market role and SDR Teams being built, worldwide, across B2B businesses is undeniable over the last half-decade:
Further, at least in the United States, the Sales Representative role is expected to grow by nearly 10% (94,900 more jobs) over the next 10 years (2016 – 2026).
Costs That Go Into Cost Per Lead
Here are the average costs to hire a single SDR, train them, then get that person to a productive state:
$4,129 – Average cost to hire
(Society for HR Management)
(incidentally, it takes, on average, 42 days to fill an open role)
Training and Ramp
(Bridge Group 2018 SDR Report)
Full Salary – OTE (On-Target Earnings)
(Bridge Group 2018 SDR Report)
(InsideSales State of Sales Report)
Perhaps the easiest way to envision this all taking shape is to create a mythical SDR, with budget secured at the start of the year. Taking all costs into account for a year — Our mythical SDR role created January 1, would be filled 42 days later (February 11), and then hit full ramp by June (May 31, to be exact).
The total cost before full productivity is nearly $17K ($16,922 to be exact). This is NOT counting any management time nor oversight beyond hiring and training costs that are industry standard averages from reliable sources.
|Training and Ramp||3.2 Mo’s||$12,793|
|Base Salary||12 Mo’s||$47,973|
|Full Salary – OTE||12 Mo’s||$75,000|
|Technology Stack||12 Mo’s||$3,827|
|25% Allocation||Managerial Time||$23,416|
Sales Development is hard, grinding, often rejection-filled work that requires a thick skin and discipline. It’s unsurprising that placing, filling, then training for a role that is difficult would also be relatively expensive. What makes SDR work especially challenging is the nature of cold outreach — rejection is part of the cost of doing business. SDRs will typically hear far more “No’s” in practice than “Yes’s” — this is simply par for the course.
This is one of the reasons that another figure — OTE (On-Target Earnings) becomes so important. These are the bonuses that keep any given SDR motivated and performing optimally in the face of daily challenges. And also why the SDR role is viewed as a training ground for so many other sales roles (or other roles at a company — an opinion piece for another day).
It’s also unsurprising that the average SDR tenure is only 1.5 years. When you take into account those same fixed costs of placing, filling, then training SDRs for a role that will have them in a productive capacity for barely over a year (1.5 yr tenure – 3.2 month ramp = 14.8 productive months), it places an enormous amount of pressure on hiring managers to get things right.
In later calculations, we’ve applied a basic formula — allocation of Management salary (¼ time) using Glassdoor salary averages for SDR Managers. We have deliberately left out Management incentives, software, or any other information that is harder to pin down and isolate but these would obviously increase costs were they to be included.
Calculating Cost Per Lead
Now armed with our annual cost of an SDR we need to look at Average Quotas. Since everything breaks back to the Cost Per Lead we’re after, we need to look at quotas. These figures — across all industries surveyed — come in two flavors:
- Introductory Meetings (Converted) = 11
- Qualified Opportunities (Converted) = 10
The nomenclature differences are significant and tilt around both the classification of interest and lead qualification by the SDR. That said, the fact that both Converted numbers are quite similar (11, 10) represent a worthwhile jumping off point for generating a stable Cost Per Lead.
***Disclaimer: These are averages, pulled from statistically relevant Survey Data from The Bridge Group. Your own mileage will undoubtedly vary by Industry, Model used, Size of Accounts Targeted, Market Maturity, and even Activity Focus of your SDR.
Since Converted meetings are dependent on the scheduled meeting being held — and meeting qualification being met (a higher bar), we’ll use the lower figure of 10 per month for our calculations.
|Average Quota||Monthly||10||Held Meetings|
To truly capture the state of SDR performance, however, it’s important to note that rarely do SDR’s hit quota every month of every year. Should you encounter this rare unicorn that nails quota every single month, you’d be wise to first evaluate if you are setting quotas properly for your industry, then secondly reward and hang on to this individual. As it stands, the numbers are such that not even 68% of SDR’s regularly hit quota.
A statistically relevant way of looking at this is across the whole of an SDR population —where you could run a straight-line calculation that asserts that:
.68 X 10 = 6.8 Qualified Opportunities / Meetings each month
For the sake of easy math, we’ll round up to 7 Meetings per month. This is an average of 82 per year. In practice, this number feels about right working across sectors and industries with different target audiences, value propositions, and methods of outreach. It also equates to roughly two held meetings per week.
And Now… Actual Cost Per Lead (in $)
So, when we add it all up then divide by expected performance, we find that the average Cost Per Lead is:
The shorthand way to look at this is 11 gets you 7. Company leaders should expect to spend approximately $11K per month in order to get 7 Converted Meetings. These figures are a representative sample of industry averages from trusted sources.
While each person reading this may have slightly different experiences in practice, in no way are these figures grossly exaggerated to either an expensive nor cheap end. As such, if someone were to ask what your price per lead — the cost of a targeted, converted meeting– was in a given Industry, you could walk through these figures and give them a representative sample.
The other advantage to using known averages coming from reputable survey data is to understand how you might beat the market. Since starting this exercise, you can see where costs add up fast — especially given that human beings are the most expensive costs in our figures — salary, overhead, and management.
BIASED COMMENT: It would also be an obvious plug here to mention since you are reading this article on the CIENCE Blog, that this is what we do — set qualified meetings that convert to opportunities — using our own formulas, often at a fraction of the cost of doing so at Industry Average as mentioned above. To learn how simply contact us at firstname.lastname@example.org for more information.
CAC (Customer Acquisition Cost)
Any marketing or sales leader is intimately familiar with Customer Acquisition Cost. CAC is calculated by dividing all the costs spent on acquiring a customer (expenses) by the number of customers acquired in the period the money was spent. In a simple example, if a company spent $500K in a year and acquired 50 customers in that same year, their Customer Acquisition Cost is $10,000 per customer.
What’s nice about the Cost Per Lead average cost we’ve built above is that you can build models around this critical piece of the puzzle. This is a key part of Customer Acquisition Cost in many Outbound-centric organizations. The other big pieces of the puzzle are the sales costs for the rest of the sales funnel (esp. Account Executives, AE’s). At a 25% conversion rate from Converted Meeting to Closed Won deal, you’d be looking at spending $6,244, plus any AE Expenses (commissions), or other standard sales expenses to generate a single sale.
Conversion rate matters a lot — and is greatly affected by the quality of appointments — but the CAC in our averaged scenario has a relevant range of:
|Close Rate (%)||CAC (Customer Acquisition Cost)|
This is a handy way to begin to think through the implications of structuring all aspects of your own sales department.
I might also add that the slope of Conversion Rate % is actually quite interesting. Once past closing 1 in every 4 deals, there really isn’t a dramatic drop in CAC… Especially not in the way there is (for instance) moving from a 5% to 10% Conversion Rate. Getting one’s sales house in order to ensure a reliable Conversion Rate % is a noble effort that impacts every sales development motion, albeit indirectly.
The sales development movement is here to stay. Many hyper-successful businesses have embraced the SDR go-to-market, including all B2B IPO’s of 2017 – 2019 and some of the fastest-growing B2B businesses of all-time (Salesforce, Twilio, VMWare, Okta, Microsoft, Intel, CA, IBM). Understanding the baseline costs inherent to any model is a valuable tool to make wise decisions affecting your own go-to-market.
Averages influencing this figure — $1,561 price per appointment — are worth understanding. Many parts, all moving, contribute here.
Given the nature of how subjective, How much is this lead going to cost? when asked at the outset of any lead generation endeavor, we’ve attempted to put together a purely fact-based view of the topic — diving right into the heart of the matter — and hope you find it valuable.
Postscript — Options to Consider
Of course, for those reading this article who may want to explore an all-inclusive monthly fee for an outsourced SDR Team — complete with a targeted research arm, management, and a fully-trained, dedicated Sales Development Rep… This is what CIENCE does. Say hello at your convenience and we’ll provide additional perspectives on our costs relative to these averages.