Over the past 5 years, quite a few VPs of Sales have moved away from buying bulk lead lists in favor of sourcing their own leads in-house. The growing popularity of the SDR (Sales Development Representative) sales model and the seemingly endless proliferation of the modern sales stack is fueling this trend.In some organizations, this function is also called BDR (Business Development Representative) or LDR (Lead Development Representative). Tying ROI to an upfront Cost Per Lead (CPL) has fallen out of favor with many sales leaders. However, in the search for higher-quality leads with SDR lead generation, many sales leaders forget that those three little letters, C-P-L, never quite disappear.

The industry-wide shift from upfront CPL decision-making to SDR self-sourcing should come as no surprise. Seasoned sales leaders making vendor purchases today started their careers with Yellow Pages-like lists of data from providers like Hoover’s, InfoUSA, and Data.com. They know that a low CPL is often an indicator of low quality (and therefore low potential revenue). The most reliable way sales leaders have been able to slap any type of guarantee on output and performance is to shift to an in-house model. The reasoning goes, control over lead generation means control over lead quality. However, that shift comes at a cost.

While there is no upfront CPL with SDR lead generation, CPL never goes away. It can only jump from row to row in your profitability spreadsheet.

With this in mind, how should you calculate Cost Per Lead when using an in-house SDR model?

In order to reveal true ROI for SDR self-sourcing you must account for not only your sales stack but also the general cost per employee, as well as their productivity:

Let’s start with a snapshot of the modern sales stack:

Modern Sales Stack

  • CRM
    • SalesForce, Base, Netsuite, Sugar CRM
    • Cost: $500-$2000 per seat, per year
  • Social Prospecting and Selling
    • LinkedIn Sales Navigator
    • Cost: Around $1000 a year
  • Technology and “Lead” Databases:
    • Discoverorg, Rainking, BuiltWith
    • Cost: $2000 – $20,000 a year
  • Linkedin Scraping tool:
    • Datanyze / SalesLoft Prospector / KickFire / Capture
    • Cost: $5000 – $10,000 a year per seat
  • Outbound Email Tool:
    • Yesware / Tout / Cirrus for BCC
    • Cost: $100 – $500 per seat per year
  • Sales Email Tool:
    • Outreach.IO, PersistIQ, QuickMail
    • Cost: $500 – $2000 per seat per year
  • Demo Software:
    • Join.me, Clearslide, Docsend
    • Cost: $200-$500 per seat per year

Before an SDR even starts ramping they’re costing the average sales organization over $12,000 per year. And this number does not include training, equipment, manager oversight, and hours spent in mentorship.

The largest and easiest cost to overlook for any SDR program always comes down to one thing: time.

In the Bay Area, good SDRs are making over $60k a year (sometimes before commission). Then, you still have to tack on additional costs such as:

  • Equipment
  • Office space
  • Taxes
  • Perks
  • Insurance
  • Additional Benefits
  • Recruiting costs

With everything factored in, most organizations are looking at hourly costs approaching $50-$70 an hour per SDR.

So, how does this translate to the actual CPL?

LeadGenius works with hundreds of B2B sales teams. Across industries, we’ve found that the average SDR is able to source and connect with around 200 leads per week using a tool like Datanyze or Salesloft Prospector (R.I.P). But this manual process is both time-consuming and downplays an SDR’s true strength— heavily personalized outbound nurturing.

In order to maintain a healthy funnel most SDRs are spending 16-20 hours a week— up to half their time— building top-of-the-funnel pipeline.

LeadGenius recently helped an early stage SaaS company in the Bay Area with a sales team of 6 calculate their monthly spend on lead gen. The team spent ½ their time prospecting. Per week, each rep brought in an average of 150 workable leads.

Here’s what costs looked like on their end:

  • Datanyze ~($9k per year)
  • LinkedIn Prospector (~$2k per year)
  • Rainking (~$18k per year)
  • Salesforce (~$10k per year)
  • Outreach.io (~$3k per year)
  • Base salary / benefits / equipment (~$50 an hour)

With six SDRs, the company was spending $24,000 each month on internal lead gen hours alone (a generous estimate considering not all reps were fully ramped at all times), not including each rep’s sales technology software. When you combine the two, lead gen costs for this small team came to about $29,500 dollars per month, which breaks down to $8.19 per lead.

Over eight dollars per lead is high, but not necessarily an extreme nominal cost to pay for quality. However, in this case, attached to the cost of lead generation was an unsustainable opportunity cost considering that half the reps’ time is not being spent on direct revenue-generating activities (in their case, giving demos). Furthermore, the only way to scale their team’s lead gen process while maintaining quality was to hire and ramp another SDR.

This sales team ultimately chose to fundamentally change their lead gen strategy, but only after running the numbers.

Instead of focusing solely on lead cost and quality, modern day revenue generators are starting to look at underlying reasons for success and how to replicate it at scale. The most efficient mix of lead quality and cost depends entirely on your products and sales process. There is no one right answer. For example, a more transactional business model, with a short sales cycle and an automated process for lead qualification might accommodate a higher volume of low-quality leads. A business with a more enterprise-style product, with a much longer sales cycle that requires a knowledgeable sales rep to qualify buyers will be impacted in a dramatically different way by the same leads. Sales went from favoring low-cost leads to high-cost leads, but the next phase of sales is going to be a middle ground ruled by automation and mass personalization at scale.

Again, the key factor often comes back to rep efficiency and time. Hourly costs are a primary concern. Sales leaders are realizing that even small tweaks in productivity can make the difference between a $10 and a $5 CPL.

Here are some questions to consider as you try and tweak your own model for 2016:

  • What variable lead fields result in higher outbound response rates or better conversions following the first engagement with a SDR or sales rep?
  • Is there a particular data point that reveals my ideal customers?
  • How many contacts do I need to reach at each company to make a sale?
  • How can I structure my campaigns in the most compelling way possible?

Many modern sales teams are adopting an SDR model without doing the underlying math or considering the ramifications of the hidden CPL. While the shift towards quality and personalization is a powerful movement in sales, you can’t know the right answer for your sales process until you crunch the numbers.

Good luck. And do the math before you buy.