Many of the CEOs I’m working with have been complaining about the difficulties of hiring experienced sales development representatives (SDRs) and business development representatives (BDRs).
I’ve also been looking at various human capital data sets regarding average SDR tenure in a sample of a few hundred SaaS companies, which has dropped significantly in the last 12 months.
The qualitative and quantitative seem very clear. There’s a shortage of experienced SDRs and BDRs.
This is not entirely surprising for an industry that has been on a multi-decade growth trajectory.
The issue is what to do about it.
There are a few implications to think through.
The first is that anytime there’s a shortage of anything, prices go up. So, anticipate an upward trajectory in SDR compensation costs over time. This, of course, has implications for the customer acquisition cost (CAC).
Just sucking it up and paying for higher-priced talent is one valid strategy. This approach favors companies with compelling lifetime value (LTV) to CAC ratios.
If you generate far more LTV per dollar invested in your go-to-market capability, you can simply afford to pay more than others for SDR talent and still be quite profitable.
If your LTV/CAC ratio lags behind others and your margins are borderline, you have some less-than-ideal choices to make:
- Raise your target compensation, but take a hit to your CAC.
- Keep your target compensation where it works for your economics, but leave roles unfilled for longer time periods, or watch as competitors with higher LTV/CAC ratios poach your talent.
- Keep your target compensation as is, but target less experienced or brand new SDRs.
All of these options have tradeoffs.
If your target comp goes up, that has a negative impact on your CAC.
If you underpay, your employee churn goes up, which also has a negative impact on your margins and CAC.
If you leave roles unfilled, you reduce your ability to drive top-line sales.
If you shift toward hiring less experienced SDRs, your SDR training and management costs go up (as inexperienced hires need more training and management)… which also has a negative impact on margins and CAC.
Incidentally, this trend happens a lot as markets mature. The above refers largely to an outbound sales model. The same has been happening for decades on inbound sales as well (lead costs keep going up).
There is only one sustainable way to combat increasing CAC… and that’s to grow the LTV of customers faster than CAC grows.
If your CAC grows 10% per year, but your LTV grows 20% per year… you will win.
If your CAC grows 10% per year, but your LTV grows 1% per year… you will, at some point, lose.
In a recurring revenue business, the company with the highest LTV wins. If you and your team are not relentlessly focused on growing LTV, you should be… or you’ll fall to someone who is willing to do so.
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