How do you pay an SDR?

Sales Development Representatives (SDRs) focus on a territory or market vertical in which they canvass and qualify prospects. 

This means that they have to initiate a conversation, get a decision maker to act, deal with objections and close by scheduling a meeting with an Account Executive, who will finalize the sale.

Thus, SDRs do not make any sales. So how do you pay them?

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1. SDR: The split between fixed and variable pay

Before looking at the indicators to be taken into account of the variable remuneration of an SDR, it is first necessary to determine how much of their wage should be devoted to the fixed salary and how much to the variable part.

There is no single correct answer to the question! This distribution depends above all on the company's objectives. 

However, there are some common rules:

• Fixed salary: between 70% and 80% of the package 
• Variable: between 20% and 30% of the package

The variable remuneration of a SDR should not exceed the above threshold. Otherwise, the company would greatly reduce its attractiveness because the SDRs would be subject to too much pressure and instability. Nor should the variable pay portion be less than 20%, otherwise the company would be exposed to a strong loss of motivation on the part of its SDRs and, ultimately, to a high turnover.

As mentioned above, these rules are not universal, and it is important to adapt them according to the situation: 

• The maturity of the market. A company operating in a highly competitive market with a high volume of sales may offer a larger share of variable pay.
• The stage of maturity of the company. A fast-growing company may also offer a higher commission share in order to motivate its SDRs.
• The seniority of the employee. Employees at the beginning of their career are often more motivated by a high commission percentage. On the other hand, senior employees prefer a larger fixed salary component due to their family and financial situation (mortgage, etc.). Once again, this rule is not universal, as some senior employees prefer a high variable salary because they have knowledge of the business and/or the market and/or the company that is favorable to them in order to achieve their objectives.
• The sales cycle. Generally, the variable remuneration share is lower when the sales cycle is long because the sales volume is lower.

"The split between fixed and variable pay should be reviewed in line with the maturity of the business and the products."

Vladimir Ionesco, Director of Global Sales Performance at Doctolib

Once the variable component has been defined, it is a question of looking at the indicators to be taken into account to measure it!

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2. SDR: Indicators to be taken into account for the commissions

By virtue of their role, SDRs are expected to generate qualified leads for Account Executives (AEs). In theory, their variable remuneration should therefore be based on the number of leads generated, the quality of those leads and the potential turnover generated. 

In reality, according to a Tribes survey, the following indicators are taken into account in the variable remuneration of SDRs in start-ups:

• The number of deals signed (39%)
• The number of meetings booked (33%)
• Turnover generated (33%)
• The number of meetings made (28%)
• The number of leads sent to Account Executives (11%)
• The value of the pipeline created (11%)

Theory and reality having been agreed, let's take a closer look at the leading indicators taken into account in the variable remuneration of SDRs.

Number of meetings booked

✅ Benefit: By paying the SDRs on the number of meetings they get, the company ensures that the maximum number of leads are generated for the Account Executives.   

❌ Disadvantage: SDRs are only encouraged to book meetings, without necessarily taking into account the quality of the prospects and their interest in the company's product(s) and/or service(s). Account Executives are therefore much less likely to close a sale. 

Turnover generated

✅ Benefit: Unlike the "number of meetings booked" indicator, compensating SDRs on the revenue generated by the leads they send to Account Executives, motivates them to generate leads that are inclined to buy the company's product(s) and/or service(s). 

❌ Disadvantage: Depending on the length of the sales cycle, it can take up to several months to close a deal. This means that there is no immediate reward for SDRs, so it is difficult to motivate them to generate as many leads as possible.

What if we take the best of both worlds?

The ideal commissioning formula for SDRs

Variable remuneration SDR = X € per meeting booked + % of revenue generated per lead

On the one hand, SDRs are motivated in the short term by the bonus meetings. On the other hand, they have an incentive to generate hot leads since they are also paid on the revenue generated.

⚖️ For a perfect balance, each of the indicators must have the same weight in the commission formula!

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3. SDR: Example of a variable pay plan

Let's take the example of a company selling customer relationship management software to other companies (B2B):

• Average basket: €10,000 
• SDR remuneration package: fixed salary (€30,000) + variable remuneration (€12,000)
• Target number of meetings booked per month: 15
• Account Executive conversion rate: 33% (5 new customers per month)

Variable remuneration SDR = (€12,000/12) = (15 x X € per meeting) + (5 x €10,000 x X % of revenue generated)

Each indicator has the same weight, so this gives : 

• (15 x € X per meeting = 5 x 10,000 x X % of revenue generated) and (€1,000 = 15 x € X per meeting + 15 x € X per meeting= 30 x € X per meeting)
• That is : X € per meeting = €1,000/30 = €33 per meeting
• And: X% of the income generated = (15 x X € per meeting) / (5 x €10,000) = 1.01% of the income generated

The formula for calculating SDR wages is therefore :

• Variable remuneration SDR = €33 per meeting + 1.01% of revenue generated

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The final word...

Once the commission formula has been established, it can be completed by :

• Adding commission accelerators for out-performance
• Assigning different weights to meetings booked according to the amount of the opportunity or the hierarchical level of the contact person

Although there are a multitude of ways to pay SDRs, it is important to define a commission plan that is aligned with the company's strategic objectives. 

"There is no magic formula for building a good variable pay plan. Instead, there are key principles to keep in mind, and the first is alignment with the business strategy."

Aude Cadiot, Revenue Operations Lead at Spendesk

Finally, to motivate SDRs to achieve their goals and perform, it is essential to give them visibility and transparency in their commissions through commission calculation and management software like Qobra!

As proof of this, 61.9% of employees using commission calculation and management software exceeded their targets, compared with just 30.1% of those using Excel or Google Sheets. (Qobra & Modjo study on variable commissions in France)

"Since we've had Qobra, we've seen between 15 and 20 % improvement on target achievement."

Tomas Hons, GTM Strategy & Operations Manager at Make