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1 100 % 90 % How to Qualify 80 % More Leads with a 70 % Sales Development Team 60 % 50 % 40 % 30 % 20 % %

2 Introduction Regardless of your organization or industry, marketers should always pay attention to batons that cross functions. That s because whenever two or more departments share ownership and responsibility, conditions are ripest for problems. This is especially true in the handoff between Marketing and Sales. So why not add a guiding step in between? Combined with the best practices we ve written about (such as agreed-upon lead definitions, sophisticated lead scoring, and handoff processes), we believe the secret to a truly high-performance revenue engine is the effective use of a Sales Development team. At Marketo, we hire Sales Development Representatives (SDRs), who have one exclusive focus: to review, contact and qualify Marketinggenerated leads and deliver them to Sales Account Execs. The most successful lead generation/ lead management programs have dedicated phone resources whose sole job in life is to take raw inquiries and qualify them before they are sent to Sales. Craig Rosenberg Founder, Funnelholic Media

3 Your Sales Development Team So why is a Sales Development team so important? The answer is simple: revenue. In fact, industry standard is to get between 25% and 50% of new business from your team of SDRs. At Marketo, we expect to see a return on investment in our SDRs of at least 20x their salaries, and we usually see higher ROI than that. Tempted to give it a shot? Before you dive in, make sure you re avoiding these pitfalls at the gate: 1. Lack of process. Don t start building your SDR team without a plan. 2. Lack of commitment. You commit to the Sales Development team by outlining clear goals for your team be invested in their success, and being crystal clear about how success is defined. 3. Misplaced focus. Let the day-to-day operations be secondary to your larger concerns. Don t focus on how many calls your SDRs are making, or the number of s sent. Even compensation and incentives, while important, shouldn t be your primary focus. So what should you focus on? Here are the three most crucial parts of putting together your Sales Development team: 1. Bake SDR revenue into your equation. What ROI do you expect from your team? Make that number transparent, and hold the team accountable to it. At many organizations, the Sales Development team s contribution is just gravy but that s not setting anyone up for success. At Marketo, we have clear revenue goals in place, and our SDRs are well aware of those numbers. We also include SDRgenerated revenue in our sales forecasting and revenue forecasting. 2. Hire the right reps. If you re hiring an SDR because he s your neighbor s son, or replacing qualified reps with interns, you re asking for disaster. We ll get into more detail about hiring SDRs later in this ebook. 3. Hire the right leader. Most SDR managers out there are tactical, rather than strategic meaning that they re focused on small details, rather than high-level strategy. Who cares about 65 calls a day if you aren t calling the right people? The number of hours you put in is irrelevant if you aren t hitting your number. It s tempting to simply promote a high-performing SDR, but you need leaders who can truly perform high-level analysis. We expect to see a return on investment in our SDRs of at least their salaries

4 Inbound SDRs vs. Outbound and Targeted Account SDRs There are two distinct types of SDRs: Inbound (IB) and Outbound (OB). Inbound SDRs are, by definition, 100% focused on leads coming into your database. This includes inbound calls, website hits, responses to marketing campaigns, events, and more. IB SDRs see the highest conversion ratios, because they re talking to prospects who have actively reached out to your company. We find that after we ve met with an IB SDR s prospect, conversion rates are around 75% to 85%. and opting contacts into the nurture cycle. In many cases, this will drive contacts to our website, webinars, and events, which in turn will create inbound leads. TA reps follow up on those leads as well. After a meeting, we typically see conversion rates of around 20% to 30%. To give you an idea of how SDRs typically divide their time, here s a chart created by The Bridge Group, who interviewed nearly 200 B2B technology companies about their Sales Dev teams: Outbound SDRs, on the other hand, are focused on targeted accounts designated by the sales team, typically segmented by size and industry. In fact, at Marketo we call these our Targeted Account (TA) SDRs. Our TA SDRs are responsible for mapping out their targets Does your Sales Development Team focus more heavily on inbound qualification, or outbound prospecting? 28 % 28 % 16 % How SDRs Divide Their Time 12 % 12 % Approximately 50/50 Heavy outbound prospecting Heavy inbound qualification Lean inbound qualification Lean outbound prospecting Source: The Bridge Group Survey

5 How Sales Development Reps Drive Revenue Many people expect their Sales Development team to drive conversions rates converting Marketing-Qualified Leads (MQLs) into Sales- Qualified Leads (SQLs), or converting SQLs into opportunities. But the end goal should always be to drive revenue. What percentage of those opportunities close? What percentage of your company s new revenue is associated with your sales organization? As we ve mentioned, industry standard is to get between 25% and 50% of new business from your SDRs (as opposed to install base). Thing to think about: If you have 10 people on the team who are costing 100k each, you want to get 17-21x back. So how do you get that ROI? Here some many ways a thriving Sales Development team will lift your bottom line. Consistent Follow Up Marketers live and die by whether their MQLs turn into opportunities. So when you turn an MQL over to sales, you don t want a rep to call once, leave a voic , and drop the lead. That s where your IB SDRs come in their sole responsibility is to make contact with your leads, overcome objections, make sure they are a fit, and get them connected to a Sales Account Executive. which converted 40%? (Answer: the client with a Sales Development team converted eight times the number of leads.) Faster Lead Response After a lead submits an inquiry on your website, the faster you respond, the better. According to a Lead Response Management study, the magic number here is five minutes. A five-minute lead response means you re four times more likely to qualify that lead than after a 10-minute response, and a staggering 21 times more likely to convert than after a 30-minute wait. And who do you think is more likely to contact a lead within five minutes: a dedicated IB SDR, or a quota-carrying Sales Rep? This chart, created by Velocify, demonstrates the importance of fast follow-ups on leads: Impact of Speed to Call on Lead Conversion Rate 1 minute 2 minutes 3 minutes 30 minutes % improvement in conversion rate, by time elapsed November % 160 % 98 % 62 % Craig Rosenberg illustrates this point with a story about two of his clients at Focus: both get the same leads, but one passes the leads directly to Sales, while the other has an optimized lead qualification group. Can you guess which one converted only 5% of their leads, and 1 hour 5 hours 24 hours 36 % 24 % 17 %

6 On-Task Sales Reps You want your expensive salespeople closing business with qualified customers, not educating raw leads, talking to people who don t want to talk to them, or wasting time with tire-kickers or other unqualified prospects. It makes much more sense to have low-cost SDRs talking to leads and passing only the best to a rep. When sales reps can focus on closing business with qualified decision makers, the economic gains are astounding. According to some industry rules-of-thumb: A 5% increase in selling time can yield a 20% increase in revenue; a 1% increase in pipeline value can yield a 25% increase in revenue; and a 15% decrease in the length of the sales cycle can yield a 30% increase in revenue. Humanized Lead Nurturing Whether or not leads are sales-ready, SDRs can use every point of contact to nurture relationships with those leads. The more leads your company talks to, the more opportunities you have to offer personalized thought leadership and value around a lead s individual pain points, and to cultivate future demand. A team of SDRs expands your reach. Superior Data It s an all too common complaint that salespeople don t bother updating information about the leads in their CRM tool but it s much easier to have SDRs enter proper information. This means the marketing team gets better data, and can use that information to optimize future lead generation efforts. Improved Revenue Cycle Analytics By adding a stage between Marketing and Sales, you ll be able to track conversion rates and other key metrics in a more granular fashion. This means that when problems arise, you can isolate and resolve causes faster and more thoroughly. This is much more difficult if you ve lumped together the responsibilities of qualifying and closing leads. Focus on High Value targets Our TA SDRs help Marketing focus on high value targets, which are frequently very complex and hard to market to. They require a human touch to ensure the right contacts are identified so they can be included in the proper nurturing track. We take a top-to-bottom approach, which means our TA SDRs might first reach out to the target s VP. If the VP sees some initial value in your product, he or she will give your name to the next in command. If you work from bottom-to-top, on the other hand, you miss an opportunity to establish communication with the final decision-maker. Talent Development for Sales Your SDRs can play an important role in your sales talent pipeline, effectively serving as your farm team for future quota-carrying reps. This gives you the opportunity to bring on sales talent that already understands your business, has a proven track record in your culture, and knows your processes and cadence on day one. In a world where one in three hires can prove to be misses, an SDR function can greatly reduce your hiring risk.

7 The Sales Development Process When it comes to creating an effective Sales Development team, lack of process is one of the most common problems. Once you ve decided to build a lead qualification team, hundreds of decisions about management will immediately surface. Here are some of the most common questions organizations ask, followed by our best practices and advice. When Should Marketing Pass a Lead to the SDRs? If Sales Development were an engine, lead scoring would be the oil. It probably doesn t make sense to call all your prospects, so we recommend that you use lead scoring to identify the best possible leads for your team. At Marketo, we score our leads in three ways: a fit score quantifies how well a person matches our ideal target; an engagement score accounts for a lead s level of interaction with Marketo s content and thought leadership; and a buying intent score tracks when a lead demonstrates key purchase indicators. Those three scores then interact with each other to determine who we pass to the sales development team as leads. With these rules in place, we end up passing about 10% of our new names over to Sales Development as leads. We also pass about 4% of the active, qualified prospects already in our database each month. Together, this translates into about 2,000 MQLs per month. When Should SDRs Pass a Sales Lead to an Account Executive? Your SDRs lifeline is how well your enterprise defines a sales-ready lead and mobilizes around that definition; only true alignment around a unified definition will position your SDR program for continued victory. Here is some common criteria companies use in their definition of a sales-ready lead: Target company. The prospect must work at a company that feasibly could purchase your solution. Look for businesses similar to those who have already purchased solutions like yours. Right person. Ideally, your contact should be able to make the decision, or at least have access to someone who does, like a VP or Director (e.g. access to power ). Relevant pain. Does the decision maker feel financial pain? If you aren t talking to the decision maker, ask: Who else experiences this challenge, besides you?

8 Defined timing. Is the prospect willing to evaluate your solution in a defined time period of time? If so, and there a specific next step, such as a discovery call or demo? (When you re working a highvalue, targeted account, timing is less important. In many cases, targeted accounts have been set based on cold calls, so there s no designated timeframe or budget.) How Do You Determine Which Leads are Accepted by Sales? Once a lead meets your criteria for sales lead, you have several options for managing the workflow. Some companies have their SDRs create early stage opportunities, and then track when sales reps move those opportunities into subsequent stages. Marketo takes a simpler approach: once an SDR qualifies a sales-ready lead, we assign it to a Sales Account Executive who then converts it into an opportunity. In both cases, the sales rep will typically conduct a discovery call before accepting the lead and moving it forward. At Marketo, Account Executives must create an opportunity if the discovery call generates any action items or next steps for the sales rep. How Should I Allocate Leads to SDRs? The three main options are (1) assign leads randomly or via round-robin assignment, (2) put leads into a queue, and let SDRs grab them first come-first serve, or (3) assign each SDR to a territory. At Marketo, we pair Targeted Account SDRs with geographic territories, which are associated with a specific Sales Account Executive. To promote alignment, we maintain an SDR to AE ratio of no more than 1:4, and also encourage SDRs to sit in on AE discovery calls (and vice versa) for educational purposes. IB SDRs are assigned leads in a round-robin, as opposed to a territorial approach, ensuring even lead distribution. The round-robin itself is divided into East Coast and West Coast accounts, as the two time zones require different working hours. What Kind of Conversion Rates Can I Expect? This depends heavily on how you define the stages of your revenue cycle, but we recommend placing your funnel s key pinch-point right at the hand-off from an SDR to sales. This means you have your relatively inexpensive SDRs call a relatively large number of leads (making sure you don t miss opportunities), but only highly qualified leads are given to the expensive Account Executives. In fact, a recent SiriusDecisions study shows that this kind of strict lead qualification can drive improved sales results. At Marketo, our IB SDRs pass 7% of all leads to the sales team as Sales-Accepted Leads, and sales accepts and converts a whopping 80% of them into opportunities, turning them into SQLs. Conversion ratios for TA SDRs are much lower, but we still expect a conversion rate of 20%. This means our Account Executives can be confident that SDRgenerated leads are high quality, which is critical to ensure good follow-up. For this reason, it s also a good idea for SDR managers to review qualified leads before passing them to sales at least for new SDRs. Also, be sure to track conversion of qualified leads into opportunities by SDRs over time, since this is a key metric of relative SDR performance.

9 Should Sales Development Report to Marketing or Sales? According to Phone Works, Sales Development teams report to Sales about twice as often as to Marketing. At Marketo, we ve used both processes internally initially, our SDRs reported to Marketing; now they report to Sales. As you would expect, there are advantages to both approaches. When Your SDRs Report to Marketing As we ve repeatedly mentioned, fostering alignment between Marketing and Sales is one of the biggest challenges an organization can face. This is also the primary advantage of having your Sales Development team report to Marketing it closes that loop. Here s a full breakdown of this approach s benefits: Aligned incentives. At the end of the month or quarter, Marketing and Sales Development are concerned with leads and pipeline creation, while Sales cares about whether or not deals have closed. It s in your best interest to align these incentives up the SDR management chain. Streamlined measurement. When Sales Development reports to Marketing, it makes it easier for Marketing to be measured and compensated for creating sales pipeline. This is because Marketing is responsible for everything before pipeline (e.g. they are only one step away from their goal). When Sales Development reports to sales, it puts Marketing s key metric (sales pipeline) two steps away from their control. One throat to choke. From a management perspective, putting Marketing in charge of sales pipeline development can do wonders for eliminating finger-pointing. Put another way, if Marketing is responsible for lead follow-up, you can say goodbye to we sent over X leads; they just didn t follow-up well. Better closed-loop feedback. Increased synergy between Marketing and Sales Development means increased transparency around lead quality feedback, which is essential for refining the process. They play by the same rules. Like B2B marketing, lead qualification is a number and metrics game. Why place a golf ball on the tennis court when it s intended for the green? When Your SDRs Report to Sales The diagram above illustrates how our IB SDRs focus their time. With inbound leads, we re dealing with a lot of unknown factors leads are often handed over from Marketing before we have much concrete information. Our job is to prioritize. The entire circle represents the list of leads handed over by Marketing. The blue section represents the leads within that list that are prioritized by SDRs. In the purple section are duplicate leads, fictitious leads, leads we ve already talked to, and competitors. SDR Prioritized Leads Marketing Leads

10 TA SDR Cold Calling Target Accounts TA SDR Following Up on Leads This diagram represents how our TA SDRs focus their time. With targeted accounts, we don t have to prioritize our leads they re all prioritized. The blue circle represents all of our targeted accounts, and the purple circle represents leads handed over from Marketing. Our TA SDRs contact everyone in the blue circle, but the gold is where the two circles overlap. In the overlapping area, our TA SDRs aren t cold calling (they re following up on leads who have already reached out) and they re contacting leads who they know are qualified. Marketing Leads This is why you might have your SDRs report to Marketing, rather than Sales. One of the most important goals of alignment between Marketing and Sales is to make that overlapping space bigger to get the marketing team s inbound efforts to attract targeted leads. It s the responsibility of TA SDRs to identify those targeted contacts and make sure they re being nurtured by Marketing. Because the sales team lives and breathes those targets, they re the best at identifying them. The issue isn t whether your Sales Development team reports to marketing or sales; the issue is communication. If you report to sales and you don t communicate well to marketing, you ll be really good at going outbound, but terrible at responding to inbound. If you report to marketing, and you don t communicate well to sales, you ll be good at using your leads, but bad at going outbound to generate those leads. Truth lies in the middle. Ken Krogue President and Founder, InsideSales

11 Staffing Your Sales Development Team So now that you ve got your processes in place, it s time to start hiring. When it comes to hiring, compensating, and training your Sales Development team, here are the best practices we ve established at Marketo. How Many SDRs Do I Need? To figure out how many SDRs you ll need, you need to know their average workload capacities. You ll have to calculate workloads for your IB SDRs and your TA SDRs very differently. Inbound SDRs The cost of calling an incremental lead that is not ready to become a Sales lead is very low, especially when compared to not calling a qualified prospect and missing out on a deal. This suggests that you should set your lead scoring bar low enough that your SDR team calls a relatively high number of people. You ll want to bias towards more SDRs than less. Depending on your Average Selling Price (ASP), an incremental SDR will easily pay for him or herself by uncovering just two or three incremental deals every month. The average number of leads each SDR can handle depends on your follow-up process. Marketo s rigorous four-step process involves multiple calls and s over a three-week period. We base our expectations of each SDR on the following assumptions: Each SDR can complete 40 to 60 meaningful activities each day (50 on average) There are 20 business days a month SDRs work their inbound queue about two-thirds of the time. (The other third comprises outbound prospecting, training, inviting prospects to events, etc.) Marketo multiplies these numbers (50 x 20 x 2/3) to gauge how many meaningful activities each SDR should complete every month. Then we divide that number about 650 by 2.6 to account for how many times an SDR will call each lead on average. These calculations form our expectation that each SDR can work 250 quality leads per month. Of course, if your follow-up process is lighter, you may find your expectation more in the range of 400+ leads per SDR per month. To get slightly more granular, The Bridge Group asked a group of Sales Dev teams how many phone calls their reps typically make per day. They found that, on average, sales reps complete about nine conversations a day. How Many Conversions a Sales Rep Has Per Day Source: The Bridge Group 37 % 18 % 26 % % 9 % <

12 Targeted Account SDRs To decide how many accounts our TA SDRs can handle, we don t calculate based on numbers of activities; we look at the ratio of SDRs to quota-carrying Account Executives. The ratio can vary between 1:1 and 1:4, depending on the maturity of the organization or product space. Startups dealing in new technology require a lower ratio for two reasons. First, the Sales managers they hire will typically exhaust their portfolio in the first few months and need a dedicated TA SDR to fill their calendar. Second, new and disruptive technology will require a focused TA SDR, whose job is to conduct evangelical conversations with multiple folks in the organization to identify the right prospects and early adopters. Marketo looks for the same characteristics in prospective TA SDRs, with a few additions: Organizational skills 2-5 years phone experience or equivalent non-technical sales experience Excellent written communication Finally, make sure candidates conduct themselves well on the phone. We will typically do a role play with all finalist candidates to get a sense of their skills. How do they handle objections? How well do they close? It s amazing how many applicants who look good on paper can t handle a simple role play. How Can I Hire the Best SDRs? Where to Look LinkedIn is an excellent resource for finding qualified Sales Development candidates. Organizations like the Telebusiness Alliance also provide valuable networking opportunities. Search for candidates outside your industry, and be wary of serial SDRs that move from company to company every year or so. What to Look For Marketo looks for the following characteristics in prospective IB SDRs: A college degree High learning index fast learner, picks things up quickly Coach-ability responds to feedback 6-12 months phone experience Competitive nature eager to learn and win. Sales DNA solid internships and leadership positions in sports, clubs, fraternities/ sororities, etc. Our SDRs almost always come from an athletic background, but they also have to have a knack for customer service. People who have played sports are used to being measured by numbers they re motivated to hit their goals, just like athletes are motivated to score points. Ken Krogue President and Founder, InsideSales

13 How to Test A candidate s ability to quickly absorb information is hard to verify, as is a candidate s ability to be coached. Luckily, you can actually test for both of these traits during the interview process. At Marketo, we test for these traits in four back-to-back interviews. incentives based on multiple factors most commonly closed-won opportunities combined with the number of leads/opportunities passed and accepted: How is Incentive Compensation Calculated? Source: The Bridge Group If we want to test for information absorption, the first or second interviewer will describe the position, the product, and the competition in great detail. The third and fourth interviewer will question the interviewer, determining how much he or she has retained. Closed: Won Opportunities Appointments Number of leads/opps passed 26 % 36 % 53 % If we want to test for coach-ability, the first interviewer will coach the candidate in a specific area. For example, if the applicant s answers are too long winded, or they don t answer questions directly, the first interviewer will supply that feedback. The second and third interviewer will then observe whether the candidate improves in subsequent interviews. How Much Should I Pay My SDRs? In 2011, Phone Works reported that the average SDR s base salary was $55k, and total target compensation averaged $85k. These figures account for SDRs focused exclusively on inbound lead qualification and those whose purview also includes outbound prospecting. Typically, inbound-only SDRs receive less compensation than TA SDRs, who might earn closer to $100k if they exceed their targets. Number of leads/opps passed and accepted Activity (calls, connects, etc.) Other The survey also found that for companies basing SDR incentives on a single factor, a rep s number of leads/opportunities passed and accepted was the most common basis. 9 % 7 % 9 % When it comes to incentive compensation, The Bridge Group s 2012 survey of sales teams found that the majority of teams (56%) calculate

14 How Should I Train my Lead Qualification Team? Marketo trains SDRs much in the same way we train our Sales reps: we use the same message, training tools and rely heavily on role play scenarios. After about a month, we assign SDRs to a territory and set quota thresholds. Once an SDR is live, it s a good idea to listen in on or record their calls for progressive coaching purposes. Marketo s open environment also encourages continued training. Instead of cubes, our SDRs sit together in a bullpen. This setup facilitates collective problem solving and sharing of best practices. Of course, it s essential to have advanced noise canceling headsets to make this model work! Outsourcing SDRs Though many good agencies exist, Marketo houses its team of Sales Development Reps internally. The reasons for our decision include: Flexibility. An in-house SDR team allows you to constantly re-prioritize to keep pace and stay ahead. Imagine how much more time you would spend coordinating with an outside agency if you wanted to focus the SDRs on calling for a particular campaign this afternoon. Closed loop feedback. When the marketing team and SDRs live in the same office, you have uninterrupted access to more accurate feedback on lead quality. This can help optimize your lean, mean, marketing machine. The price is right. It s almost always cheaper to hire in-house when you have sufficient lead volume and the resources to hire and train the right SDRs. Hire from within. This is the same point mentioned above. Today s in-house SDRs are the farm team for your future highest earning Sales reps. Training should end up in an easy-to-read playbook that SDRs can reference later. Another great best practice is to have new SDRs listen to experienced ones on live calls. When onboarding SDRs, you should require at least 8 hours of call monitoring. Craig Rosenberg Founder, Funnelholic Media

15 Conclusion There are many benefits to building a high-performance lead qualification team, but many people are left with one question: Can t I just use marketing automation and lead scoring to automate this? Marketing automation and lead scoring are critical marketing functions, but they can never completely replace the human touch in lead qualification. You want to make sure every single lead Marketing passes to Sales is as qualified as possible, and no automated system, no matter how perfectly designed, will do this as well as a human. Human interactions with leads also give you an opportunity to move the relationship forward. This means your SDRs should make sure your leads aren t treated as blank faces to be simply questioned, qualified, and harvested. Instead, your SDRs will take the time to help each lead, offer them value, make a positive impression, create future demand, and become a trusted adviser.

16 Marketing Software. Easy, Powerful, Complete. Marketo provides the leading cloud-based marketing software platform for companies of all sizes to build and sustain engaging customer relationships. Spanning today s digital, social, mobile and offline channels, the Marketo solution includes a complete suite of applications that help organizations acquire new customers more efficiently, maximize customer loyalty and lifetime value, improve sales effectiveness, and provide analytical insight into marketing s contribution to revenue growth. Marketo s applications are known for their breakthrough ease-of-use, and are complemented by the Marketing Nation, a thriving network of more than 200 LaunchPoint ecosystem partners and over 40,000 marketers who share and learn from each other to grow their collective marketing expertise. The result for modern marketers is unprecedented agility and superior results. Contact Marketo: MKTO blog.marketo.com

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