When it comes to sales planning, the SDR AE ratio is often thrown around as the holy grail, the golden formula that will solve all your woes. But, let's pause for a moment and ask ourselves: Is there really a magic number? (or is it the wrong question to ask?!)
We've covered the formulas behind revenue, which points a lot in this direction, but lets properly dissect why you shouldn't be looking for a ratio when it comes to sizing out an SDR team as part of sales capacity planning.
SDR AE Ratio: A Misleading Metric?
Traditionally, getting the SDR AE Ratio right has been a vital part of planning sales teams. The ratio even features in our sales capacity planning template (as well as every other spreadsheet template out there), but as break free of the spreadsheet limitations and we have a different view of whether you should be using it.
Many businesses operate under the assumption that there is an ideal ratio of Sales Development Representatives (SDRs) to Account Executives (AEs), and there's the attached belief that there's a golden ratio that will maximize sales efficiency and drive revenue growth. But is this really the case?
Let's set things straight: There is no one-size-fits-all SDR AE ratio.
There kinda was back when "growth at all costs" was an appropriate approach, cost didn't matter, and even then it was a suboptimal approach touted by everyone.
The notion of a 'golden formula' is misleading, at best. In reality, the 'perfect' ratio varies widely based on numerous factors, including your sales cycle, business type, growth goals and, most importantly, how much you can lean into marketing.
The real question you should be asking is not about the SDR AE ratio, but rather one of these two questions:
How many AEs can my SDR team support to full utilization?
How many SDRs do I need to fully utilize my AE team?
The appropriate question to ask depends on which team you want to optimise.
Understanding the Roles: SDRs vs AEs
Before we delve in, let's take a moment to understand the roles of SDRs and AEs in your sales org:
SDRs are the frontline soldiers of your sales process, responsible for generating leads and qualifying prospects. They focus on the initial stages of the sales cycle, identifying potential customers, nurturing relationships, and ensuring leads are ready for the next step.
AEs are your closers. They take over once the leads are qualified, managing the later stages of the sales cycle, including pitching solutions, negotiating terms, and closing deals. Their primary focus is on converting the opportunities generated by SDRs into actual sales.
The Challenge of Capacity Planning
The real challenge lies in capacity planning - determining the right number of AEs your SDR team can support, and vice versa, and how that maps against your revenue targets and goals.
This is where top down and bottom up models come into play - If you're still top-down modelling then you don't really have any option but to go with a ratio.
Bottom Up Sales Planning
By approaching revenue from the bottom up however you'll be able to model this, and you start with your lead sources. If your primary lead source is outbound (generated by SDRs), you'll need a larger SDR team to support your AEs. Conversely, if a significant portion of your leads is inbound (generated by marketing efforts), your AEs might be able to manage with a smaller SDR team.
Modelling Sales Capacities
Proper bottom up planning starts with capacities, which needs to primarily focus on three key variables:
The ideal number of open opportunities each AE should work at any given time
The proportion of new business generated by your outbound SDRs vs other opportunity sources
The number of opportunities your SDRs can source per month
By focusing on these variables, you can ensure that you're optimizing for opportunity production, not just headcount. This approach allows for more flexibility and adaptability in your sales planning, making it easier to scale your team and meet your revenue targets.
If you want to see what happens to changes in lead generation, marketing efforts or conversions you might want to start this process with our free revenue scenario planning template
Ditching the Spreadsheet Model: Embracing Dynamic Sales Planning
Traditional sales planning often relies heavily on spreadsheets, which can be cumbersome and limited in their ability to handle the complexities of modern sales operations.
Dynamic sales planning platforms enable you to model various scenarios, track real-time data, and adjust your plans as market dynamics shift. Whether it's a decrease in deal sizes, an increase in deal lengths, or changes in conversion rates, these tools can help you stay on top of your progress and ensure your plans are always pointing you in the right direction.
In conclusion, the SDR AE ratio is not the 'golden formula' it's often made out to be. The real key to sales success lies in asking the right questions, understanding your lead sources, and leveraging dynamic sales planning tools. By focusing on opportunity production rather than headcount, you can optimize your sales process, drive revenue growth, and set your business up for success.
Here at Clevenue, we're on a mission to revolutionize sales planning. We believe in a simpler, smarter approach that helps businesses understand the dynamics of growth and build plans that work – no matter what the market throws at them.