Should LDRs have sales quotas? Sure, LDRs (Lead Development Representatives) have quotas, but most are around appointments or qualified opportunities. So why shouldn’t LDRs have MRR-based quotas?
It’s a question I asked myself at a previous startup, so I decided to find out by implementing and testing it. To be frank, the result was both effective and unusual. Be warned, to build around this interpretation of a sales process requires testing and buy-in across all stakeholders in order to figure out the right fit for your organization, which will take some work.
Now that the disclaimer is out of the way, allow me to paint a picture of how we got to MRR quota-carrying LDRs and how this may fit into your business…
First, look at your sales business as a funnel. At the top of the funnel are lead sources: marketing (inbound), channel (inbound), cold prospecting (outbound). The middle of the funnel is your closing team. Some companies have their closing team specialized by lead source, which may not be the case depending on your business. At the bottom of the funnel is your support team, which may mean a hand-off to an Onboarding Specialist or to your support forums, again, depending on your business structure.
Let’s focus in on outbound prospecting or what is referred to as LDRs. One of the most prominent sales innovations in this age of SaaS is specialization, most profoundly explained by Aaron Ross in his groundbreaking sales book called Predictable Revenue.
The book cover above says it all. Many of us are probably experiencing the middle portion of the graph in our startups right now – inconsistent performance, a flat growth trend, just not very “SaaSy”. Specialization is centered around a simple concept that contradicts the traditional sales mindset, which says “to close more deals, we need more closers“; when the truth is, to close more deals, you need to create lots of good opportunities. The funny thing is, great closers are typically not great at creating opportunities, which they shouldn’t have to be, because they are closers. But if the way to true growth is through increasing the amount of good opportunities, and your closers aren’t the best at prospecting, then your LDRs could be the most valuable part of your team.
Yes, marketing and channel are outstanding at bringing in leads, but the Cost of Acquisition (CAC) is typically much higher. Also, competition can increase in advertising, putting a strain on your advertising share of voice and overall marketing budget. Furthermore, channel relationships are often non-exclusive, so while a partner may love you, you’re probably not the only person at their dinner table.
Obviously, this all depends on the competitive environment for your startup; I am merely sharing this as a thought starter. Clearly, a diverse and broad lead source is necessary in SaaS; you need it all and you need to be great at it all. However, finding a way to enable and compensate LDRs well is probably the best strategic thing you can do for the sustainable growth of your sales organization.
At one of my previous startups, I walked into a sales culture where sluggish sales performance was the norm. They couldn’t specifically identify why there had never been sustained growth at any of their sales offices, although their revenue model changed so frequently that this should not have been a surprise (this is not unusual at startups). But based on the new sales team compensation structure I walked into and what I knew about the industry, I knew low performance did not have to be the standard.
So when I came in, we were pretty much attempting to put our sales growth on steroids and speed at the same time with some pretty lofty sales goals. To try and mitigate this, one of the first things I suggested to my stakeholders was to initiate an LDR team. While this had been attempted previously with little success, I knew it had the potential to be successful, but would take some serious work. At the very least, this meant coaching the team on how to effectively cold call, engage the customer on their terms and then build a value proposition around their needs through the closers.
We first started the LDR business with a quota based on opportunities sent, and paid LDRs based on a sliding scale that was at its highest percentage when they hit full quota. Basically, LDRs got paid when deals closed, and were paid even better on those deals when they hit their appointment/opportunities sent quota. Initially, LDRs sent their leads to closers in a round robin fashion, which is traditionally the same with most LDR organizations, as LDRs are paid to send over opportunities. However, the level of quality of those opportunities was and has always been the shaky part, at least in my experience. I mean, isn’t it the point of LDRs to get more opportunities that convert into deals, not just a bunch of low-quality opportunities?
Well, in this initial structure, we ended up getting more of the latter. Our LDR team was so focused on hitting their appointment quota that there was little concern about whether or not deals closed, which was pretty surprising to me, since they were only paid a commission if at least some of those opportunities closed. Fortunately, deals did close, and this first iteration of the LDR team set a good enough foundation to keep building and expanding until they quickly accounted for 40% of our new revenue source.
Unfortunately, a side effect of the LDR team being primarily focused on the quantity and not quality of opportunities, is that it became a scapegoat for closers who were not hitting their numbers. This happens a lot, especially in organizations that do not enable their closers to self-prospect. In this case, there were some viable concerns, as the opportunities that were being created, while saving the closers from self-prospecting, were also wasting their time; and wasted time on bad deals is worse than no opportunities.
So, we needed to do another iteration of the LDR team, keeping the good and fixing the bad. But how do you fix this problem? Some thought we should try and really hone-in on what a “good opportunity” looks like, keeping the quota the same for opportunities but focusing in on a subset of these opportunities, the higher-quality ones. Well, that then begs the question, what is a “good opportunity”? That’s when hell nearly broke loose.
I was not interested in a journey down a rabbit hole that would add to confusion and subjectivity, so I recommended we replace the appointment quota with an MRR one, with the ultimate goal being for LDRs and closers to work together on deals to help make each other successful.
It looked like this:LDRs had an MRR quota (focus not on opps but on how much revenue your business generated). We still wanted to see a lot of opps, but that’s not how LDRs were primarily measured (this relieved the pressure to just put up fuzzy opportunities, thereby wasting a closer’s time). We removed round robin, since now that they have a quota, why should we tell them who to send their precious leads to? (This fosters camaraderie between LDRs and closers, simply removing the requirement to send leads made LDRs and closers work together).
Upon rolling this out, there was definitely an adjustment period. It literally rocked the world of some reps, which really shows how focused people were on just getting appointments and not qualifying for good opportunities.
When the dust settled, two things evolved: our numbers, which basically doubled with nearly the same team size and nearly a third of the opportunities, and eventually a free market voting system for the best closers on the team. To clarify, I believe in the free market, with little to no intervention, if possible. Since LDRs decided to whom to send their leads, it also meant that if you as a closer didn’t get LDR leads, a whole group of people did not respect your closing ability.
While harsh, it is the truth, which leads to the following innovation I discovered with this change: in this system, you can do more with fewer closers. Monitor the effectiveness of your closers, but keep it streamlined. Ramp up LDRs and feed your closers like there’s no tomorrow, then pay your LDRs well based on the opportunities that close, and the two should find a way to work together over time that makes everyone happy and wealthy. A bonus on this process is that your LDRs work intimately with your closers, so when you do need to ramp up Closeville, you should have a bevy of talent waiting for the opportunity.
Feel free to add questions or comments about this. This is not a perfect solution, but I’m hoping you may find it interesting enough to either try it or pull some ideas from it. Either way, I’m happy just sharing what I believe is a noteworthy concept for this industry.