By
Amelia H.
August 2, 2023
•
3
min read
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In the sales development department of most businesses, there is one number that dominates all others by order of magnitude—the number of meetings set (usually measured per month)—and the associated price per appointment, which some refer to as cost per lead.
So it comes as no surprise that appointment setting prices, or more specifically, the cost to generate a single qualified meeting or sales opportunity, is of great interest.
Let's take a thorough look at costs (obvious and hidden) that comprise the cost per lead as set by sales representatives in the business. We'll also cover the average costs across industries, company sizes, and various locations in the U.S.
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The amount of expenditure required to obtain a single new lead resulting from a marketing campaign is referred to as the cost per lead or CPL. CPL helps sales teams measure the cost-effectiveness of their campaigns, and it's the number that most sales development representative (SDR) quotas are set to. This is the outcome virtually all sales development managers focus on.
Constructing an inside sales team is no simple feat for even the boldest of souls. And yet there is a dramatic increase in the number of sales development reps hired (64,300+ vacancies as of this writing). The popularity of this go-to-market role and SDR teams built across B2B businesses have been undeniable over the last couple of years: Other similar roles that may use CPL metrics include:
Based on this interest, we can imply that lead generation is going strong, setting the demand for leads, and therefore proving the need to calculate the cost per lead.
Sales Development is hard, grinding work that requires a thick skin and discipline. It’s unsurprising that placing, filling, and then training for a challenging position can also be pretty pricey.
This is one of the reasons that another figure—OTE (on-target earnings) becomes so important. These are the bonuses that keep any given SDR motivated and performing optimally in the face of daily challenges. And that is also why the SDR role is viewed as a training ground for so many other sales roles.
Also, the average life of a SDR is only 1.8 years. When you take into account those same fixed costs of placing, filling, then training SDRs for a role that will have them in a productive capacity for barely two years (1.8 yr tenure – 3.2 month ramp up=1,5 productive years), it places an enormous amount of pressure on hiring managers to get things right.
We've used Glassdoor salary averages and have deliberately left out management incentives, software, or any other information that is harder to pin down. However, if included, these would significantly increase the costs in calculations.
Here are the average costs to hire a single SDR (incidentally, it takes, on average, 42 days to fill an open role), train them, then get that person to a productive state:
$4,129 – Average cost to hire (Society for HR Management)
3.2 Months (Bridge Group 2018 SDR Report)
$47,973 (Glassdoor)
The sum totaled up to seventy-five thousand dollars. (Bridge Group 2018 SDR Report)
$4,581 (InsideSales State of Sales Report)
25%-40% of employee salary (MIT)
Perhaps the easiest way to envision this all taking shape is to create a mythical SDR, with a budget secured at the start of the year. Taking all costs into account for a year: our mythical SDR role created on January 1, would be filled 42 days later (February 11), and then hit full ramp by June.
The total cost before full productivity is nearly $17K ($16,922 to be exact). This is not including any management time nor oversight beyond hiring and training costs that are industry standard averages from reliable sources.
Cost per Lead Formula
Armed with our annual cost of an SDR, we can calculate an average quota.
If we analyze the 2021 Bridge Group SDR Report (specifically the results SDRs show on average across various industries), we can see that the difference between introductory meetings set (9) and fully qualified opportunities (7) is not that drastic.
The similarity of those two numbers can imply that the optimal quota for SDRs is somewhere in between (8). Now that we have the quota and know how many SDRs on average reach that quota (68% according to the same study), we can calculate how many meetings you can expect on a monthly basis.
For the sake of easy math, we’ll round up to 6 meetings per month. This is an average of 72 meetings per year. In practice, this number feels about right when working across sectors and industries with different target audiences, value propositions, and methods of outreach.
Now that we have the needed components, we can actually calculate CPL using this formula:
Note: Cost per lead per industry will vary based on the model used, size of accounts targeted, market maturity, and even the activity focus of your SDR. In this article, we use average numbers with the goal of demonstrating the complexity and extent of resources that are put into producing one converted lead.
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Now that we have all the components of the formula, let's see how much a lead costs. We've divided the yearly costs spent on SDRs by 12, to find a monthly total. The shorthand way to look at this is that company leaders should expect to spend approximately $11K per month in order to get 6 converted meetings. Then, we divided the costs spent by the expected number of converted meetings delivered and got our CPL.
Any marketing or sales leader is intimately familiar with customer acquisition cost. CAC is determined by taking all expenditures spent on procuring a customer. It is then divided by the amount of customers obtained during the time period over which the money was expended. In a simple example, if a company spent $500K in a year and acquired 50 customers in that same year, their CAC is $10,000 per customer.
The CPL formula above would be vital for outbound-centric organizations to calculate CAC in the future. It would also help you to find other costs in the sales funnel (esp. Account Executives, AE’s). At a 25% conversion rate from converted meeting to closed deal, you’d be looking at spending $6,244, plus any AE Expenses (commissions), or other standard sales expenses to generate a single sale.
Conversion rate matters a lot and is greatly affected by the quality of appointments, but the CAC in our scenario has such a relevant range:
This is a handy way to begin to think through the implications of structuring all aspects of your own sales department.
I might also add that the slope of conversion rate % is quite interesting. Once past closing 1 in every 4 deals, there isn’t a dramatic drop in CAC. Especially not in the way there is (for instance) moving from a 5% to 10% conversion rate. Getting one’s sales house in order to ensure a reliable conversion rate % is a noble effort that impacts every sales development motion, albeit indirectly.
As we see, lead generation is not going anywhere, and knowledge of the principles of sales development in the industry and your own company can become an advantage you need so much.
Understanding the baseline costs inherent to any model is a valuable tool for making wise decisions affecting your own go-to market. Averages influencing this figure ($1,822 price per appointment) are worth understanding. Many parts, all moving, contribute here.
Given the nature of how subjective, How much is this lead going to cost? When asked at the outset of any lead generation endeavor, we’ve attempted to put together a purely fact-based view of the topic, diving right into the heart of the matter, and hoping you find it valuable.
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