Building a team of dedicated lead development representatives (LDR) to increase qualified opportunities has become a best practice for several reasons:
- It drives efficiencies at a lower cost for the sales organization.
- It allows companies to leverage social media and marketing to generate more inbound inquiries.
- Sales reps can focus on selling rather than generating new opportunities.
- It works.
If you are considering adding lead development reps to your team, or already have them, the question is: How do you compensate them?
Benchmarks suggest that the total sales compensation (base+variable) for an LDR is $75-85K with 40-50% representing variable incentives.
Here are 3 tips – along with the pros, cons, and best practices – of determining lead development variable compensation:
1. Quantity & Quality – If the LDR role exists to generate more opportunities for sales, this seems obvious. It is imperative that the leads are also high quality when they are given to sales.
Pros: If done properly, a world class lead development rep can produce as many as 20 leads per month. The ROI for a role that produces 240 leads per year with a 20% conversion rate can be significant (see fig. 1).
Cons: Many companies don’t clearly define what a “lead” is, so there is a risk that anyone who fogs a mirror gets sent over the fence to the sales team. In this case, your close rate may drop as much as half, yet you are still paying for leads.
Best Practice: Create measurable definitions of what a “qualified lead” is to ensure the pipeline is filled with real opportunities. Using BANT (Budget, Authority, Needs, Timing) is an example of how to do this. This component of the plan should be 55-65% of the variable compensation.
2. Revenue Generation – Incorporate a component of variable compensation that depends on revenue coming into the till.
Pros: Your compensation plan incents the behavior of your lead development team to produce the highest quality leads. If they get paid when the deal closes, they will do everything in their control to send the best leads to the sales team.
Cons: The LDR has little-to-no control over the sales rep’s ability to close the sale. Holding payment until this point can create a culture of apathy if the sales team isn’t bringing deals across the finish line.
Best Practice: If you are a believer that the team gets paid when the company does, consider incorporating recognized revenue into the variable compensation component. A best practice is to make this 25-35% of the overall variable compensation.
3. Management By Objectives (MBO) – A recent study published by Hubspot showed that increasing amounts of inbound lead generation comes through blogs, LinkedIn, Twitter and Facebook. It’s no longer acceptable to compensate your LDRs for “banging the phones.” Increasing the brand of your company through these channels is critical. Creating an MBO around these components is a great way to improve your company’s online brand.
Pros: New capability acquisition is a predictor of future income. By improving your LDR’s skill set, they will improve their results. Increasing their online network will generate more inbound leads.
Cons: Measuring this can be subjective unless the criteria is specific. Also, if not executed properly, the content you present to the online world may have adverse effects.
Best Practice: Create a social media strategy for your LDRs that includes specific objectives (blogging on your products), a cadence (monthly) and measures of success (increasing page views). In addition to other MBOs, this should be 10-15% of the variable compensation of your LDR.
This graph is a visual representation of how you might break out the variable compensation components for your lead devlopment rep.
If you are leveraging lead development reps to improve the quantity and quality of leads going into your opportunity funnel, make sure you have a sales compensation plan that produces results.