Should You Hire An Outsourced SDR Agency?

Summary

Outsourced SDR agencies have gotten a lot of negative press in the last few years, and some for good reason. SaaStr ran a LinkedIn poll surveying over 1200 people back in 2023, with only 7% of respondents sharing that they closed a significant amount of revenue using them.

While it’s undeniable that there are many low quality vendors in the market, it’s still possible to get a great return on investment using outsourced SDRs. By properly vetting vendors, exercising a high level of internal due diligence, and adding safeguards around the engagement, outsourcing sales development has the potential to be a more profitable strategy than building in-house.

What you’ll learn from this article.

1. The biggest and most common advantages of outsourcing your SDR team
2. If you decide to hire one, what you should consider as you identify and vet potential vendors
3. Questions to ask during the vendor selection process 

Before you read.

I want to be clear on something, I write this objectively and have no partiality on whether or not you chose to work with an outsourced SDR agency. I have clients that have successfully used both models. The right decision for you is 100% dependent on your unique situation and the quality of the agency you hire.

Benefits To Outsourcing Your SDR Program

Time Not Spent Worrying About Sales Development

The most obvious benefit to outsourcing your SDR program is that you’ll spend less time on sales development (if you pick the right vendor). While the SDR model can pay off, hiring, training and coaching a team of new SDRs takes a ton of energy away from other value adding initiatives.

Speed To Ramp

If you choose a great vendor matched to your industry, region and sales approach, (plus if they have experience growing similar companies), chances are they’ll ramp much faster than a new, in-house SDR.

Cost

Given the cost of a full time, W2 SDR, many outsourced SDR firms are much cheaper than hiring in-house when making a 1 to 1 comparison. 

Technology 

Many SDR agencies already have a robust tech stack to store, enrich and conduct outreach on your target accounts, meaning you may not have to bear the burden of these costs.

Costs & ROI Considerations

Calculating Cost

As mentioned above, hiring an outsourced SDR is generally a lower cost strategy compared to hiring an in-house one. As of July 29th 2024, the average SDR OTE (On-Target-Earnings) is $85,000 according to RepVue. This doesn’t account for the cost of employee benefits (typically 30% or more of total employee costs) and technology subscriptions (CRM, SEP, Data enrichment, Dialer, etc).

With lower costs being a top value point for many agencies, it’s common for a single outsourced SDR to be 20-50% cheaper than a full time employee. Not accounting for other factors, it seems like a no-brainer to fire all your SDRs and hire an agency.

Calculating ROI

But to perform a real head to head comparison between agencies and full time employees, other factors such as ACV (Average Contract Value), SQLs (Sales Qualified Lead) Per SDR, and Close Rate must be accounted for.

The Bottom Line

If an outsourced SDR can maintain or exceed the same sales efficiency metrics as their full time counterpart, the choice is obvious, fully outsource the function. But using our In-House VS Outsourced SDR Program Calculator featured below, we discovered that even the slightest drop in sales efficiency makes the math break and invalidates the case for outsourcing.

For Example

Here’s a hypothetical scenario of two teams, one in-house and one outsourced, both with 5 reps and identical sales efficiency metrics. Obviously, due to the lower costs of outsourcing the ROI multiple and net profit is greater than an in-house team.

But after adjusting the in-house SDR close rate from 10% to 12% and increasing ACV from $50,000 to $55,000 (both realistic if higher quality meetings are sourced), the in-house team wins with a $710,000 higher net profit*. 

Get a link to the calculator here.

Offshore and Nearshore Agencies 

Mainly because of the lower cost, many companies choose offshore agency partners when outsourcing their SDR programs. 

A disclaimer: This is a very contested topic and my opinion may come off a bit insensitive, but I couldn’t write this article in good faith if I weren’t completely honest with you as you navigate this important decision. 

Nothing written here is an absolute and there are, of course, plenty of outlier cases. However, I'll share anecdotal accounts from helping my clients implement outsourced SDR teams, and my own experience as an SDR leader.

The hard truth: If you decide to hire outsourced SDRs outside of your home country or region, there is a high likelihood that cultural, language, accent barriers will hinder their ability to connect with your target market, ultimately limiting their success. At least 50% of the outsourcing failures I’ve seen across our clients were caused, or at least partially influenced, by the inability to navigate the cultural differences between the vendor’s reps and the markets they were prospecting into.

This issue isn’t limited to cold calling; it's also apparent in email and LinkedIn messaging.

I want to be clear, this applies to all companies no matter where you are in the world, not just those in the United States. There are vast cultural and communication differences between different countries and regions. For example, American SDRs with no understanding of European business or culture calling into Germany, a country known for its aversion to common American selling tactics, will likely struggle.

The only silver lining I’ve seen on this topic is nearshore outsourcing, or hiring vendors close to your home country or in the same time zone. 

An example for US companies: hiring in Central or South America can be less risky than say, hiring in South Asia. SDRs in Central America typically have a better understanding of American culture, lingo, and business practices, giving them an advantage over agencies on the other side of the planet.

If you choose to work with an offshore agency, it can still work if you fall into one of the following categories:

• Top Tier Agency: You’ve hired one of the rare, top tier offshore agencies that has found a way to overcome these common challenges.
• Strong Product: You have a well-known, sought-after product. Prospects are willing to look past a less-than-ideal sales experience to purchase from you.
• Low Complexity Product: You sell a simple product designed for easy use cases with 1-2 personas.
• Great Sales Enablement: You have an ongoing sales enablement program that teaches the business problems you solve, why they matter, and how they translate into effective messaging.
• High Volume: The agency is willing to do more activity to make up for lower conversion rates. (There is risk in this approach, you could burn your TAM if you aren't careful).

Market Segments and Vertical Specific Products

Segment

We've found that many outsourced SDR agencies are best suited for SMB and lower mid-market products with a large TAM (Total Addressable Market). This reduces the agency’s margin of error when reaching out on behalf of your brand. 

While there are skilled, higher-end agencies that specialize in Enterprise and ABM, they're the exception and not the rule. This is due to the long timelines and the political, methodical nature of enterprise sales. 

Successful enterprise selling requires a complete understanding of the prospect’s business, how you can serve them, and the current internal initiatives you can help drive with your solution. A misstep in the agency’s approach can greatly (and quickly) damage your brand reputation if you only have a TAM of 50 accounts. 

Vertical

We’ve also noticed a steep learning curve for vertical-specific products. Some agencies aren’t willing to invest the time needed to truly understand niche industries, at least not to a level where they can garner interest from prospective customers.

They might have a general idea of what you do, but the details matter. Understanding the day-to-day realities, industry terms and lingo, trends, and current events within niche industries is critically important. Without it, we’ve seen the ability to connect and quality of outreach suffer. (To be fair, many in-house SDRs face similar challenges.)

The solution is to make vertical specific knowledge and understanding a part of your agency vetting process. Determine if (A) the agency already has experience successfully prospecting in your space or (B) they are willing to invest the time and effort to gain the required knowledge. 

Once the engagement starts, hold them accountable to follow through and ensure they’re continuously learning and adapting to your industry.

Sense Of Ownership

The question in the back of your mind, especially if you’re an early stage founder / executive: “Will they truly care?” 

The truth is, most agencies won’t care as much as you'd like them to. An agency isn't an internal employee. They may not fully understand why your solution matters, they aren’t integrated into your culture, and they likely handle multiple clients at a time.

This may seem less practical, but it’s extremely important. An SDR team equipped with powerful prospecting tools capable of reaching thousands of people daily, can be a disaster if they have no regard for your brand reputation.

Here are a few solutions:

• Some agencies offer an “external SDR, in-house leader” model. The SDRs are fully integrated into your team and culture, but they’re employed and paid by the agency. We’ve seen this work well.
• During the pre-sales process, request that the SDRs and leaders assigned to your account attend your daily team calls and culture-building activities.
• Ask the agency how they plan to overcome the ownership and cultural integration gap before you sign the agreement.

When Is The Right Time To Hire An Agency?

For Startups

One of the biggest reasons for SDR agency failure is something completely out of their control: hiring them before you're truly ready.

You aren't ready to hire an agency until you have a real, proven sales process and product-market fit. If an in-house SDR couldn’t find success within your sales team, don’t expect better results from an outsourced one.

Often, startups try to outsource not only sales but also the arduous process of finding product-market fit to an agency. This fails 99% of the time, and when it does, the same cycle emerges:

1. The agency gets blamed for poor results and fired.
2. Another agency gets hired.
3. The process repeats itself.

Finding product-market fit is the founder's responsibility and should happen before hiring any sales personnel, whether it’s a VP of Sales, AEs, SDRs, or an outsourced SDR agency. Make sure your foundation is solid before bringing in external help.

We use a 3 marker system to assess if a company has a real, proven sales process. 

Marker 1: Product Market Fit

A product that’s well-aligned with the needs of your target customer, validated through sales volume, market demand, and average contract value (ACV). Your product must solve real problems for your customers and have a clear place in the market.

Marker 2: Message Market Fit

A message that resonates with the needs of your target customer, validated through customer feedback and their willingness to engage and enter your sales funnel. Your messaging should speak directly to the pain points and desires of your prospects.

Marker 3: Successfully Sold Beyond Founder-Led Sales

You’ve scaled your sales process beyond founder-led sales, with at least two Account Executives successfully consistently hitting quota. This shows that your sales process is replicable and not solely dependent on the founder's unique skills or relationships.

For Enterprises

In larger companies, there are a few scenarios where it makes the most sense to outsource:

• You have a proven SDR motion and track record for SDR success, but you aren’t sure if full time / onshore employees are still required to make the model work. You speculate that as long as you have a competent human in the seat, they’d find success given the strength of your product and market demand, lowering your acquisition costs and increasing the ROI on sales development.
• You sell a lower tier, transactional product; and given the rising difficulty of the SDR environment, you’re now teetering on the line of SDR program profitability. In this scenario, if the agency model works you could cut your in-house SDR team without completely abandoning the model.

Agency Pricing Models 

There are three common pricing models we see with outsourced SDR agencies.

• Static - A set, agreed upon payment that doesn’t change no matter the performance outcome
• Meeting Based - A payment plan based 100% on meetings generated.
• Hybrid - A combination of both static and meeting-based pricing models  

Static Pros and Cons

Pros

• Fixed payments make budgeting straightforward and predictable.
• Static payments allow the agency to focus on long-term relationship building rather than just hitting short-term targets.

Cons

• If the agency underperforms, you still incur the same costs without seeing the desired outcomes.
• There might be less urgency for the agency to deliver top-tier results since their pay isn’t tied to performance.
• Initial payments can be high, which might hurt your cash flow.

Meeting-Based Pros and Cons

Pros

• You only pay for results, limiting your financial risk and keeping your spend aligned with their incentives.
• The agency will be highly motivated to deliver quality meetings to earn their pay.
• Easier to manage your budget since costs are directly tied to outcomes.

Cons

• There’s a risk the agency might focus on quantity over quality, leading to less qualified meetings.
• The high pressure on the agency might result in aggressive tactics that could harm your brand reputation.
• Monthly costs can vary a lot, making it harder to forecast expenses.

Why Hybrid Is The Best Pricing Model

The most fair and balanced approach in our opinion is the hybrid model. It combines the best of both the set payment and meeting-based model, giving the agency a base level of security while still incentivizing them to deliver results.

Defining An SQL

Another point of contention between companies and their agency partners is the meaning of a SQL (Sales Qualified Lead). To avoid potential conflict, we recommend agreeing on an SQL definition before starting the engagement, plus making it a part of your shared agreement.

Here’s a sample SQL definition framework that would work for most situations:

Lead Requirements

• Pain: Customer verbally acknowledged (or by email) that they're facing a critical challenge related to a solution you offer + attended the meeting.
• People: You’re working with a member of the DMU (Decision Making Unit), and/or someone no more than one level below in the prospect's organizational chart.
• Timeline: The prospect has the ability to make a buying decision within a reasonable timeframe & isn't restricted by budgetary constraints or contractual agreements with other vendors.

Employee Size & Revenue

The company has an adequate amount of yearly revenue and/or employees to match your ideal customer profile

Industry

The company is within an industry that you target and can serve.

Location 

The company is within the geographical limits of your territory.

Vetting Questions

Here are the top questions we’d recommend asking a vendor before hiring them, broken down by category.

Experience & Expertise

• How long have you worked with software companies, and can you provide examples of similar businesses in our software category (FinTech, GovTech, Sales Tech, etc) that you’ve worked with?
• Can you share case studies and references from companies similar to ours?

Specialization

• What sales channels (phone, email, LinkedIn) do you primarily use to conduct outreach?
• What prospecting style do you use? (high volume / low personalization, medium volume / medium personalization, low volume / high personalization)
• What market segment (SMB, Mid-Market, Enterprise) do you have the most experience working with?
• What industry verticals do you have the most experience working with?

Onboarding & Ramp-Up Time

• What does your client onboarding process look like, and how long does it typically take?
• What are the key milestones you measure during onboarding?
• Based on what you know about us and our situation, how quickly can we expect to see results from your team?

KPIs & Accountability

• What key performance indicators (KPIs) do you monitor, and will we have access to them?
• How do you hold your SDRs accountable for performance, and how do you handle underperformance?

Technology & Tools

• What technology tools do you use, and how do you typically integrate with a client’s tech stack?
• Who owns the data (leads, activity notes, contact information), and what happens to it if we end our engagement?

Communication & Reporting

• How often will we meet and discuss engagement progress, and what’s typically covered on those calls?
• How often and through what channels will you communicate with our team?
• What kind of reports will you provide, and how frequently will we receive them?

Scalability & Flexibility

• How easily can you scale your team up or down based on our needs?
• How do you handle changes in our sales strategy or market conditions?

Cultural Fit & Brand Representation

• How do you ensure your team aligns with our company’s values and culture?
• How do you ensure your SDRs accurately and professionally represent our brand in the market?

Cost & ROI

• What is your pricing model, and what does it include?
• Can you provide examples of the return on investment (ROI) you’ve delivered for other clients?

Security & Compliance

• What measures do you have in place to protect our sensitive info like client details and non-public facing product features?
• How do you stay compliant with the laws and regulations in our industry?

Training & Development

• What ongoing training and coaching do you provide for your SDRs?
• How do you keep your SDRs updated with the latest prospecting and industry trends?

Conclusion

Thanks for making it all the way until the end! I hope you enjoyed the article and took away a few nuggets that’ll help with your SDR outsourcing strategy.

Want more SDR model insights and tips? Follow me on LinkedIn and check out the JGA resource center.