Why is Sales Capacity Planning Important?
The main reason organizations need a sales capacity plan is to ensure they have the right number of salespeople, at the right time, in the right place with the right skills, selling their products/services in order to hit the revenue targets set before them.
It’s no longer enough to simply guess how big a team you’ll need to maintain sustainable, consistent revenue growth. Organizations must now have the math to back it up.
A sales capacity plan can also help you optimize the resources you already have on hand and keep your focus on selling more effectively rather than worrying about having a big enough team to handle increased demand.
How to Create a Sales Capacity Plan
There is a wide range of sales data that sales leaders must consider when creating a sales capacity plan. These are as follows:
- Team size, roles, and responsibilities
- Inbound lead volume
- Opportunities and pipeline required to hit future revenue goals
- The length of the average sales cycle
- Average deal size
- Average quota attainment across teams and individuals
- Average ramp times for new sales reps across teams
- Number of sales reps ramping at any given time
- Average sales turnover rates
- Future revenue goals
In order to calculate sales capacity, you must first decide the length of your planning periods. These typically align with your goals. If you have monthly goals, plan monthly. If you have quarterly goals, plan quarterly.
Then, using your current team structure, churn rates, new hire plans, ramp times, quota, and average quota attainment to create a table or spreadsheet that shows you, for any given period, the output of your team.
While there are a variety of sales capacity models you can use, here’s a very basic formula you can start with:
Although this formula is a good starting point, it doesn’t account for ramp times, churn, or new hire plans. To make sure your plan is as accurate as possible, we recommend mapping out the total number of reps you’re starting with each quarter, plus any new hires you plan to onboard during this period, minus the average number of reps that churn within each period.
From there you’ll want to make sure you’re taking ramp periods into account. To do this we recommend counting 100% of fully ramped reps and only 50% of new hires. For example, if you’re going into Q1 with 20 fully ramped reps, you expect to hire 2 more by end of quarter, and you typically lose 2 reps a quarter, the math would look something like this: (20 reps) + (50% of 2 ramping reps) – (2 churned reps) = Sales Capacity of 19 complete reps.
Using the final number from this most recent calculation, you can then use quota and attainment numbers to determine your sales capacity for any given time period. Here’s what that would look like mapped out over the course of a year for a standard SaaS company:
How to Improve Your Sales Capacity
After going through the exercise above, it’s natural to wonder about how one might go about increasing the capacity of their sales team. The default assumption is that to increase sales capacity you must increase your team. But– that’s typically the final step to take.
Using the same formula outlined above, the only way to increase sales capacity is by manipulating or changing the inputs– so, increasing your reps, your quota, or improving quota attainment.
For most organizations it’s a combination of all three. We recommend you start with the less expensive levers before you resort to hiring new reps. This might include taking steps to:
- Reduce sales turnover. With fewer reps to replace, you not only save money hiring their backfills, but you also face less down time due to ramping giving you more productive team members at any given time.
- Increase productivity. Increase the number of reps hitting quota through better training, tools, and processes that allow reps to work more efficiently with higher quality results.
- Increase effectiveness. If your team regularly crushes their team and individual quotas, that’s a sure sign it’s time to increase sales quotas. To get to that point you must invest in sales enablement to equip your team with the information they need to successfully identify prospects, address pain points, speak to competitors, and offer value confidently.
- Revamp your sales comp plans. The right commission plan motivates your reps to do more of the right behaviors that lead to closed deals. See if there’s room in your compensation plan to offer more incentives for outstanding sales performance.
If, after doing all of the above, you still need additional sales capacity, it’s time to hire new reps. But, be sure to exhaust other options first, or you run the risk of spending too much money on an ineffective team– resulting in a low ROI and ultimately hurting top line revenue growth.
