Successful Capacity Planning
This article will appear in the December edition of SaaSSales.io. This is the unedited stream of consciousness version.
The team is heads down trying to close out the year hitting target. At the same time, investors and leadership are already talking about doubling sales next year. It’s all part of the mighty triple-triple-double-double-double plan. That is, triple revenue for three consecutive years and then double up for a few more. The mandate is IPO or bust!
For the newly promoted sales leader the answer seems straightforward. Simply just double the number of sales reps and voilà off to the races we go! Right? Well, not exactly. To illustrate the point more simply, remember as a child at the playground you would dig your hands into the sand? You’d dig and dig until you hit the desired depth. But sure enough, sand from the top rim of the newly created hole would roll back down to the bottom. Digging down would require additional scoops. More than just a straight-lined task.
So it is with hitting sales targets.
Sales reps sometimes fail to hit their targets
Sales reps sometimes leave the company
Sales reps sometimes do not ramp as quickly as expected
Sales reps sometimes do not apply to your job openings
Sales reps sometimes do not manage themselves
With that in mind capacity planning requires six key critical factors to get the job done.
Six Critical Planning Factors
Each of the critical factors below must be considered to build a holistic capacity plan.
Attrition
Recruiting
Ramp
Attainment
Support
Seasonality
Let’s examine each one very quickly.
Attrition
Employees leave companies for a variety of reasons. Managers know full well there are regrettable and non-regrettable attritions. High performing team members who are poached by competitors or take higher paying jobs at other companies clearly fall into the regrettable category. Others who fail out of their performance improvement plans (PIPs) are expected to exit for lack of performance. The issue with attrition is that you can plan for it but never truly know if they will occur as expected.
Recruiting
Remember that sand digging example I mentioned earlier? Well, just like the hole filling in with sand we need to consider how to not only backfill the attrition but also to hire ahead for the expected accretive revenue. Recruiting is much like a marketing and sales funnel. There are discrete and sequential steps. It may look something like the following:
Post requisition
Review candidates
First interview screen with recruiter
Second interview screen with hiring manager
Subsequent interviews
Offer made
Candidate accepts or rejects
Not every candidate will get through the funnel, therefore it makes sense to widen the top of the funnel. Much like a sales deal, hiring takes time. Doubling the sales force will not and never does happen overnight. So if you need a hire to be in the door by February and it takes on average three months to hire then it makes sense to have the position posted in November.
Ramp
Now that we’ve hired sufficiently the next best step is to ensure the new hires get on track ASAP. That’s where ramping effectively is critical to a company’s success. For certain types of sales roles such as enterprise reps it may take up to a full year for new hires to ramp. For SDRs just out of college that expectation may decrease to as short as a month.
When it comes to ramp it’s helpful to break down what key metrics are measured and by when. Additionally, smart management should also design what consequences will occur based on these outcomes.
Below is a sample ramp schedule:
So as you see, recruiting is only the start of backfilling and hiring ahead. Moving new full time employees (FTE) to the equivalent of 1.0 FTE is the second half of the hiring plan.
Attainment
Not every sales rep will hit attain quota. Much like manufacturing facilities it is wise to build in buffers. The eventuality that a sales rep will achieve below quota can and will happen. An old rule-of-thumb for sales managers is to apply a 70% achievement versus quota. Let’s take a look at a quick example without any buffer.
Company target: $10,000,000
Average sales quota: $1,000,000
Expected attainment: 100%
In this scenario the sales team can achieve target with 10 sales reps. That is $10M in company target divided by $1M in quota each. With this model the sales team is expected to perform on cue without any interruptions. The margin for error under this capacity model is non-existent. It’s highly efficient yet highly susceptible.
In another scenario the company plans for 70% achievement. In this scenario the same model will look like this:
Company target: $10,000,000
Average sales quota: $1,000,000
Expected attainment: 70%
Here the company will need to have 14.3 sales reps. There is no such thing as three-tenths of a person. But in terms of sales production there can be. Take for example the expected maturation of a sales rep in their first year. Perhaps in the long history of your company the average rep in their first year achieves 40% of a veteran sales rep. In this case, you can clearly have three-tenths of a sales rep with 100% of a human.
Support
In Roman times, their legions were famous for having incredible supply logistics. Aside from their marvelous military tactics came a cadre of food, clothing, and armaments. Same goes with any sales team. Behind each sales team comes sales managers, directors, VPs, enablement, and operations. Depending on your company perhaps for every three sales reps there is one SDR that is needed. For every eight sales reps comes one sales manager. For every four sales managers comes one sales director. Last but not least are the operations and enablement functions. With more reps comes the pressure to increase the number of trainers or to find scalable solutions such as on-demand delivery mechanisms. When it comes to operations the increased number of sales reps inevitably increases ticket requests, disputes to resolve, territories to carve, and managers to provide insights to.
All of the above mentioned also have their own hiring and ramping timelines. The earlier you get started the better.
Seasonality
Certain businesses will exhibit seasonality patterns. Similar to ocean tides responding to lunar rhythms, so goes certain industries. The floral industry booms around holidays such as Valentine’s and Mother’s Day. Retail soars during back to school (BTS), Black Friday, and weeks before Christmas. For industries where customers have use-it-or-lose-it budgets, Q4 is the opportunity to capture the all-elusive hockey stick revenue.
At a micro scale seasonality also occurs within sales periods. Monthly quotas are often achieved in the last week of the month. For our friends in quarterly motions the third month seems to capture more than half of sales. Hence this is why so many sales leaders and operations leaders preach the “half by halfway” mantra. Achieve half of quota attainment halfway through the period and you’re well ahead of schedule.
Planning in sales should always take seasonality into account. Ignoring so is much like ignoring cosmic law. The moon isn’t going anywhere. Neither is seasonality. However, sales leaders can build a strong narrative by knowing their seasonality and achieving ahead of schedule.
Capacity Planning should start early
CEOs, CROs, and sales leaders would do well to start early. In certain industries, planning has evolved into a quarterly cadence. This “rolling planning” process can be time consuming but it uses real time information in shorter windows to feed their planning models. For startups, things can move so quickly that assumptions used based on last year’s data simply do not inform leadership well.
However you plan is up to you, but the six key pillars of capacity planning will greatly help align the business on what it needs to do and by when. With that in mind, best of luck to you out there!