High-growth companies have ambitious revenue targets, and as a sales leader, it’s your job to build the roadmap to get there.
The reality is most companies don’t have a robust process in place for capacity planning:
- Enterprises miss up to 10% of annual sales due to poor planning.
- Over a third of companies don’t do capacity planning at all.
So... how exactly do you build the perfect set-up to reach your goals? Where do you get started?
We’re sharing our VP of Revenue’s template so that you can easily plug in your current headcount and see exactly how many reps you need to meet your targets. Download it here.
And keep reading to find out how to use this sales capacity model and turn it into a robust, repeatable blueprint for growth.
What is sales capacity planning?
Sales capacity planning enables sales leaders to figure out exactly how many new reps they’re going to need to meet future growth and revenue targets.
We’re going to break this down in more detail, but if you already know what we’re talking about feel free to skip ahead to:
- 7 essential components for a sales capacity planner
- How our free sales capacity planner template works
Still here? Sweet.
So, the ultimate goal of a sales capacity planner is to quantify how many new reps are needed to meet future revenue targets by factoring in:
- Your current sales headcount and their productivity
- Realistic quotas, average deal sizes, and deals required to meet targets for each role
- Ramp time to get to quota attainment
How sales capacity planning works
In a nutshell: When your boss sets lofty revenue targets, you take a look at your current capacity and see there’s a gap. A capacity planner shows you how wide that gap is and how you’re going to fill it.
A sales capacity spreadsheet uses historical data from your current team’s performance to illustrate how many reps (SDRs, AEs, BDRs – whatever you call them) you need to hire and when you need to hire them to meet the revenue target.
It usually takes the form of a spreadsheet, but there are more advanced sales planning tools out there like BurnRate or OpsPanda for Salesforce users.
Sales capacity planners tend to fall into two models:
Our planning template takes the top-down approach or the quota coverage model.
This sales capacity planner becomes the blueprint for team growth. Using the insights from the planner, sales leaders have an accurate estimation for:
- How many reps to hire
- When to start hiring
- What roles to hire for
- How long it takes for the whole team to ramp
- ROI on total OTE cost when a new target is reached
With this information, you can start scaling your sales team without second-guessing your targets or fumbling over when things need to be done.
Why using a sales capacity planner is crucial
Here’s the thing.
Only 48% of business leaders make data-driven decisions – the rest are based on gut feelings, opinions, and subjective experiences.
Sales leaders need a data-driven mechanism for sales capacity planning, especially during periods of hyper-growth.
Without an accurate sales capacity planner, sales teams run the risk of:
- Disorganization – disagreements within the team, delayed action, knee-jerk hiring decisions at the last minute
- Miscommunication – incorrect delegation, recruiters don’t hire enough people, hire too many in one role and not enough in another, fail to communicate the correct OTE’s to new hires
- Misalignment – everyone has a different version of the truth which blurs milestones and targets
- Missing targets – because no clear target and roadmap was established at the beginning
With a sales capacity planner as the basis for all future decisions, you can confidently and accurately scale your sales team.
And that’s not to say there’s no room for instinct in this process – after all, scaling a sales team is both an art and science. More on that later.
To be as accurate, proactive, and aligned as possible, there must be a sales data-driven plan from the start.
7 essential components for your sales capacity plan
AE team structure & number of reps in seat
Every sales team is split into different roles.
You might have SDRs, Junior AEs, and Senior AEs. You might just have SDRs and AEs.
Your sales capacity model should provide a clear breakdown of the different roles, with appropriate salaries, commissions, and quotas to match respective skills, responsibilities, and skill levels.
Then you add your current reps ‘in seat’ to your capacity plan accordingly.
It’s kind of a no-brainer – you need to see what your team is comprised of before you start planning future capacity.
In our sales capacity model excel sheet, you can fill in your team details using the editable blue fields:
By mapping out your sales team structure within the capacity planner, you can:
- Start identifying gaps in the current headcount
- Quantify the average deal size for each role
- Work out the deals required to hit the quota
This simplifies the crucial process of quantifying how many ‘heads’ it takes to fill the gap and meet your target.
Focus on the on-target earnings (OTE), deal value, and ROI associated with each role.
Worry about personalities and team dynamics later.
Average deal size
There’s always variation in deal size across your sales pipeline, but it makes sense that senior roles manage the highest-value deals, right?
When capacity planning for sales, it’s wise to allocate average deal sizes to each of the roles you’ll be hiring for.
- Quantifies the value and responsibility of each role
- Factors in variations in deal size
- Allows you to calculate the number of deals required for each role to meet the quota
- Justifies salary and compensation differences across roles
- Helps inform how many new hires are required from each role to meet revenue targets
Calculate average deal size by gathering every closed deal and sorting them into groups based on the role of the rep who closed them.
Divide the total deal value by the number of deals in the pile – there’s your average deal size.
You can see ours highlighted in the sales capacity planning spreadsheet:
You can use the average deal size to estimate the number of deals a rep needs to win to meet their targets.
With this metric on hand, you can:
- Ensure targets are realistic
- Communicate expectations to other managers and team members
- Start preparing tools and playbooks to help reps reach their targets
Understanding average deal value will also help you take note of trends – is the average deal value increasing or spiking in certain months?
Quota & ramp
This is the most crucial aspect of your capacity planner.
First, you’ve got your quota.
This is the revenue that your reps need to bring in over the year to meet your overall target. It should be aggressive but reasonable.
Your quota for each role could be based on a number of sales forecasting methods:
- Current and future opportunities
- Marketing campaigns
- Product launches
- Territory potential – organizations that use territory planning see 14% higher sales
- Close ratios
- Average deal size
- Average deals per month
Once you’ve got your quota for each sales role, you can measure it up against your future revenue targets and the reps you’ve got in-seat.
Let’s say your sales target for next year is $1 million. Right now you have 5 sales reps, each with a quota of $100,000 per year.
That’s 5 x $100k = $500k sales capacity.
You might think – ”easy, I’ll just hire 5 more reps at the start of the year to meet my revenue target.” Except new sales reps don’t make quota right off the bat. Unless you happen to find five Jordan Belfort clones with a passion for remote SaaS sales. But that’s not likely, is it?
You need to account for ramp.
Ramp is the time it takes for new hires to start smashing their quota. We’ve used 3 months ramp in our spreadsheet template and factored that into “months in seat”, but you should take the time to calculate your ramp time based on factors such as:
- Onboarding time
- Historical average time-to-quota for your team
- Sales cycle length
Once you factor ramp into your sales capacity planner, you’ll get a more accurate view of required new hires to meet your targets.
Our sales capacity planning formula uses a three-month ramp time and 25% quota increases each month until full attainment:
Estimating your total OTE, ROI, etc
You’ve used accurate quotes and ramp time figures to work out exactly how many new reps you need to scale your sales team.
Now you can use the sales capacity planner to estimate your total costs, ROI, and other important figures for reporting to senior management.
We’ve broken them down in this table:
How our capacity template works
We’ve broken down the essential components of our sales capacity planner. Now let’s take her for a spin.
Our CEO has told us our 2022 sales target – $3mil. After going pale and gulping a few times, we get to work creating our capacity plan.
Starting with what we know
First, we plot the factors that are absolute:
- Sales target
- Current sales team breakdown – roles (Junior, Mid, Senior AE), average deal size, salary, commission, deals required to hit the target
- Reps in seat
Here’s what that looks like:
Right now, our small in-seat headcount looks like:
1 x Senior AE (150,000 OTE & 900,000 deal value)
1 x Mid AE (120,000 OTE & 600,000 deal value)
1 x Junior AE (100,000 OTE & 300,000 deal value)
That gives us a total OTE cost of $370k and a total starting deal value of $1.5mil.
So, we need to double our capacity to meet our $3mil target – and do it in the most effective, efficient, and meaningful way possible as we scale our sales team for future hyper-growth.
First, we add a junior AE
We start with adding one Junior AE at the start of the year, factoring in a 3 month ramp time.
The junior AE starts at 25% of their target quota, increasing by 25% each month until they reach full quota attainment in April. This gives us an additional $262k in deal value for the year while minimizing OTE costs by spending 12 months on a Junior AE salary.
Supplement the mid-AE’s
Then we add a Mid AE to take on bigger deals and support our growing team of Junior AEs.
The Mid AE is set to start mid-year, ramping up 25% each month until they reach their target quota attainment of $50k in September. This gives us an additional $275k in deal value while only paying a Mid-AE salary for 6 months.
Strengthening the sales team for Q4
With our growing team and huge deal opportunities projects from mid-year, we decide it’s best to hire four new Senior AE’s to the team.
One starts in July, one starts in September, and the last two starts in November to add some much-needed closing muscle to Q4. Factoring in ramp time, this gives us $637.5k in deal value while minimizing OTE on the higher Senior AE salaries.
Weighing the costs vs. deal values to find a sweet spot
You are surely under pressure from the CEO to be conservative with sales costs. Scaling our sales team by 1 Junior AE, 1 Mid-AE, and 4 Senior AE’s later in the year is the most effective way to plug our sales capacity gaps while:
- Accounting for ramp time
- Building a strong sales leadership for future hyper-growth
- Saving costs on OTE by hiring senior positions later in the year to close high-value deals
With 6 new hires, we increase the projected target deal value to $1.745mil – taking us up to $3.245mil and meeting our 2022 sales target.
With this clear sales capacity planner to guide us, we can confidently start:
- Working out a solid compensation plan
- Preparing onboarding processes
- Supporting our in-seat team as we prepare for growth!
Conclusion: Scaling a sales team without a blindfold
As 2022 breathes down your neck, you need a solid plan – not knee-jerk reactions or instinctive decisions.
Working out your sales capacity and planning for new reps shouldn’t be a throw-ideas-to-the-wall-and-see-what-sticks scenario.
In times of growth, leaders need to make decisions driven by sales data to meet their targets and communicate effectively to the rest of their team – recruiters, other managers, and especially the CEO.
Our sales capacity model gives you the perfect starting point to scale your team and smash those targets.
Hungry for more of our sales resources? Here’s a guide to help your new reps meet their sales quota.