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Step-by-Step Guide to Sales Capacity Planning

Revenue teams

Learn how sales capacity planning gives sales leaders a clear view of what sellers can achieve and helps to identify the best structure for sales teams.

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Holly Meehan
February 20, 2024

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Step-by-Step Guide to Sales Capacity Planning


Sales capacity planning is the modeling process that helps leaders to predict what their sales team can achieve, in order to optimize resource allocation and identify any gaps between projected attainment and the organization's sales goals.

Sales capacity planning is a crucial part of sales performance management. Sales leaders need to strike a fine balance, ensuring they have the right resources and ability in their sales team to hit the organization's financial targets, while making sure the individuals in the sales team are working at the top of their efficiency and capability without burning out.

What is sales capacity planning?

Sales capacity planning is the process of modeling the projected attainment of the sales team and comparing it to the financial targets set by the company. By comparing the capacity of the existing team with the desired outcomes for the year, sales leaders can identify and begin to close the gap between what the team can achieve currently and what it needs to achieve for the business.

There are several factors that contribute to the projected capacity of the existing sales team. These include ramp times for new reps, and baseline quota assumptions. During the sales planning process, sales leaders use capacity planning to determine whether they need to adjust quotas and ramp processes in order to hit revenue goals, or whether they need to focus on hiring new sellers to make up the difference. If new hires are required, accurate sales capacity planning can also help sales leaders identify requirements for new hires, such as regional or segment specialization.

Traditionally, sales capacity planning has been linked with operations management and manufacturing. As the markets are evolving quickly, many SaaS businesses are now undertaking capacity planning as an essential part of their budgeting. SaaS companies invest heavily in their sales and marketing teams as the success or failure of the venture depends largely on the performance of sellers.

Sales capacity planning and employee churn

Companies in the US experience attrition rates of up to 27% in their sales teams, which is almost double the overall churn rate seen in other areas of the business. Moreover, while the average tenure for employees aged 55 to 64 is around 10 years, it is just 2.8 years in the 28 to 34 age group. As a result, companies are always grappling with the issue of employee turnover and this looks set to continue or even escalate as time goes on.

Some attrition is normal, but when a high-performing seller leaves, a company not only loses the return on costs incurred on employee training, but also potential sales. The loss of sales is quite significant in such cases as the time taken to hire, train, and deploy new salespersons is considerable, and during this time period there may be opportunities to create crucial sales moments that are lost. 

Sales leaders need to keep a close eye on their best performers and take steps to retain them if there is a risk of them quitting, as high-performing sellers are hard to come by and replacing them isn't easy.

Initially, the loss of certain employees might not appear to cause too much damage. However, the sales capacity planning process increases in complexity when fully ramped employees leave, to be replaced by new employees that require training from scratch. Therefore, sales leaders must offer sustainable incentives, including stock options, to encourage employees to continue with the company. 

Why does sales capacity planning matter?

Sales capacity planning is a crucial component of sales planning and it has a direct impact on future sales productivity. Here’s how:

  • Quantify sales performance: Sales capacity planning enables sales leadership to effectively quantify the projected sales performance of sales teams. If the present team cannot generate maximum revenue to meet the specified goals, the company needs to identify strategies to boost its capacity. This can be achieved by hiring more employees or through sales enablement. 
  • Transparent team practices: Sales capacity planning requires an in-depth study of the capabilities of individual team members. This helps leaders develop transparent expectations around the skills, availability, and performance of sellers.
  • Data-driven insights: Sales capacity planning provides sales leaders with data-driven insights into the performance and potential of the team. This means they can take timely decisions on whom to hire, where to hire, and how to train new hires, filling any gaps in the team efficiently.
  • Optimal use of resources: Through sales capacity planning, leadership can find different cost-efficient strategies to fulfil resource requirements and predict the impact of measures such as reducing ramp time. This allows them to find the optimal balance in the team.

Metrics for sales capacity planning

Sales capacity planning is a comprehensive process during which sales leaders must consider several important factors, including:

  • Average sale: Average sale, or average deal size, helps in understanding how many deals need to be closed to fulfil the specified sales targets. 
  • Close ratio: The close ratio measures how many deals on average are closed, which gives an indication of how many opportunities a salesperson needs to maintain in the pipeline to fulfil their given targets.
  • Sales cycle: The average sales cycle helps sales leaders understand the total time it takes to close an account. They can then determine the last date by which the lead must enter the pipeline to be a viable opportunity for a quarter or month.
  • Ramped percentage: The number of sellers who are fully onboarded compared to those who are still training. It is important to understand how long it takes a new employee to get up to the level of an experienced employee.
  • Target market: The target market for a company should be an adequate size to contain enough leads with the desired ticket size. If the target market is too small, the targets may not be achievable.
  • Sales tools and process: Sales tools and processes must be in place for the salespeople to handle new leads. Not having a defined sales process can slow down the conversion process.
  • Sales team size: It’s important to have a thorough understanding of the number of sales team members required to meet quarterly revenue targets and year-over-year revenue growth targets.

Optimize sales capacity planning to maximize revenue

Here’s a step-by-step guide to executing the optimal sales capacity plan for maximized revenue:

Understand the team structure‍

Sales organizations can be complex. It’s important to make sure sales leaders have a clear picture of the structure of the team, and understand the responsibilities and nuances that may apply across regions or audience segments. It’s also important to gather accurate information concerning the key metrics outlined above and remember they may vary between team members. More experienced sellers may have a better close ratio, or sellers dealing with particular segments may have a shorter sales cycle than others. These nuances need to be captured in the data you are using to build your projections. 

Compare projections and targets

Once you’ve built up a picture of the existing team and projected what they will be able to achieve based on these metrics, you need to compare the output to your financial goals for the year. In most cases you’ll find there’s a gap between your current projection and the number your finance team would like you to hit. There are a couple of steps you can take here to bring these numbers closer together:

  1. Look at the baseline assumptions in your plan around quota, planned headcount and ramp time. Are there any adjustments you can make to these numbers?
  2. Take a more granular look at the individual reps in different regions. Would it make sense to request additional resources for a particular sales team? Think about what level of experience you might need to make up the difference, and how this would affect attainment. 

Put plans into action

Depending on the output of your plan, you may need to request additional headcount or reorganize the sales teams you already have. You should now be ready to take your model back to the business to show them how what you’re requesting will help the company hit it's revenue targets. 

How can Pigment help?

Get an overview of how Pigment can help with sales capacity planning here. If you'd like to find out more about the impact this could have for your business, sign up for one of our weekly product tours to join a group of peers and ask questions, or book a 1:1 demo with a Pigment expert for a deep dive into your use case.

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