3 Steps: A Framework to Orchestrate Revenue with Better Capacity Planning

Once upon a time, there was a highly successful business. Let’s call it Company Could Be You. Company Could Be You had grown way faster than expected for several consecutive years, and planned for bigger and better things in the year to come. So, it hired a bunch more salespeople. 

But the company over-predicted its sales capacity by about 10 heads, and quota attainment was below 25% across the team. Overall attainment ended up about 30% of the total target.

“It was incredibly painful,” recalls their VP of Revenue Operations. “Not to mention embarrassing.”

After a large wave of layoffs, management was hell-bent on figuring out how to prevent the same thing from happening again. 

What Is Capacity Planning?

Capacity planning is the process used to determine the resources that your team requires in order to meet its goals. It estimates the maximum amount of work and production that a team can reasonably complete with a certain number of people and supporting resources.

Capacity planning is the step that follows sales forecasting, which sets sales projections and defines sales plans. While a sales forecast evaluates pipeline and customer funnel stages, capacity planning optimizes your use of those resources. 

Why Is Capacity Planning Important? 

Capacity planning matters for a variety of business-critical reasons: 

• Capacity planning increases sales. Above all, capacity planning is important because capacity planning can be used to increase sales. On average, teams that use the process effectively, increase sales 15%.
  
• Capacity planning provides an intelligent approach to hiring and onboarding. Capacity planning incorporates the average time it takes a team member to ramp up to full production capacity, and sets hiring needs accordingly. 
  
• Capacity planning increases visibility into revenue performance. By taking an in-depth look at market coverage, performance, and related compensation models, capacity planning can provide an accurate view into sales capacity.
  
• Capacity planning balances spend. Effective capacity planning, especially capacity planning models that are reviewed and tweaked regularly, prevent overspending and underspending. 

3 Steps to Orchestrate Revenue with Capacity Planning

Company Could Be You is not alone. Over a third of organizations don’t or rarely conduct any type of capacity planning, according to OpsPanda. That’s a significant oversight, as modern sales capacity planning ensures sales leaders have the right resources to meet corporate objectives—in every scenario.

Said differently, sales capacity planning isn’t as simple as hiring five reps with $1M quotas each, to meet a $5M number. Ramping new hires takes time. High performers leave. Sales cycles shift when market dynamics change. 

According to Gartner, like revenue forecasts, capacity projection is a moving target that will fluctuate, and therefore needs management. This blog shares key highlights from our newest white paper, “3 Steps: How to Orchestrate Revenue with Better Capacity Planning,” which shares a framework for optimizing revenue performance with a best-in-class sales capacity plan. 

Step 1: Determine Your Overall Revenue Performance Process

Revenue performance starts with effective sales planning, and knowing which sales planning rules to break. Revenue performance also requires executives to craft a holistic sales planning process that involves three key components—better quota management, winning territory design, and capacity planning. You must correctly sequence the components of your sales planning process overall, in order to nail capacity planning.

Generally speaking, whether you’re in a greenfield or established environment is the largest influence on your process. Established marketplaces know their targets, so can easily determine needed additional headcount to make target, using historical knowledge, data, and competitive benchmarks. Quota planning and effecting territory modeling follow from there.
Conversely, companies targeting greenfield markets need to determine their revenue target, sales quotas, and territory coverage plan in that order, prior to determining desired headcount and needed roles, factoring in ramp time. 

Step 2: Assemble a Capacity Planning Model (+Inputs)

Using data to guide capacity planning can increase performance by more than 15% and sales productivity by up to 20%. You can easily project year-ahead bookings under various hiring plans and assumptions, by using a set of simple yet comprehensive inputs. 

1. Yield for each completely-ramped sales rep. This input quantifies the bookings a tenured rep will produce annually. Though historical productivity per individual is the best place to start, you also need to assess factors like changes in territories’ sales potential and size, as well as customers eligible for upsell and available deals in pipe already. The accuracy of this first input requires the most analysis of any in this list.
2. Ramp time. This input quantifies how long a new rep takes to become 100% productive—not the time to first sale. While your company’s particular sales cycle and complexity are the biggest drivers of this metric, general benchmarks indicate ramp takes six to 9 months for mid-sized business and below—and about a year for enterprise businesses.
   Want to accelerate that time to ramp? Use high-value onboarding plans and playbooks, align marketing and pre-sales support for new reps’ territories, and up-level coaching with data. We’re loving call recording and analysis info from companies like Gong right now. 
3. Hire time. Recruiting’s accuracy and timing is a key determinant of your team’s capacity, so look at your historical average and factor in any future anomalies. Examples may include large company events or the holidays.
4. Attrition inputs measure turnover, voluntary and involuntary. Most industry averages approximate about 20% per annum, and can be further refined by examining historical data.

These inputs will help your model project how many quota-carrying sales reps you need, plus any support roles like sales development representatives, sales engineers, and mid-level managers. Obviously, data accuracy plays a large role in assembling all of these inputs.

Step 3: Troubleshoot Outputs

The main aim of sales capacity planning is to determine how to most effectively support organizational goals. Iterative capacity planning and what-if modeling are your best route to do this, with data-driven insight across these key vectors:

1. Model for different sales coverage scenarios.
   
2. Easily compare contribution margin on ramped versus in-ramped reps.
   
3. Leverage artificial intelligence to predict key indicators such as ramp times, ideal quotas and seasonality in sales to create optimal sales plans. 
4. Use out of the box KPIs and dashboards highlighting historical and real-time data, to proactively analyze metrics as well as notice and address problems. 
5. Build ‘what-if’ scenarios and monthly forecasts.
6. Compare and adjust models until your resource capacity plans are similar, using data-driven metrics to assess target achievability.
   
7. Vet plans with Finance. 

These steps will help you align corporate targets across your territories, products, business segments, and roles. As you might imagine, you’ll greatly amplify the value of your capacity planning with an integrated, intelligent revenue performance system that merges multiple layers of information. In fact, companies produce 2-3X efficiencies and raise productivity 12% when they automate all sales planning processes like capacity planning.

Conclusion

As seller capacity expands due to travel restriction and increases in remote productivity, sales operations must reexamine sales force deployment strategies and the number of accounts assigned to each seller. In fact, 23% of CSOs report plans to permanently shift field sales to virtual sales roles, and 36% of CSOs remain uncertain about their plans as a result of increasing efficiencies in their remote sales teams. 

Rethinking how you execute capacity planning is the new normal for today’s leading revenue leaders, and involves teams beyond just Sales, such as Marketing and Customer Success. Doing so can pay off—because no one wants to be Company Could Be You!

To learn more, download a free copy of our latest guide: “3 Steps: How to Orchestrate Revenue with Better Capacity Planning.”

Sources

• “Capacity Planning for Sales,” Insight Partners.
• “Cascading Effects of Virtual Selling on Sales Operations,” Gartner, 2020.
• “The New Sales Imperative,” Forrester, 2020.
• “Sales Capacity Matters,” Gartner, 2020.
• Sales Management Association Survey, Sales Management Association, 2018.
• Xactly Insights
• “Use Capacity Planning to Increase Sales,” Xactly, 2020