Free headcount planning template
What is headcount planning?
Headcount planning is an exercise conducted by organizations to determine what the resourcing needs are for an upcoming business cycle - typically an upcoming fiscal year - and calculating how many additional employees must be hired to meet those goals. Headcount planning is conducted across all business units, but is most often referred to in the context of expanding sales teams.
Why is headcount planning important?
Headcount planning is both art and science, but it is critical that all assumptions are pressure tested and well thought out so as to minimize the risk of under hiring or overhiring. Especially when determining how many sales reps to hire, it is essential to carefully consider growth and account load assumptions, as well as to take a long term view of the business.
Underhiring could lead to current rep burnout and attrition, whereas overhiring leads to bloat, inefficiencies, and in extreme cases, workforce reductions. Being thoughtful about how much growth is expected, how many employees are truly needed to meet growth goals, and whether aggressive growth can continue long-term, will help ensure effective capital allocation, sustainable growth, and minimize risk of drastic headcount changes
What are the most common methods for headcount planning?
The standard approach to sales headcount planning typically boils down to a few standardized steps:
- Determine how much revenue you expect each territory to bring in next cycle, based on expected growth assumptions
- Align on expected sales rep quota
- Divide expected revenue by expected rep quota to determine how many reps are needed next cycle
Businesses often make their own assumptions and modifications for each step depending on business needs. For example, determining how many Account Managers are needed may use account volume growth and Accounts/Rep assumptions rather than revenue, and businesses may have varying ramp times expected before reps are expected to generate revenue, but basic headcount planning principles should still apply.
Which functions are typically responsible for headcount planning?
While individual business units are typically responsible for submitting headcount requests, a company’s Finance team is most often in charge of reconciling growth assumptions, managing expectations on headcount budget, and ultimately making the decision on how many net new employees should be hired. When it comes to hiring sales reps, FP&A teams will often work with Sales Ops and Sales Leadership to determine final headcount needs for the upcoming fiscal year.
A common mistake made when thinking through hiring plans for sales teams is not accounting for both time to hire and time to ramp. If you want 10 new reps generating pipeline by Q1 of next fiscal year, you may need to begin the hiring process as soon as 5 months in advance, assuming it takes up to 2 months to hire and one quarter to fully ramp a new sales rep.
Headcount growth is a commonly evaluated metric by investors for a variety of reasons, such as understanding Average Revenue/Employee, how invested capital may be used, and as an indicator for expected future growth. Learn more about what metrics investors care about, and see how these metrics were used in 100+ pitch decks.
Once a business reaches a certain size, it is helpful to standardize and templatize key forecasts to get a clear picture of key revenue and cost drivers. Learn more about financial models for startups, and access a free template here.