A Comprehensive Guide To Sales Capacity Planning

Proper sales capacity planning is crucial for companies aiming to hit their sales targets.

Failing to understand how many sales reps should be on your team at any given time can lead to either excessive expenses or missed sales targets.

For sales leaders or SalesOps teams responsible for capacity planning in your organization, mastering capacity management is essential.

This blog post will outline key aspects of sales capacity planning to help you understand the specifics of the process, avoid future errors, and meet your revenue targets.

Table of contents:

1. Sales capacity definitions

2. Building a sales capacity plan

3. Sales capacity planning with Forecastio

4. Summary

Sales capacity definitions

Sales capacity is the maximum revenue your sales team can generate at any given time.

Sales capacity planning is the process of determining the optimal number of sales representatives and the distribution of their efforts to meet sales goals.

The ramp-up period is the time needed for a newly hired salesperson to achieve full productivity and their ability to hit quota.

The attrition rate, also known as the sales turnover rate, refers to the percentage of salespeople who leave an organization within a specific time period, typically a year.

Average sales quota attainment is a performance metric that measures the percentage of sales representatives who meet or exceed their assigned sales targets (quotas) within a specific period, usually a month, quarter, or year.

Under-capacity is when your sales representatives either don’t have enough leads to realistically hit quota or haven’t ramped up yet, meaning they haven’t achieved full productivity.

Over-capacity refers to the situation where a sales representative is overwhelmed and must deal with a huge number of opportunities at the same time, leading to decreasing win rates and poor serving of potential customers.

Now that we are familiar with all the important definitions, we can move on and discuss what the sales capacity planning process looks like.

Building a capacity plan

Before we dive into the step-by-step process of building a capacity plan, take into account that if you sell to various customer segments, use various lead acquisition channels, or work in different territories, it’s highly recommended that you build separate capacity plans for each of them.

Step 1. Set sales targets

The first thing you need to do when building a capacity plan is to define the revenue targets you are aiming for.

Step 2. Calculate average sales amount per rep

This can be done using two different methods.

Actual sales in previous periods

You simply sum up the actual sales of all your sales reps in previous periods and divide by the number of sales reps.

Example:

• Number of Sales Reps: 10

• Actual Sales: [$900,000, $1,100,000, $950,000, $1,050,000, $1,000,000, $1,200,000, $1,150,000, $1,050,000, $1,000,000, $1,100,000]

• Actual Sales: $1,050,000 per rep

While this method is obvious and straightforward, you can’t guarantee that historical performance will remain the same in future periods due to factors such as market fluctuations, changes in demand, etc.

Using performance metrics

This means you need to define the optimal number of opportunities one sales rep can handle at the same time, the average deal size, the average sales cycle length, and the average win rate.

Example:

• Let’s assume your sales rep can handle 50 opportunities at once.

• The average cycle length of 2 months means that your sales rep will close 25 opportunities monthly.

• If the average deal size is $5k and the average win rate is 20%, it means that the sales rep will close, on average, $25k monthly (0.2 x 25 x $5k).

In practice, we recommend using both methods to properly assess the average sales quota per rep. The first method operates with actual earnings, while the second ensures you are not going to set quotas that will lead to over-capacity (the number of opportunities one sales rep can handle at the same time).

Step 3. Calculate average quota attainment

First, calculate the individual quota attainment:

Sales Quota: $1,000,000

Quota Attainment for Rep 1 = ($900,000 / $1,000,000​) × 100 = 90%

Then, calculate the average quota attainment: 

Average Quota Attainment = (90 + 110 + 95 + 105 + 100 + 120 + 115 + 105 + 100 + 110) / 10 =105%

Step 4. Estimate the require sales force size

Let’s assume that your sales target for the given period is $12,000,000.

You can use two approaches:

1. Divide the sales target by the average sales per rep from the past period.

2. Divide the sales target by the sales quota multiplied by the average quota attainment.

Let’s use the second approach:

Required Sales Force Size = 12,000,000 / (1,000,000 x 1,05) = 11,43

This means that to hit your sales target of $12,000,000 with a sales quota of $1,000,000 and an average quota attainment of 105%, you will need approximately 11 sales reps.

Step 5. Calculate average ramp-up period and attrition rate

These two metrics are extremely important and are often either overlooked in capacity planning or not properly calculated.

To calculate the ramp-up period, analyze each member of your current team and determine the time it took for them to achieve full productivity.

The simplest formula for calculating the ramp-up time is as follows:

Ramp-Up time = On-Boarding Time + Average Sales Cycle Length

Now, define how a newly hired sales representative achieves productivity over time.

According to the latest research in the B2B sales space, the average attrition rate among sales reps is as high as 30%.

This is a huge number, and you should definitely consider it when creating hiring calendars.

Step 6. Create hiring calendars

Now that you know how many sales reps you will need in the future to hit your sales targets, and taking into account important factors such as ramp-up periods and attrition rates, you can build a plan for when and how many sales reps you should add to your team to ensure you meet your revenue targets.

Sales capacity planning with Forecastio

Most companies still use Google Spreadsheets or Microsoft Excel for capacity and sales planning.

While this approach works, it consumes a lot of time and requires manually updating various parameters.

Additionally, it’s not easy to account for ramp-up periods and attrition rates in spreadsheets, which often leads to errors in capacity planning. These errors, in turn, lead to missing sales quotas.

With Forecastio, you can fully automate capacity planning using your sales data in HubSpot.

Forecastio will not only help you understand how many sales representatives you need to hit your sales targets, but also notify you if the set sales target cannot be achieved due to a lack of sales capacity.

Summary

Sales capacity planning is one of the ways to efficiently set sales goals.

Understanding your current sales performance and projecting future capacity helps you set attainable sales targets and better understand what you need to hit your numbers.

You must clearly know how your team performs now and how many sales reps you will need to add, considering their ramp-up periods and the fact that we not only hire people but also lose them. Overlooking ramp-up periods and attrition rates always leads to not having enough capacity to hit previously set targets.

Of course, even effective capacity planning will not guarantee 100% success in hitting revenue goals, but it can definitely increase the likelihood of achieving them.