Many sales leaders like you are deep into annual planning right now. As budgets are determined, can you confidently defend the sales rep headcount you have now? Or perhaps more importantly, can you make a strong case for additional people if you need it?
If you follow the traditional back-of-the-envelope or napkin method to answer these questions you likely:
- Start with the revenue number handed to you by the CEO and/or CFO.
- Divide by average quota-per-salesperson.
- Multiply by the fully loaded cost-per-salesperson.
- Gut check the number as a percent of total revenue.
Unfortunately, this approach lacks the rigor to stand up to scrutiny. For example, suppose the CFO ranks reps by quota attainment and recommends eliminating the underperformers to save money. How do you argue against what seems like a sensible solution?
Furthermore, not all accounts are created equal. Some require more interactions than others, and travel can differ widely based on geography, while others require more prep time.
Spending time upfront during the annual planning process can ensure you have the right number of reps to make your number. In fact, we observed that market-leading companies (16% of firms) do four things well in the annual planning process. The first is using a data-driven approach to set numbers correctly.
Interested in the other three? Download our latest research report, Making Your Number in 2020 to learn more.
What is the solution? A two-prong approach will provide a range of required reps with more rigor than the back-of-the-envelope calculation.
Before we dive in, download our Headcount Modeling Tool which will help:
- Organize the data you need to collect.
- Conduct an analysis to see how your current headcounts compare with what you need.
- Engage in a conversation with your leader and peers.
Time Is Money. Understand How Your Reps Spend Their Time to Cover the Accounts
As stated above, the simple calculation does not account for variables that influence how much time a rep spends selling. Factors to consider are:
- Coverage Model- Is the sales motion low-touch or high-touch? How much time is focused on acquiring new business versus retaining current business?
- Sales Force Maturity- Are most of the reps seasoned? Or are most new and still require significant ramp time?
Here are the inputs you need:
- Selling Time %- Understand how much time each rep should spend on selling activities based on their role. For example, field sales versus inside sales.
- Call Activity Times- Understand how long reps spend preparing, having, recapping, and traveling to calls, either through a survey or time study.
- Average Number of Calls-Per-Account- Understand how many calls are required per account. Often, this can be gathered from the CRM system. Segment if this differs by role (for example, field sales versus inside sales).
- Account Coverage- Determined by the model you deploy and differences by role.
From there, the tool will help you understand the annual hours to cover all accounts, the selling capacity needed, and the total number of required reps.
Don’t Leave Opportunity on the Table
In this calculation, you are seeking to match sales rep capacity with market demand. If you don’t have enough reps, that leaves the window open to your competition to take those prospects as their own.
Have you segmented your accounts? If not, read more about How to Go After the Accounts That Will Spend the Most.
First, identify the number of opportunities by relevant segment fit your ideal customer profile. Next, estimate how many calls are needed per account and the average time per call, which likely differs by segment. From there, calculate the necessary selling hours to derive the number of reps needed.
If you haven’t done this before, you might find the results surprising. The potential can differ significantly by rep territory – and is root cause we often see of unequal quota attainment.
Do the Math with Rigor Now to Avoid Pain Later
By employing this approach, you will be armed with data to ensure you have the reps you need and not be caught flat-footed mid-year.
Get started and download our Headcount Modeling Tool which will help you:
- Build a bottoms-up model that aligns with your coverage model.
- Build a tops-down model that aligns with market potential.
- Guide a conversation in your organization to ensure you have the right number of reps to make your number.
Once completed, you will be prepared and inspire confidence in your CEO (and help keep the CFO out of your office). If you need a sounding board from a revenue growth expert, we’re here to help. Click here to contact us and schedule a commitment-free consultation.