This is the simpler approach and used by many sales leaders. There are five key components to consider: hiring capacity, ramp rate, quota attainment, attrition and seasonality.
If you have 10 reps each carrying a quota of $50k per month your coverage is:
- Monthly Quota Coverage: $50k x 10 = $500k
- Annual Quota Coverage: $500k x 12 = $6m
If your new goal is $12m, you need an additional quota coverage of $6m, which needs to come from your TBHs. You might think, “Well, that’s easy, I just need to double my team, right?” Not so fast. You’d be foolish to think you can have all 10 start on the first of January. A recruitment plan and process is the topic of another blog, but needless to say you need to think about the resources today you have to support your hiring needs. It is a good idea to set achievable hiring goals and understand how many people you can hire over a specific period of time.
Most teams have a quota ramp rate that is more ambitious than what actually occurs. This is dangerous for two reasons.
- You miss your goal
- Your new reps get started on the wrong footing (i.e. failing) and don’t believe the goal is achievable
In order to predict more accurately and indeed set more realistic quotas, cohort your new starters and normalize the dates to see how they do in month one through month twelve. This will help you see how they actually ramp. In the analysis below you can see that it took seven months before this group of new employees delivered anything! If you did what many sales leaders do and gave them a three month quota ramp, you’d be in trouble.
As much as we like to think we will have 100% success 100% of the time, that’s just not how it works. A quota coverage model is very sensitive to the assumptions you make around performance against quota. An accurate Quota Heatmap will help make accurate predictions. In the example below, you can see that on average, this team only achieves 54% of the quota roll-up. Assuming 100% success with this team would be fatal. It is prudent to assume a buffer between quota roll up and the company goal. There is no right answer here. I have seen buffers between 15% and 30%, but this is company specific.
We all hope we hire right, everyone we hire ramps fast, and they all stay on board. The reality is always somewhat different. People leave, people get promoted / transferred, and people get fired. It’s just that simple. So I caution you to factor in some amount of attrition. I’d suggest working with your HR team to understand the historical data around this. Then, look at your current team and look for reps at risk. I like to use two numbers:
- % for those in ramp: Usually higher as these people are not known and there is more risk
- % for those who are ramped: Usually lower as these people are known quantities
Most companies have some sort of seasonality. This could be unique to your industry, based on the budget / spending cycles of your customers, or could just follow the typical end of quarter spikes—a slower summer and bumpier Q4 pattern. This might be tricky if you have not had enough time to see a pattern, but looking at bookings or billings numbers over the trailing 12 or 24 months will give you a good idea.
As you can see from this image, the number of new hires (those in yellow) is not ten, but actually 30! Much different than what we might have expected at the beginning of this exercise. This models shows a quota roll-up of $13.7m. Divide this by 1.15 = $12m, which is the goal you need to achieve.