Most sales teams make their management decisions with three simple numbers: current bookings, sales goal, and the sales forecast. The problem with this approach is there’s no plan for bridging the current state of the world (current bookings) and sales aspirations (the goal). The forecast only predicts the likelihood that the two will coincide — it doesn’t tell you how to actually connect them.
Capacity planning is the missing piece of the puzzle. It’s a concept that has roots in operations management, and has made it’s way over to sales with the advent of CRM systems and the ability to quantify sales performance.
Executing on sales capacity planning (and subsequently ensuring consistent sales growth) is a matter of asking the right questions. Specifically, these 3 questions:
1. What’s the right company sales target?
As an operational concept, capacity planning matches production capacity with the demand for your company’s product. When applied to sales, capacity planning ensures your sales reps are capable of hitting the overarching sales goal you set for them.
Figuring out the right sales goal is an iterative process. You won’t be able to figure it out with a set formula. The executive team has to sit down, figure out what revenue targets the company needs to hit, then incorporate those in as the sales goal. Start with that aspiration, and revise as needed along the way.
Obviously, matching your sales goal to operational potential is easier said than done, but even if it turns out that the goal is overly ambitious, you have a target to work with as you revise and improve your plan for hitting it.
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2. What’s the right sales goal for individual reps?
The same principle applies to individual goals as for aggregate sales goals. You want your reps pushing to stretch their potential, but setting individual goals that are too aggressive burns them out and ruins the culture of the team.
The right individual goals are large enough to cover the team goal, but not so ambitious that they constantly fall out of reach. A good rule of thumb is to expect 5% of reps exceed the goal, 35% to meet it, 40% to reach 80% of their goal, and 20% of your team to fall short.
A distribution in which the majority of reps exceed their goals means that you’ve underestimated your sales capacity, and need to increase the goals before making more hires. Conversely, if the majority of reps are falling short, it means the goal is overly ambitious, and you need to find levers to increase sales capacity.
3. What goes into winning a deal?
Breaking apart closed-won deals is a critical step in capacity planning. Beyond adding or reducing headcount, the intricacies of capacity planning lie in your ability to measure and quantify performance, and then increase your team’s efficiency or capacity to win deals.
Your answer to this question involves measurement of both time and effort. You should know the exact length of your sales process (including the amount of time it takes to actually deliver service to your customer) and the actions your sales reps must take to spark buying behavior in prospects.
In short, the nuts and bolts of capacity planning lie in how well you understand your sales process. Knowing exactly what goes into winning deals enables you to evaluate the sales team’s current capacity and identify ways of expanding it, either by increasing headcount or fully enabling reps.
The essence of capacity planning is to use the answers to these three questions to develop an actionable plan to manage and grow your sales team. Sales leaders are responsible for production in the same way line managers are — the only difference is your product is income for the company, instead of a product that you can sell.
Take a page out of the operations book, and ask the right questions to understand and maximize the production capacity of the sales team. Your CEO will thank you.
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