UNDERSTAND YOUR SALES CAPACITY BEFORE PLANNING FOR 2020
Most companies should be at their end stages of planning for 2020. It’s always relevant to keep the end in mind when planning for important things. What is your end? It can be as simple as increasing bookings YoY. How do we achieve these results? Most sales operations leaders work backwards to determine how many sellers will be needed given goals, including their estimated performance and quotas. Sales capacity is one of the most critical elements of planning to succeed. However, how do you make sure that sellers will produce the same results as seasoned sales reps?
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Here’s a classic example of inefficient planning: we speak to sales leaders who share that they need to grow new business sales by 20+% next year. They know they need more headcount, so they plan to hire six additional sales reps and assign each full quota with marginal ramp time. It’s presumed that the existing headcount plus the new headcount will yield their targets. This is a very perilous assumption since there are many dependencies, and we recommend a more detailed plan by taking the following into consideration:
1. Hire Sooner Than Later
Depending on your market, and location, it takes between 3 and 6 months to hire quality people. Recruiting always takes longer than we think. In a tight labor market, strong talent is even harder to find quickly. Since most decent sellers are waiting for their final commission checks and bonuses for the current year, they may not be looking to start recruiting until after Q4 and potentially into Q1. Realistically, you may not get anyone to start until March or April. If you want to have reps on board and productive for the next Fiscal year, you needed to start the hiring process in Q3, or you’ll have to temper your Q1/Q2 bookings expectations.
2. Avoid Unrealistic Ramp Estimates
A popular miscalculation made by all enthusiastic sales leaders is their assumption that they can ramp reps to full productivity quicker than reality. We will hear that companies have new training processes, more whitespace, additional content or tools in place, and marketing has improved its lead qualification. While there may be exceptions, the average ramp time for a rep to get to full productivity is 4 to 12 months (depending, of course on target buyer). You should always be building better onboarding, but until you’ve proven that the new program decreases ramp time, build your ramp expectations in one of three ways:
Sales Cycle Based – Take your sales cycle and add 90 days for new sellers to source qualified opportunities
Historical Analysis – Use actual data about how long it’s historically taken to get reps to full productivity. Adjust slightly for new tools and trainings.
Training Heavy Model – Take your training period and add sales cycle duration with a modest adjustment for experience
Be cautious about placing overly aggressive ramping requirements on your reps. If for various reasons reps don’t ramp at the pace you need them to, you’ll find yourself with demotivated reps, or reps that check out before they can fully ramp. And you run the risk of missing company goals.
3. Account for Attrition
Today you have 12 reps in territory and 6 new ones ramping up (yes, you hired early and made realistic ramp assumptions). You’ve done the math and, assuming various levels of productivity, your sales capacity model suggests you are on track to hit your targets. Fantastic planning! The unfortunate truth is that there is always attrition. Regardless of why reps leave, you need to account for up to 20% turnover. This means that you should build some slack into the model to ensure you hedge for team member fluctuation. You can do this through over-allocation of quota (we recommend no more than 15%), over-hiring, and deploying more productivity enhancing tools like Outreach or Salesloft.
4. Ease Cash-flow Stress on Reps
Starting in a new sales role is difficult. A seller needs to learn about the company and its products, adapt to the culture, learn the internal processes and systems, and transition from any former sales methodology to your company’s way of selling. It takes time to adjust, let alone to start closing sales. Depending on sales cycle length, the complexity of the sale and the ASP of the deal, a rep will likely not make any commission money for a few weeks, or months. Those reps will need a bridge on their variable incentive to ensure that they can ramp successfully and aren’t constantly worried about how they’ll make ends meet. Best practice is for companies to provide 3-6 month draws for new reps to ensure that they can earn part of their variable incentive while they start to ramp and close actual sales. Keep in mind, this is different from a floor that guarantees a set amount, we find that reps take longer to ramp when a set floor is in place. A tool you might find useful is QuotaPath, it helps sales reps determine their take home pay and plan for success.
5. Plan differently for new markets
New market expansion is complicated. Your business needs to establish its brand, build a reputation and develop customized training and content to support the sales teams. Those fundamentals need to be in place well before the launch into the market. As a result, you’ll need to plan for a much longer ramp period to account for all these things. Additionally, finding talent may be more difficult since your company has no track record of success and you’re asking local talent to take a leap of faith in your company. This will also require different compensation structures to allow reps to seed the market and cultivate it over time.
The upside to these new markets may be significant which is why detailed planning is critical. Given the complexities and dependencies, we recommend that companies contact us well in advance of launch to work through these issues.
6. Include cross-functional dependencies
While recruiting and ramping reps is the sales team’s focus, many other company teams need to be included in the planning process. The marketing team needs to be ready to drive more leads and potentially support new markets. Sales operations needs to be able to scale to support and manage an expanded team. Within sales, you’ll potentially need additional managers. All of these things need to be factored into the planning process.
If you haven’t already addressed some of these things for 2020, it’s time to start. You can still have top performance year.
SalesLabX Ops Group has seen many companies in this situation and there are ways to address it – although, fair warning, you may need to temper your expectations or change some of your strategies. For example, if you don’t yet have reps in the pipeline but have major hiring needs, look at outsourcing a portion of your sales process. If you haven’t planned for realistic ramp time or rep attrition, take another look at your quota allocation specifically for tenured reps; we find that many companies underestimate the amount of productivity a tenured rep can generate compared to new hires. You can also modify spend on non-core items to cover the cost of non-recoverable draws and productivity tools. There are many ways to work through insufficient planning and get you to your end goal.
Advanced and comprehensive planning can ensure that your 2020 meets your expectations and unfolds effortlessly.