Your Complete Guide to Annual Planning (Part 2): Building Sales Capacity
Our five part series on Annual Budgeting for Tech Startups
Welcome back to Part 2 of 5 in our Annual Planning series. I haven’t been this excited for a series since I followed Nickleback on tour throughout Northern Canada in the summer of 2008.
Today we’ll be modeling out sales capacity, assigning quota, and verifying our tops down revenue targets. We calibrate this using a combination of historical figures and through a lens of what behaviors we'd like to incentivize for next year.
Topics we’ll hit:
What is sales capacity, and how do you model it?
Understanding quota relative to pay
Ramping reps up to speed
New vs existing deal volume
The mechanics of over assignment
The impact of seasonality
The pod and surrounding resources
Common mistakes with capacity planning
Final sanity checks
What is sales capacity:
Productive Capacity: Think of this as the size of your company’s engine, or revenue potential.
When you start the year, you may only have a 16 gallon tank, which can take you up to 250 miles.
But if you keep hiring throughout the year, you can add additional capacity.
And the people you have on board get better and better gas mileage as they mature in their roles, build pipeline, and get to know the product they’re selling.
You want to tune your engine’s “productive capacity” to be able to hit certain mile markers along the way - otherwise known as your quota plan.
Bottoms Up: A sales capacity model is a bottoms up build of your company’s revenue potential, using each unique account executive that brings in new deals as a building block.
Based on their specific segment (e.g., SMB, Midmarket, Enterprise) a rep should have an annualized quota target they are expected to hit when they are fully up to speed, or ramped
You add reps to the mix throughout the year to come up with an “effective” bottoms up quota capacity.
For example, you may have 14 bodies in seats, but only 11.5 “effective” reps at that point in time.
Below is a downloadable template of the model above to modify on your own:
