How do you know when to add another seller to your team?
I recommend taking a lesson from hardware/software development teams everywhere:
Reverse engineer the answer.
How do we do that? By working backwards through the following data points:
- Bookings Target (E)
- Average Sale Price (or avg. TCV) (D)
- Opportunity Win Rate (C)
- Lead Convert Rate (B)
- Total Leads Needed (A)
Going backwards from your Bookings Target to your Total Leads Needed tells you exactly what’s required to hit your goal.
If your head is swimming after reading all that, that’s OK. We can look at all of it in reverse – or really, forwards – to clear up any confusion.
- Your Marketing activities generate some number of Leads (“A”).
- A percentage of those Leads are converted to qualified Leads, which are more recently referred to as Opportunities (“B”).
- Your Sales team wins some percentage of Opportunities (“C”),
- …at some Average Sale Price or Total Contract Value (“D”),
- …thus you achieve your Bookings Target (“E”).
As long as A x B x C x D equals E, you live to fight another day. So that’s what you plan for.
Going one step further, identifying your Lead Generation Rate and factoring that against your Marketing activities informs your Marketing spend required. I’ll get into that more closely in another post.
Next, determine the following:
- Number of Leads a Business Development Rep (BDR/SDR) can work per week
- Number of Opps an Account Executive (AE/”Seller”) can work per week
Now it’s a matter of applying the answers to your headcount plan. For example:
- # Opps / Opps worked = minimum AE headcount required
- # Leads / Leads worked = minimum BDR headcount required
Notice I said “number of Leads someone can work per week…”. When identifying this number, I suggest looking only at the top 20% of your sellers. What number of Leads do your top BDRs work per week? What number of Opps do your top AEs work per week? This informs your interviewing and hiring. Tell candidates the hard facts and work together to identify whether or not they’ll be a productive member of the team.
It’s important you look at these numbers based on what’s required to hit goal. You aren’t hiring for what you need to close just to survive the current sales year. Staffing based on the current number of deals in your pipeline doesn’t get you to the finish line if you’ve only got half the pipeline required.
If you plan for today’s goal, the end result may be achieving just 50% of plan and the doors closing behind you.
Once you’ve gone through the above calculations and determined your basic headcount needs, you need to refresh them regularly. Do it once a month. Update all your inputs. In a healthy business, the data points from the first section above are increasing all the time. This means you need to update your calculations all the time. Doing this monthly also identifies gaps to plan, letting you know which areas need extra support from your exec staff and other leaders.
Always be testing (your data).
Test today’s output against next year’s goal. Plan forward for hiring, e.g. one lead-to-close cycle. Remember to account for seller ramp time (also known as “rep ramp time” or “rep ready time”).
You’ve got an extremely powerful tool at your fingertips.
Reverse engineering can be used for far more than sales headcount planning. It can take you beyond simply reaching your goal and into dramatic overachievement. Imagine taking the following factors into account:
- Average quota attainment
- Sales turnover
- Sales backfill needed at any given time
Imagine if you could extend this out to recruiting:
- Percentage of successful hires
- Percentage of candidates you hire
- Percentage of candidates who get past screening
- Number of candidates your Sales leaders and recruiters are bringing in
This latest exercise tells you how many candidates you need per new job opening and whether or not your recruiting practices are addressing your needs.
Want to take this even further? You can reverse engineer your employee development needs. Look at the top 20% of your entire operation to determine rough training plans for your bottom 80% (the Pareto principle). Think about factors including:
- The number of Leads generated per day by the top 20% of Marketing campaigns. What’s happening with those campaigns that isn’t happening in the rest? How can you get the “tier 2” campaigns up to par with those in tier 1?
- The proof-of-concept success rates of your top 20% of Sales Engineers. What are those SEs doing that the others aren’t?
- The hiring rates of your top 20% of managers. How active are they in constantly building their networks of potential future hires?
With each “drill-down” question, it’s critical that you ask with sincerity and respect. You’re looking to break things down and figure out how to reproduce those tactics which have the highest return, you aren’t looking to bring the proverbial hammer down on what (or who) isn’t working.
At first, keep it simple.
You may want to dive right into looking at your recruiting cohorts, market segments, and more, but it’s important to keep things simple at the start. Determine your initial high-level plan and refresh that plan monthly for at least a couple of quarters. Once you’ve got that nailed down, that’s when you want to consider drilling down into real nuts and bolts.