How Capacity Planning Can Help You Effectively Budget and Forecast for Your Inside Sales Team

Every sales leader has a duty to balance sales and revenue targets with the output that their team can realistically achieve. Too often, this is mismatched. Targets are unrealistic, headcount is stretched thin, and results are therefore underwhelming. 

The weapon of choice for most is capacity planning. When done well, this helps leaders to revolutionize their budgeting and forecasting — driving consistent floor performance, curbing overspend and reducing uncertainty for the year ahead.

So, how do you carry out capacity planning in “the right way”? Ask this question, and expect a million answers. While every business will adopt its own unique capacity planning model, there are some “best practices” that will hone your edge. In this article, we’ll uncover how capacity planning can unlock the true potential of your inside sales team and set the stage for unprecedented success. Say goodbye to guesswork, and hello to a streamlined, results-driven approach.

Capacity planning means more than just an annual workload review; it’s the bridge between the current state of sales performance and where you want to be in a year’s time. At its most basic level, it means assessing the workload, resources and capabilities of your sales team to determine the appropriate headcount and the extent of hiring needed to achieve your sales targets.

Capacity analysis typically combines historical data, sales projections and market trends to forecast future demand and identify potential gaps in workforce. By understanding what your team can achieve in its current state, you can then assign additional resources to scale effectively and optimize productivity in line with your goals.

Not only will confident capacity planning build confidence and trust within your sales team, it also adds value into a number of key business areas:

Capacity planning arms you with the data to estimate the number of sales reps needed and their associated costs. By aligning your budget with the expected workload, you can avoid over- or under-staffing, reducing overspend or team strain. Capacity planning essentially keeps team optimization lean and cost-effective.

By delving into historical data and projected market trends, capacity planning can lend itself to more accurate sales forecasts. The data should enable you to anticipate demand fluctuations, prepare for seasonality, and adjust sales strategies according to predicted market movement.

Capacity planning gives strategists a view into bottlenecks and resource gaps in the sales process. With the right number of reps, you can streamline workflows, reduce response times and take other steps to improving team efficiency — making a clog in your workflow far less likely.

By understanding your team’s strengths and weaknesses in detail, you can allocate resources such as training, tech and coaching based on data. Sales reps are then equipped with the necessary tools and support to hit their quota — without overspending budget.

Implementing effective capacity planning isn’t always easy. As mentioned above, every business will have their own process for budgeting and forecasting. There isn’t a one-size-fits-all. It can vary by approach, sales cycle length, ramp, motion (inbound, outbound, blended), existing pipeline and almost all other influences that make your sales process unique.

That being said, there is a basic skeleton process that most strategists follow. Here’s a step-by-step process for ensuring your capacity planning is clean and optimized.

Start by collecting the historical sales data that is relevant to your operations, targets and overall performance. This will usually include analytics such as seasonal conversion rates, pipeline velocity and average deal size.

Identify the key performance indicators (KPIs) that align with your sales performance. If you’re dealing with purely inbound work, this may be response time, average call duration or follow-up rate. For outbound it may be speed-to-qualification, activity rates or first time appointments (FTAs). Either way, you’ll need a refined list of metrics in place to measure the output of your headcount overtime.

Estimate your expected workload by considering the achieved revenue in the previous year in relation to the amount of sales floor activity that was actually conducted. Consider factors such as seasonal variance, product launches, marketing and industry trends that may impact results.

Compare your forecasted workload with your team’s existing capacity in order to identify shortfalls. If any gaps are seen that can’t be bridged by reassigning resources, you’ll want to determine the deal size for every role on your floor. This will help you to understand the level of seniority required when hiring.

Just because you have identified a shortfall, that doesn’t automatically mean you need to hit the hiring market. You can streamline your inside sales processes by identifying any bottlenecks and inefficiencies that may hold back performance. It’s likely that there are opportunities to automate repetitive admin, deploy better tools or even provide training early to enhance team productivity. This will all be relative to your resource gaps.

Capacity planning is an ongoing process — that’s why the metrics defined in step two are so crucial. Forecasted performance will always be an estimate — no matter how clean your data is, or how fine-tuned your capacity planning has been. There’s always the potential for unexpected attrition, absences or market trends to scupper your predictions. Regularly review and update your forecasts in line with real-time performance and make necessary adjustments to optimize capacity utilization.

Attrition rates have the potential to be unpredictable — especially in sales. Turnover hovered around 35% per year for sellers in 2021 and 2022 according to HubSpot. Considering the “ideal” churn rate for employees all-in is around 10% per year, turnover is currently far beyond what is normally expected.

When a top performer leaves your team, that leaves you vulnerable. The process of hiring, ramping and onboarding a replacement can be both time-consuming and expensive — and adds additional strain to your capacity planning predictions. Of course, you should always factor in your turnover rates when making these estimations — but it’s always worth keeping an eye on your best salespeople to ensure they are satisfied and fulfilled in their role.

Only 48% of business leaders make data-driven decisions — the rest are based on gut feeling. Like everything inside sales, there’s no room for guesswork when it comes to capacity planning. Rooting your forecasting in opinion or instinct just isn’t sustainable. In fact, it’s more likely to leave you scrambling to meet top-line targets with unsuited, untrained or burned-out sales reps.

The key is to set top-line targets that are both ambitious AND attainable, to keep your sales team motivated and performing throughout the year. This is where effective sales capacity planning offers the upper hand. Almost everything needs to be rooted in evidence and cold, hard facts. Diving into data insights is the only realistic way to set actionable KPIs and forecast reasonable growth, while also understanding what your team needs to execute and succeed.

If you are preparing to hire new team members, you need to factor ramp time and quota attainment into your capacity calculations. A new hire will not hit the ground running immediately, and their performance may be inconsistent at first. Your new seller may be less efficient at closing deals than their senior counterparts, or they may be eager to impress and go above and beyond immediately. Until they are actually in the seat and firing, this can be a tough one to call.

Calculate ramp time and an onboarding plan that estimates the time needed to get new reps up to speed and meeting their revenue targets. When this is considered in the capacity planning process, businesses can offset overambition and deploy a more achievable, sustainable path to growth — rather than seeing continually missed targets that don’t paint the full picture.

Capacity planning is as much about reviewing your people as it is reviewing your strategy and structure. The beauty of this process is that it gives business leaders an opportunity to evaluate their team’s individual strengths, and look at trends in growth to forecast resource demand based on expected workload increase, new targets or low performing KPIs.

As headcount is usually the most significant outgoing expense for a business, a capacity plan will help key stakeholders to build an understanding of their return on investment from team members, and their return on effort from previous recruiting. By doing so, you’ll be able to set a strong standard for hiring processes across the year, setting milestones and backing up decisions with concrete data on what top performers look like.

Reflection is a powerful thing. Forecasting and budgeting for the year without consideration for the previous year’s data is essentially a shot in the dark. It’s a totally pointless exercise.

Incorporating confident capacity planning results in realistic, achievable goals for your sales team that are rooted in well-judged KPIs, rather than blind guesswork. This influences everything from rep morale and motivation to the number of opportunities and leads that your floor actually converts.

Good capacity planning will also help you to understand how to budget effectively to scale your sales team throughout the year. It’ll allow you to view underperforming areas in your team and visualize where budget and resources are better placed.

TLDR: Competent capacity planning is invaluable. It ensures your budgeting and forecasting is tactical, well-informed and based on cold, hard fact.