Annual Planning for Sales Organizations: Headcount, Quotas & Territories
This time every year, sales and sales operations teams work with their business partners in finance, marketing and other functions to set their annual sales plan for the coming year. This is an iterative process, with interdependent decisions all working together to impact the final result. One way to approach this complexity is to separate out the three key components of sales planning.
1. Headcount Planning
The total number of individuals you want to add to the sales organization will depend on a number of factors, and you may revisit initial decisions here as you have more information when you move into quota setting. But headcount planning is often a useful place to start because the inputs required to make decisions are the least dependent on factors outside of the sales organization.
The first question to answer here is how many account executives you want to add to the organization. This decision will drive many of your other headcount decisions. You want to base this decision on data around how many account executives the surrounding organization can support. The questions you’ll want to answer here include:
Do our existing unit economics support hiring additional AEs?
I’ve written much more extensively on the topic of how to know when you’re ready to scale, but what much of it ultimately comes down to is confidence that a customer’s lifetime value to the organization far exceeds the cost to acquire that customer. If that’s not currently the case for your organization, then you’ll want to have a plan to improve sales productivity that includes a timeline of when you think the unit economics will support additional AE hiring.
How many AEs can the infrastructure of the sales organization support?
New account executives will need account books to prospect into and will need training and onboarding from sales enablement and ongoing management and coaching. Given the current resources of your organization, how many viable account books can you create that represent real whitespace to be sold into? How many direct reports do sales managers currently have? If these factors are limiting your growth below where you want hiring to be, what is your plan and budget for data, sales tooling or additional management hires to expand the number of AEs your organization is able to support?
How many customers can an account manager effectively work with?
What is your ideal size of account book for an account manager or customer success manager? This will differ significantly based on how complex your product is and how high or low touch your ongoing interactions are, but with your current customer count and a rough count of additional customers coming in during the year, as a result of your AE hiring plan, you should be able to develop a view on how many account managers you’ll need.
What ratio do you want between AEs and other sales roles?
How many SDRs do you want to have per AE? How many sales managers per AE or AM? What level of sales operations and enablement support is required? Most of your remaining headcount decisions will be driven by the decisions around the number of quota-carrying reps from above, in coordination with the finance team to ensure that overall targets for growth and burn are being met.
2. Quota Setting
If you have historical data on AE productivity, that’s usually the right place to start in setting AE quotas. As a first step, you’ll want to break out past AE bookings into the sources of those bookings during the prior year to determine how much marketing contributed to the total, how much came from SDR outbound and how much from AE outbound. Then, within each of those buckets, you can have internal conversations about how those numbers might change in the year ahead.
Marketing bookings are often the most difficult to scale with headcount, as “low-hanging fruit” may already be captured by current marketing efforts, and additional paid digital advertising, content marketing, etc. will focus on moving prospects closer to making a buying decision rather than identifying those already primed to purchase. This bucket is best thought of as marketing’s overall contribution to bookings, which will then be split across the total number of AEs in the organization. As a result, more AEs will mean less marketing contribution per AE, which will impact the level at which quotas are set.
SDR and AE outbound bookings, on the other hand, should scale with SDR and AE headcount. These are areas where you may build in improvement over time as reps become more tenured, marketing collateral becomes more sophisticated and the product develops.
Finally, it’s always good to “backcheck” your AE quota numbers by looking at what they imply for your key metrics leading into bookings. What are you expecting in terms of win rate, average deal size, number of opportunities an AE is able to carry and sales cycle time that will lead to their overall quota number or to the productivity improvement you’re expecting on their outbound bookings?
Account Manager quotas are often easier because each account manager will start with a baseline amount up for renewal that’s equal to the amount that the customers in their book of business spent during the prior year. To set an AM’s quota based on that number, you’ll want to look at what the net dollar retention rate was on customer bookings from the prior year. That will give you a starting point for how much the AM’s quota should flex up (or down) from the baseline up for renewal.
Of course, as your organization grows and becomes more sophisticated, you’ll then want to segment the type of account in certain ways – it may be account size or spend, or number of years that they’ve been a customer, but there will be certain key factors where you’ll expect accounts to have different net dollar retention rates based on certain characteristics. When setting quotas at the account-level based on the prior performance of similar accounts, one thing to be wary of is a “small sample size problem.” If you had two hundred accounts up for renewal with the same set of characteristics, the overall results of those two hundred accounts will likely tell you something predictive. If you only had ten accounts, it’s unlikely that you can extrapolate the results from those ten accounts to all other accounts that “look” the same.
3. Territory Planning
From the quota setting exercise, you know how much of their quota you expect AEs to self source, and because you’ve checked that number against the underlying AE bookings formula, you also know how many opportunities AEs need to create for themselves as follows:
Quota / Average Deal Size = Number of Deals Won
Number of Deals Won / Win Rate = Number of Opportunities Created
If you then look at the AEs’ historical conversion rate from an account touch to opportunity creation, you should have a sense for how many accounts AEs need in their books in order to successfully hit their quota. If you have enough historical data and have a system for tiering your accounts, you can do this exercise by account tier to determine how many accounts of each tier an AE needs.
From there, if your AEs all carry the same quota, you’ll want to make sure their books are balanced, such that they all have equal opportunity to hit that quota.
The considerations for drawing territories for account managers are slightly different. The size of an account manager’s territory is based primarily on how many accounts one AM can effectively work and still reach the organization’s targets for renewals and upsells. Again, this may be different by customer segment or tier.
Once you’ve decided how many accounts each account manager should own, the question then becomes one of the prioritization of competing demands. Many organizations choose to prioritize account continuity, trying to keep as many accounts as possible with the same account manager who currently owns the account, in order not to disrupt existing relationships. That factor has to be weighed against the desire to create balanced account books and the need to create new territories for AMs who have been or will be hired as the total number of customers grows.
Putting It All Together
Often in the course of gathering the information necessary to set quotas and draw territories, you’ll learn new information that will impact the decisions you’d made previously around headcount planning. Or, for account managers specifically, quotas will often come from their final account assignments instead of the other way around. Recognizing that this process may be iterative and setting frequent checkpoints to review current thinking with stakeholders in other parts of the organization will allow for the smoothest possible planning process.
CTOs from PlanGrid, One Medical and AdRoll weighed in during a recent panel discussion led by Grant Miller, CEO of Replicated.
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