Is your sales organization appropriately staffed, or are there gaps in your headcount? Many CFOs base their sales team size on faulty assumptions or a narrow view. Underestimating leads to missed opportunities, while overestimating can erode profits — both costly errors when your sales revenue targets are at stake. Today, we'll explain how to calculate sales force size correctly, starting with recognizing and avoiding common pitfalls. Remember, achieving growth that outpaces your competitors hinges on getting your sales headcount just right.
Three Things Many CFOs Get Wrong
- Betting It All on Sales Revenue per Head
Relying solely on revenue per head to determine your sales force size is ineffective. This metric — a lagging indicator — fluctuates and should not be the only factor in sizing decisions. Additionally, not all revenue per head is created equal. Cost per head may be higher or lower depending on your sales model. We'll explore this further, but remember that deal sizes also play a significant role in this dynamic.
- Overlooking Team Ratios and Spans of Control
You can’t calculate the size of your sales force without scrutinizing your team ratios and spans of control. Suppose you have one seller for every five solutions engineers or the high cost of a one-to-one ratio. Similarly, on the management side: Are you top-heavy? Or are sales managers spread too thin? If these ratios are off, you’re either losing sales or drowning in overhead costs. Either way, it’s impacting your bottom line.
- The Trade-Off Between Sales and Marketing
CFOs often look at their sales and marketing spend in aggregate, but this approach can be misleading. Reducing marketing budgets to bolster sales might result in a depleted lead pipeline. In some instances, shifting resources between departments can be advantageous, but this should only be done if the decision is strategically sound.
To Calculate Wisely, Consider These Carefully
The following questions should factor into your equation.
- Your market: What accounts reside within your market? How much market share are you trying to obtain?
- Your buyers: Who are they? How do they prefer to buy? You'll need more inside sales reps if your customers buy over the phone. Otherwise, a field-heavy sales team makes more sense.
- Your sales model: The size of your sales organization is primarily determined by its structure. Costs will vary across models. The geography model is an efficiency play; the industry model is an effectiveness play. Experts in a given vertical may cost more but also bring higher sales prices and conversion rates. More than one of the following organizational models may apply:
- Stratification: Diverse sales roles such as field, inside, and strategic accounts sales are distinctly segmented.
- Hunter-farmer: Sales teams are split into hunters who focus on new client acquisition and farmers who focus on nurturing existing customer relationships.
- Geography: Sales responsibilities are distributed based on distinct geographic territories.
- Industry: Sales efforts are specialized by industry, leveraging sector-specific expertise.
- Product-specific: Dedicated sales teams are formed for each product or product line.
- Buying roles: Sales activities are targeted towards specific buyer roles like CEOs or CIOs.
- Hybrid: Combines elements of multiple strategies for a tailored sales approach.
- Your roles: You need a headcount plan by role. You’ll want to do a pro forma revenue and cost level to ensure your mix is accurate.
Now comes the hard part: determining your execution strategy. Should all elements be implemented simultaneously, through a rapid build approach, or via a safety build scheduled for six months later? Alternatively, consider a pay-as-you-go model, where revenue generated by new sellers funds subsequent hires. The financial implications of this decision are critical, potentially determining the achievement of your annual revenue targets.
Time to Do the Two-Step Analysis
The path to your ideal headcount isn’t a straight line. It’s more of an intersection between two analyses.
- Top-down analysis: This analysis is more straightforward. For instance, if your target revenue for next year is $100 million and the average revenue generated per seller is $10 million, a basic calculation indicates the need for 10 sellers.
- Bottom-up analysis: This is more complex, particularly without knowledge of the sales cycle length or the number of interactions required to close sales. The focus here is on capacity planning. For example, if each seller can handle 10 accounts, and it's estimated that half of these accounts, or five per seller, will generate revenue with an average deal size of $1 million, then each seller is expected to close $5 million in sales. Therefore, to achieve a $100 million target, you would need 20 sellers.
In the end, the results of these two analyses may not align, however, taken together, they will point to the optimal size for your sales force. Utilizing the SBI Seller Calculator makes it simple to calculate how many sellers you need to make the number; just input your specific data.
The Broader Your View, the Greater Your Precision
Based on top-down and bottom-up analyses, you've identified your sales structure and ideal sales force headcount, creating an optimal team composition and a plan for execution you know you can afford.
With these pieces in place, you are well-prepared to formulate your sales budget and achieve your sales revenue targets efficiently and effectively.
What's next after you have the ideal size for the sales force? Try these articles.