It's the beginning of the year, and an important meeting invitation suddenly appears on your calendar.
The CEO will present the new sales goal for the next period. As usual, you'll have to calculate the costs associated with this new goal, and report on how you plan to achieve it. In this case, one of the sales management best practices is to determine if you have enough salespeople to meet your target or if you will need to hire more employees.
The crux of sales leadership is striking a balance between not pushing your team into burnout, but still maintaining an ambitious (yet achievable) goal. Unfortunately, it's too common for sales leaders to reevaluate their goals without considering their team's sales capabilities. Knowing and correctly calculating your number of salespeople makes these goals more easily attainable, generating more leads, closing more deals, managing time spent more efficiently, and ensuring your team doesn't burn out.
What is Sales Capacity and how to calculate yours?
Sales Capacity is the maximum amount of revenue that a given number of salespeople can generate, either monthly, quarterly, semi-annually or annually. We recommend that you analyze your sales capacity in a personalized way and according to the processes applied in your sector.
For example: let's say you work with a salesperson who typically generates 10 leads per month. If he or she has a close rate of 50%, they will probably close about 5 deals a month. This would be the potential of this employee.
The calculation would be:
Opportunities x Closing Rate = Deals per Month
Now, if on average each deal generates $5,000 in revenue, multiply that by the average number of deals per month (in this case, 5) and you'll determine this salesperson's monthly sales capacity. In this example, it will be $250,000 per month. In one year there would be 3 million generated by this employee.
The calculation would be:
Average Deal Value x Average Closes per Month = Monthly Sales Capacity
Now, let's say you want to reach an annual goal of 21 million, and you have 3 salespeople with the same average results on your team. Do you think they would be able to achieve this revenue if you increased their individual sales quota to 7 million per year?
The answer is no, and we'll explain why:
If you work with 3 salespeople who are doing their best to reach their sales quota of 3 million a year, it doesn't matter if you raise this sales quota; they are already at maximum capacity and will not be able to reach this new number.
Let's evaluate another scenario.
When looking at your salesperson's forecast, you discover that he or she has 15 prospects in the sales funnel. That same salesperson needs to talk to 5 people within each company because of their market's sales cycle. So you're looking at 75 people the salesperson needs to meet before closing a deal.
The calculation would be:
Number of prospects x people within each account = total of people
Note that no one will respond to your salesperson on the first try, so let's say it takes him at least 10 attempts (whether by email, phone or direct message) to contact a single person. We already counted 750 attempts.
The calculation would be:
Total prospects x number of attempts = total number of attempts
There are thousands and thousands of contacts throughout the days that take away hundreds of hours of your salespeople. That's why you need to think smartly about how to create your employees' job descriptions.
A salesperson should spend 75% of their time selling, which is about 6 hours a day. Don't forget that your salespeople need administrative time to deal with documentation and the CRM, so that's another 2 hours of work. This already counts 8 hours of work.
But in reality, we know it's not that simple. Many salespeople have resistance with registering their activities and difficulties with handling sales tools. This implies a much higher time spent than planned.
To set a realistic goal, first look at the top salespeople on the team and see how many opportunities they are making. For example, if they are well trained and hard working, and get 10 leads per month, setting a target of 7 or 8 for the rest of the team would be the ideal number.
Remember, not everyone will be a star and guarantee multiple opportunities, so you need to measure your team's sales ability from an average of results.
Are you sure you need to hire more salespeople?
There are some data we need to point out before you open new positions for salespeople in your team:
- Salespeople today are spending less than 37% of their time selling;
- 70% of salespeople have received no formal sales skills training;
- From 25% to 30% of companies have not updated their sales processes in a 1 year.
Given these numbers, let me ask you again... Are you sure you need to hire more salespeople? Or do you need to improve the work efficiency of your current sales team?
Before investing in a higher number of salespeople, it is important to first look at your current team to understand if all improvement points have already been applied, especially when we take into account the current scenario of mass layoffs in startups.
How to evaluate your sales capacity
To assess your current sales team, look at the following 5 points:
1. Evaluate each sales people skills
Conduct an assessment of sales skills and goals achieved to determine your salespeople's current knowledge and effectiveness by role.
Do you have SDR's and Closers?
Do they have the skills to work in these roles and have they been trained?
Conduct assessments, listen to their calls, and run profile tests to determine if they have the full package and are updated with industry practices or if they need improvements on their routines.
2. Review your training structure
It's very important to include training and coaching routines to fill any skill gaps discovered in the previous assessment. It's no use pointing out improvements and not giving the way so that they can update themselves in their positions.
If your leadership is burdened, hire a consulting firm focused on training and modernizing the practices of your current sales team.
3. Accurately measure results
Establish key performance indicators that reveal the results you want. Many teams are only tracking effort KPIs, and this will not determine whether or not your team is really capable of achieving the goals. So, focus on the numbers that will reveal whether your team has what it takes to increase your sales.
4. Reinforce the responsibility of each one with their sales quota
Goals shouldn't be loose numbers, they need to be the heart of the sales operation. The more realistic the sales quotas are, the more focus your team will have on those individual numbers. If your leadership focuses on issues that are not related to this goals, it is likely that your team will not consider these goals as important on a day-to-day basis either. Therefore, predict your goals well and reinforce them day after day so that there are no distractions in the face of the volume of activities. (And, of course, good commission planning also helps motivate your salespeople with their goals).
5. Study your current market
One of the best ways to understand your current sales scenario is to look at your market. How big is your industry territory, and how many accounts are in total in that territory?
If you have a territory that is already 70% explored, it will be more challenging for your team to close new deals, and it is probably more interesting to change your sales strategies. Now, if only, for example, 30% of the territory was explored, it is easier to reach new goals with internal and already trained salespeople.
Before hiring new salespeople, look at your team, process and strategies
If after evaluating all these points you understood that, yes, it is necessary to increase the number of salespeople, study within the sales strategy the type of skills that are missing to raise the level of the team. Hire with this focus, and do a complete onboarding of this professional.
Insight Sales can help you find the best salespeople to masterfully complement your sales organization.
If improving the effectiveness of your current sales team is what you need, schedule a meeting with our team to understand how we can help you.