In October 2022, just like most companies, we set ambitious growth targets. I was then compelled to devise a capacity plan that would enable us to achieve these objectives. Traditionally, we've relied on intricate, Excel-driven models laden with assumptions on attainment, pipeline, and execution. However, it was time to shift gears, given that these tactics were no longer effective in the ever-evolving business landscape. I didn't want to find myself justifying to the board why I missed hiring targets or unsuccessful reps due to overhiring. I've witnessed the repercussions of such scenarios before. In this post, I'll shed light on a new-ish approach to capacity planning and its potential to revolutionize how SaaS businesses operate.
The Capacity Gate Approach:
Rejecting conventional methods, we opted to implement capacity gates. These gates enabled leaders to hire additional team members if they met specific productivity metrics. The challenge lies in identifying the appropriate metrics. After thorough discussions, we agreed on the following criteria:
80% of the team must achieve at least 80% attainment
The team must achieve over 100% of the team's target
Our pipeline mix must be within a margin of our benchmark (i.e., we didn't want a massive upsell to drive all of the attainment)
Meeting these metrics would indicate that the market requires additional capacity. To incentivize the leadership team to surpass these metrics, we granted them the new capacity without burdening them with increased quotas. This strategy encouraged leaders to focus on enhancing their teams' productivity, yielding direct benefits for them.
The Incentive Structure:
This innovative approach fostered a mutually beneficial environment for the leadership team and the account executives (AEs). Managers were highly motivated to boost their teams' productivity, while AEs were incentivized by automatic promotions linked to performance. Upon reaching the predetermined numbers, the team would be rewarded with one new hire, with the cycle repeating itself as they continued to achieve those numbers.
One important factor in the incentive structure is that the manager gets that extra capacity for free (no added quota). This is essentially the cost of driving a really efficient team. After modeling it out, it tends to be a much lower cost than having a lopsided team where some reps are hitting 200% and the others are at 20%.
The Results:
Although it's still early days, I'm genuinely enthusiastic about the progress we've made. Implementing the capacity gate approach and aligning incentives across the organization has led to the following benefits:
A strong alignment of individual efforts with the company's growth objectives
Responsibly increasing capacity based on real business signals (2 out of 3 teams have achieved the targets)
A more efficient sales organization with a focus on collective success
Relief for my CFO, who no longer worries about overhiring without the accompanying growth
While our approach may not be suitable for every organization, it has undeniably transformed our capacity planning process, resulting in a more efficient and focused sales team. By moving away from the spreadsheet-driven model, we have effectively aligned the efforts of our entire organization to drive growth responsibly. However, selling this idea internally may come with its own set of challenges and potential risks.
Firstly, there could be resistance from various stakeholders who are comfortable with the traditional methods and may be hesitant to adopt a new approach. It's important to address their concerns by showcasing the potential benefits and long-term impact on the organization. Demonstrating early successes, as we've experienced, can help build trust and buy-in from stakeholders.
Secondly, implementing this new approach may require adjustments to existing processes, tools, and compensation structures. These changes could lead to initial disruptions and uncertainties within the organization. It's crucial to model out different compensation scenarios so the finance team is comfortable with such a drastic change.
Lastly, the capacity gate approach may put pressure on the leadership team to meet the predetermined metrics, which could potentially lead to unintended consequences, such as focusing solely on short-term gains. To mitigate this risk, it's vital to maintain a balance between achieving the metrics and nurturing long-term growth strategies, as well as continuously monitoring and adjusting the approach based on feedback and results.
While our innovative capacity planning approach has led to numerous benefits, it's essential to be mindful of the potential risks when selling the idea internally. Open communication, addressing concerns, and providing support will be key to overcoming these challenges and ensuring a successful implementation. If you have any questions about the implementation process or would like further insights, please don't hesitate to reach out.
This seems to be a risk adverse plan which is great. I handled that at a previous company with the “plus1” model. Allow leaders to hire an additional rep per territory without any quota increase to them.
The magic however is to decouple the relationship between rep and quota. A rep isn’t buying the product, a rep is selling your product to a specific group of customers or territory. You need to assign the quota to the client or territory and then hire the reps to fulfil that quota potential. If you inverse that relationship, magic can occur.