Capacity Planning
Definition
Capacity Planning is the process of forecasting sales capacity needs, tracking current capacity, and managing the gap between current and target capacity through hiring, backfills, and resource allocation.
Why It Matters
- Revenue predictability: Align capacity with revenue targets
- Budget efficiency: Right-size hiring and comp spend
- Proactive hiring: Stay ahead of attrition and growth needs
- Quota fairness: Set realistic targets based on actual capacity
- Executive confidence: Give leadership visibility into capacity health
The Quarterly Capacity Planning Cycle
Phase 1: Assess Current State (Week 1)
1.1 Calculate Current Capacity
Current Capacity = Σ (Active Employees × Ramp %)
Example:
- 15 fully ramped reps × 100% = 15.0 RRE
- 3 ramping reps × 60% = 1.8 RRE
- Total: 16.8 RRE or $6.72M capacity
1.2 Identify the Gap
Gap to Target = Target Capacity - Current Capacity
Example:
- Target: $10.0M
- Current: $6.72M
- Gap: $3.28M (shortfall)
1.3 Analyze Root Causes
| Root Cause | Impact | Example |
|---|---|---|
| Attrition | Lost capacity | 5 people left in Q4 = -$5.0M |
| Ramp drag | Partial capacity | 3 new hires at 25% ramp |
| Leaves | Temporary loss | 1 person on LOA = -$1.2M |
| Unfilled roles | Missed hires | 2 TBH positions not filled |
Phase 2: Forecast Future Capacity (Week 2)
2.1 Predict Attrition
Use Capacity at Risk metric:
Predicted Attrition (Next Q) = Current Capacity × Historical Attrition Rate
Example:
- Q1 2026 Beginning Capacity: $7.0M
- Trailing 4Q Attrition Rate: 13.5%
- Predicted Q1 Attrition: $945K
2.2 Account for Ramp Progression
Existing ramping reps will increase capacity:
Example:
3 reps currently at 60% → will be 85% next quarter
Capacity gain: 3 × (85% - 60%) × $1.2M = $0.9M
2.3 Model Backfills and New Hires
For each planned hire, calculate quarterly capacity contribution:
Example: Hire starting Month 1 of Q1
Month 1: $100K × 0% = $0
Month 2: $100K × 25% = $25K
Month 3: $100K × 50% = $50K
─────────────────────────────
Q1 Contribution: $75K
2.4 Calculate End-of-Quarter Capacity
EoQ Capacity = BoQ Capacity
- Predicted Attrition
+ Ramp Progression
+ New Hire Contributions
Example:
BoQ: $7.0M
Attrition: -$945K
Ramp progression: +$0.9M
New hires (4 planned): +$300K (partial quarter ramp)
────────────────────────────────
EoQ: $7.255M
Gap to Target: $10.0M - $7.255M = $2.745M (still short)
Phase 3: Build Hiring Plan (Week 3)
3.1 Calculate Hiring Need
Total Hiring Need = Gap to Close + Expected Attrition
Example:
Gap to close: $2.745M
Q2 expected attrition: $945K (assuming 13.5% continues)
────────────────────────────────
Total need: $3.69M capacity
At $1.2M annual quota per rep:
$3.69M / $1.2M = 3.1 FTE
→ Need to hire 3-4 people in Q1
3.2 Build Hiring Timeline
For each hire, determine:
- Start date: When can they realistically start?
- Role/quota: What will they carry?
- Ramp schedule: How will they progress?
Example Timeline:
| Hire | Role | Start Date | Annual Quota | Q1 Contribution | Q2 Contribution |
|---|---|---|---|---|---|
| Recovery Hire #1 | AE | Month 1 | $1.2M | $75K | $300K |
| Recovery Hire #2 | AE | Month 1 | $1.2M | $75K | $300K |
| Recovery Hire #3 | AE | Month 3 | $1.2M | $25K | $300K |
| Growth Hire #1 | AE | Month 3 | $1.2M | $25K | $300K |
| Total | $200K | $1.2M |
3.3 Model Recovery Scenario
Project when you'll close the gap:
Q1 2026: $7.0M → $7.255M (gap: $2.745M)
Q2 2026: $7.255M + $1.2M - $945K = $7.51M (gap: $2.49M)
Q3 2026: $7.51M + $1.8M - $945K = $8.365M (gap: $1.635M)
Q4 2026: $8.365M + $2.4M - $945K = $9.82M (gap: $180K)
Q1 2027: $9.82M + $2.7M - $945K = $11.575M ← RECOVERED ✓
Result: Will return to target capacity by Q1 2027 (5 quarters out)
Phase 4: Communicate Plan (Week 4)
4.1 Executive Summary
For leadership:
Capacity Health: Below Target
Current Situation:
- Current Capacity: $7.0M (5 active reps)
- Target Capacity: $10.0M
- Gap: $3.0M (30% below target)
Root Cause:
- Q4 attrition: 5 people departed ($5.0M lost)
- Only 1 backfill hired ($0.9M partial recovery)
- Unrecovered Gap: $4.1M
Action Plan:
- Hire 4 AEs in Q1 2026 (2 backfills + 2 growth)
- Expected recovery timeline: Q1 2027 (5 quarters)
- Investment required: 4 × $120K OTE = $480K salary
Risk: If attrition continues at 13.5% quarterly, will need additional hires to maintain recovery trajectory.
4.2 Sales Team Communication
For managers:
Q1 Hiring Plan
We're currently at $7.0M capacity ($3.0M below target) due to Q4 attrition. To close the gap:
Q1 Hires (Starting Soon):
- 2 AEs starting Month 1 (backfilling Tom and John)
- 2 AEs starting Month 3 (growth hires)
What This Means:
- Team will grow from 5 → 9 people by end of Q1
- Capacity will increase to ~$7.3M (still ramping)
- Full recovery expected by Q1 2027
Manager Action Items:
- Prepare onboarding plans for new hires
- Assign territory handoffs
- Schedule mentorship pairings
Capacity Planning Tools
1. Capacity Breakdown Table
Track quarterly capacity progression:
| Quarter | Target | Current | Gap | FTE | TBH | Attrition |
|---|---|---|---|---|---|---|
| Q4 2025 | $10M | $7.0M | $3.0M | 4 | 1 | $5.0M |
| Q1 2026 | $10M | $7.3M | $2.7M | 5 | 4 | $945K (est) |
| Q2 2026 | $10M | $7.5M | $2.5M | 7 | 2 | $945K (est) |
| Q3 2026 | $10M | $8.4M | $1.6M | 9 | 0 | $945K (est) |
2. Capacity Waterfall
Visualize quarterly capacity flow:
BoQ Capacity: $7.0M
- Attrition: -$945K
+ Backfills: +$0.3M
+ Ramp gains: +$0.9M
────────────────────────
EoQ Capacity: $7.255M
3. Hiring Timeline
12-month forward view of all hires with ramp schedules.
4. Scenario Models
| Scenario | Attrition Assumption | Hiring Plan | Q4 2026 Capacity |
|---|---|---|---|
| Optimistic | 10% quarterly | 3 hires/quarter | $10.5M ✓ |
| Baseline | 13.5% quarterly | 4 hires/quarter | $9.8M |
| Conservative | 16% quarterly | 5 hires/quarter | $9.2M |
Best Practices
1. Plan Quarterly, Review Monthly
- Quarterly: Full capacity plan for next 4 quarters
- Monthly: Update actuals, adjust forecast
2. Use Capacity, Not Headcount
❌ "We have 25 people"
✓ "We have 19.5 RRE of capacity"
3. Account for Ramp
❌ "If we hire 5 people this quarter, we'll hit target"
✓ "5 hires this quarter will contribute 1.25 RRE by quarter-end"
4. Plan for Attrition
❌ "Zero attrition assumed"
✓ "13.5% quarterly attrition based on trailing 4Q average"
5. Communicate Uncertainty
❌ "We'll hit $10M capacity in Q3"
✓ "We'll hit $10M capacity in Q3 assuming 13.5% attrition (range: Q2-Q4 depending on actual attrition)"
Common Pitfalls
1. Set-and-Forget Planning
Problem: Build annual plan in January, don't touch it until December
Solution: Monthly capacity reviews, quarterly plan updates
2. Optimistic Attrition Assumptions
Problem: "Attrition will improve" without basis
Solution: Use historical data, not wishful thinking
3. Ignoring Recovery Lag
Problem: "We backfilled 5 positions, gap is closed"
Solution: Account for 4-6 month recovery lag
4. Not Tracking Actuals vs Plan
Problem: Plan diverges from reality, no one notices
Solution: Monthly variance reporting (actual vs plan)
Related Terms
- Current Capacity - How to measure what you have
- Gap to Target - Calculating the shortfall
- Capacity at Risk - Predicting future attrition
- RRE - The unit of capacity measurement
- Backfill Planning - Responding to attrition
- Territory Planning - Allocating capacity to coverage
References
- Standard practice in enterprise sales operations
- Also called: Workforce planning, headcount planning, capacity forecasting