Are You Calculating Your Sales Capacity Correctly?
The crux of sales leadership is to hit the sweet spot between not pushing your team hard enough and committing to an overly ambitious goal, right? Too often, sales leaders resort to increasing goals without considering their team’s sales capacity. Knowing your team’s capacity allows them to generate more leads, close more deals, manage time more effectively, and make sure they do not burn out.
What is Sales Capacity?
Sales capacity is the maximum amount of revenue your salespeople can bring in at any given point, whether that’s monthly, quarterly, or yearly. So how do you calculate it?
Typically – How is Sales Capacity Calculated?
Let’s say you have a salesperson who can produce 10 opportunities a month. They have a close-ratio of nearly 50%, which means they can successfully close about 5 deals a month. This assumes that they are working to their fullest potential.
Opportunities x Close Ratio = Deals per Month
Now, factor in each deal size is on average $20k in revenue, multiply that by their average number of deals per month of 5, and you determine what that salesperson can achieve in a month. In this example, it’s about $100k or roughly $1.2M a year.
Average Deal Size x Average Deals per Month = Monthly Sales Capacity
Now let’s say you want to reach a yearly goal of $10M and you have 6 salespeople on your team. Do you think they would be able to hit that if you increased their individual goals to $1.2M a year?
It’s not possible and here’s why.
If you have only 6 salespeople that are working hard to hit their $1.2m, it will not matter if you increase their goal; they are already tapped and won’t be able to reach it.
Even a stretch goal of $1.5M would be incredible, if not impossible to reach.
What You Should Look at to Find Sales Capacity
Typically, we see sales leaders just looking at what they would like to see out of their team rather than actually analyzing what they are seeing.
Ask yourself what determines their $100k revenue a month. There are several things you can look at to determine how and where they got to the $100k. One of the best things to look at is their territory. How big is their territory, and how many accounts exist in the territory?
If you have a territory that is 60% tapped, it’ll be more challenging for a salesperson to close new deals. Compared to a territory that is only 20% tapped.
You should also look at new business vs. old business and determine who they are getting their sales from.
Good – Sales Capacity Calculations
So, you still want to increase your salesperson’s quota, huh? Well, let’s look to see if their sales capacity will allow it.
While looking at your salesperson’s territory size, you discover they have 100 accounts. The salesperson needs to talk to about 5 people at each account. You are looking at 500 people that the salesperson needs to get a hold of.
Number of Accounts x People at each Account = Total People
But, of course, no one picks up on the first call, so let’s say it takes them 5 calls to reach one person. They are at 2500 calls already.
Total People x Number of Calls = Total Number of Calls
The salesperson probably has to contact each account about 4 times a year. That’s about 10,000 calls to make. Then factor in on average how long a call takes – say about 5 minutes. That equates to 50,000 minutes a year.
Total Number of Calls x Average Call Time = Total Call Minutes
But you still want to know how many minutes each month your salesperson is talking. So, you take 50,000 minutes and divide it by 12 months. You are sitting at roughly 4200 minutes per month.
Total Call Minutes / 12 Months = Monthly Total Call Minutes
What does that look like on a daily level? If you take the monthly total of call minutes and divide that by 4 weeks in a month, you are sitting at roughly 1050 minutes a week. Then divide that by 5 workdays, and you end up with 210 minutes a day. Then divide by 60 minutes, and now you know your salesperson is spending roughly 3.5 hours a day just making calls.
(((Monthly Minutes / 4 Weeks in the Month) / 5 Workdays a Week) / 60 Minutes in an Hour))) = Hours of Calls per Day
Consider that your salespeople have PTO or sick days, client meetings, one-on-ones, team meetings, travel time, etc. That’s all-time that they can’t spend on the phone. So that could take away from the 3.5 hours.
That’s just talking time however, your salesperson still needs to add in their admin time like responding to email, following up on action items, designing proposals/quotes, etc.
Setting Sales Capacity Goals
Have you caught yourself saying or thinking that a salesperson should spend 75% of their time selling? That’s roughly 6 hours a day. Then you add the talk time of 3.5 hours, and you have 9.5 hours. Don’t forget your salespeople need admin time, so that’s another 2 hours, and now you are at 11.5 hours a day.
So, 3.5 hours just making calls is not very realistic.
To set a realistic goal, you can look at your top performers and see how many opportunities they are acquiring. For example, they are working hard and getting 10 opportunities, set a goal of 8 for the rest of the team.
Otherwise, to really know how each of your salespeople are doing look at their numbers individually and run through these calculations.
Questions to Ask Yourself
When you are seeking to increase your team goal, make sure you ask yourself these questions:
Do I have enough people?
Remember, not everyone will be an all-star and land every opportunity, so you always want to average your team’s sales capacity and go from there.
How much time can one person dedicate to account management?
Keep in mind the above calculations were strictly for new business, not account management. So, it depends on how many accounts and number of people they have to talk to.
What percentage of time is available to sell to a new account?
This depends on your team and how many accounts they have. In a smaller organization, there are often “salespeople” who do all the selling and account management tasks, and it’s often hard for them to balance the two.
These sales capacity calculations should be used when designing your new plan for the year and looked at annually. It would be best if you also used them when you are looking to make changes to your team, like adding new people, rearranging territories, or looking to move accounts around. If you keep your team’s sales capacity in mind, they’ll hit their goal easier and not burn out as quickly.