6 Key Considerations When Building Your Annual Headcount Plan
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Annual headcount plans require context
Companies don’t have infinite dollars to spend on headcount, so hiring managers are competing for limited resources. Before requesting headcount during your headcount planning process, you must align your request justification to the approval process by finance, HR, and Recruiting.
When you understand how these decisions. you can advocate for the people you need, and the business can spend headcount dollars in the smartest way.
Top down headcount plan building vs bottoms up
Let’s start with some definitions of the types of annual headcount plan building that happen
Bottom-up annual planning
Definition: Bottoms-up plannings starts with headcount requests from individual teams or departments.
How It works: Finance teams constrain requests a budget after requests are submitted asking for cuts or transfers as a means of balancing the budget.
What does this mean for hiring managers/budget owners? The context of your “headcount exceptions” is in the form of pushing back on cuts. Levers you can pull are start date changes, level changes, and salary changes.
How to win additional approvals: Justify your headcount using the considerations below, and partner with your HRBP. Changes to title/level/salary impact your compensation & leveling framework and management ratios. Fitting into a budget is one challenge— but creating a sustainable workforce is the next.
Top-down annual planning
Definition: Executives or Finance set headcount targets and cascade them down through leadership.
How It works: Finance teams constrain budgets before requests are submitted and hiring managers must lobby to be considered for budget adds
What does this mean for hiring managers/budget owners? In a top-down environment, not everyone gets the opportunity to have their adds considered. Conversations about adds are either focused on justifying additional budget from Finance, or navigating trades with peer budget owners
How to win additional approvals: Focus on ROI for every consideration. Headcount is more than a cost, and there needs to be a tangible value associated with additional requests
Six considerations when requesting annual headcount
Annual headcount planning is supply constrained by headcount dollars. Of course it’s easier to hit goals with more people, but that’s just not how it works. Bring these 6 things to your annual planning meeting and ensure you get the people you need to meet your goals.
Headcount budget & ROI for annual planning
Most simply put, hiring someone costs money and their production generates a return. Come to the headcount planning meeting with these numbers and you’ll have a higher probability of approval for your adds to the plan.
Direct ROI vs Indirect ROI: Account Executives produce revenue (Direct ROI), and sales operations enable more revenue per Account Executive (Indirect ROI) . Be prepared to justify every hire in the context of the greater return on investment, especially as AI continues to disrupt enablement across every department.
Hired Salary Variance to Target
Historic budget performance for new hires is a far-too-often overlooked data point when building your budget. Not paying attention to actual dollars is a main reason why headcount plans are missed. Whether you miss the budget from poor forecasting, or miss the number of hires from bad funnel conversion data, you’re in for a tough year. There are a few metrics you can bring to the annual planning meeting that will help.
Actual salary vs budget: Having this data for every position you will request in the future gives you a better chance of getting the number of hires you want, for the price that will get them in the door on time
Offer declines due to salary: This highlights compensation inefficiency. If you want a candidate, but can’t get them due to dollars, its impacting the capacity of the recruiting team among other things.
Roles removed from plan due to budget: Removing roles because you overspent impacts the production ratios of your area. If you needed 6 sellers but only got 5 due to budget, the risk you’ll miss your revenue goals goes up.
Comp to performance ratio: Proof that high paid employees are high performers is the best way to unlock additional dollars. Especially if there is exponential returns on ROI
Ratio-based scaling when building an annual headcount plan
Workforce scaling is ratio based. You can't just add 100 sellers to a plan without sales managers, enablement, or operations. If you know your ratios, and can justify how they increase ROI, you are more likely to get these roles approved in the next year's headcount plan.
Workforce planning is an exercise that naturally challenges these ratios, especially as AI continues to drive productivity improvements across the enterprise. Planning management & enablement resources in conjunction with IC production is critical to setting yourself up for success.
Employee production ratios in annual headcount planning
Production quotas fit the larger company growth goals. Sellers add revenue, recruiters hire people, engineers develop code. If have an expected production quota, you can back into the number of heads you need to meet this quota.
The Annual Planning cycle is the wrong setting to challenge these ratios-- but it happens every time. Come prepared with historic production data and the ongoing action plan to drive productivity to keep the focus on getting the people you need to hit your goals next year.
Previous HR & Recruiting Performance
Understanding whether or not the plan you want can actually be met during the planning process is the best way to manage expectations. If you want to hire 100 people but only have the capacity to hire 50, this should drive action now, not next year.
Bring the following headcount performance data to your annual planning meeting to best advocate for the headcount you need to meet your goals
Waterfall Report: How many people leave your business, how many people join. Departments with high planned attrition can advocate for more net new positions to keep a minimum employee count to meet production goals.
9 Box: Performance & Promotion readiness. You'll need this to navigate external management hires, as well as your aforementioned production quotas.
Capacity/Demand Actuals: What did the recruiting team produce for you last year, and what do you anticipate they can produce for you in the upcoming plan year.
<1 Year Attrition: Employees who don’t make it a year are a drain on training resources and a surefire way to miss production goals.
Backfill Replacement Speed: This is most simply calculated by date of termination to the start date of the backfill. If you want to get fancy, use the date where the new hire is ramped to full production vs just their start date
Headcount Timing
Every headcount planning meeting drastically underestimates the timing of hiring & production. Just because you need someone on January 1st to meet your plan, doesn’t mean it’s possible. Leverage these metrics to set expectations.
Time to fill: Until headcount365, you’ve used blanket fill times that don’t account for location, job level or department. While most planners add buffer to ensure they don't miss targets, this makes for a tremendously unreliable planning process.
Ramp to production: Producers don’t produce on day one. It takes time. Knowing ramp to full production is critical to meeting the end goal of the hire in the first place
Recruiting Capacity vs Demand: Is the recruiting team even staffed to fill the demand on time? Most every annual headcount plan creates the phenomena of “front loaded demand” where the beginning of the year is a race to hire. Understanding linear hiring capacity helps you advocate for spend on external resources to meet your headcount plan. (Hint: ROI calculations really matter)
headcount365 helps companies build accurate & predictable headcount plans
Every year, companies create data that helps managers & finance collaborate on future headcount plans. headcount365 is the first system to collect & organize this data to give companies a scorecard on how previous performance impacts future decisions.
Recruiting capacity vs demand
The recruiting team’s ability to hire on time impacts budget. Both OPEX & Revenue. Explaining missed targets from the previous plan year could just be a gap in recruiting
Headcount budget to goal
Previous year budget to actuals performance may influence your total annual headcount approved during the annual planning process. A manager who consistently comes in on or under budget is more likely to have additional roles filled
Attrition & backfill impact on production
Sometimes companys want a bench— so the revenue loss from a termination or attrition is not as impactful. Understanding attrition & backfill impact on revenue helps managers get bench staff to quickly step in when theres attrition associated with revenue
Historic sales performance (or not)
Have a sales forecast where headcount is dependent on a closed deal? Tracking sales target to goal may help unlock headcount —especially if the deal requires new heads to start in a time period faster than it takes to recruit someone to fill the position.