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 are made, 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. To listen to the headcount experts podcast on the types of annual planning click here.
Bottom-up annual planning
Definition: Bottoms-up planning 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.
1) 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), while 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.
2) 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, it's 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 constraints, the risk that you’ll miss your revenue goals increases.
Comp to Performance Ratio: Proof that highly paid employees are high performers is the best way to unlock additional dollars. Especially if there are exponential returns on ROI.
3) 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 next year's headcount plan. Common employment ratios (especially in the age of AI):
ICs to Managers
Tactical Support Staff: Producers (Think sales ops, Recruiting coordinators, and EAs)
Administrative Support: Total Employees - HRBPS, Trainers, Office Management, etc
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, are critical to setting yourself up for success.
4) Employee Production Ratios in Annual Headcount Planning
Production quotas fit the larger company growth goals. If you have an expected production quota, you can calculate the number of heads you need to meet this quota. Common production ratios to keep in mind during the headcount planning cycle.
Revenue Per Seller
Tickets Per Engineer
Monthly Offer Accepts per Recruiter
AI Tool Productivity per Employee: In this new world of “Do more with less,” companies are evaluating how many people are needed when enhanced with AI Tooling.
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.
5) 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, and 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 the date of termination to the start date of the backfill. If you want to get fancy, use the date when the new hire is ramped to full production, vs just their start date.
6) 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 a 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 the 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? Almost every annual headcount plan creates the phenomenon 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 the budget. Both OPEX & Revenue. Explaining missed targets from the previous plan year could just be a gap in recruiting. Read more about our recruiting toolkit, including the capacity/demand tooling here
Headcount Budget to Goal
The previous year's budget to actual 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 companies 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 there’s 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.