How to build a sales capacity model for revenue forecasting

Good revenue forecasts are worth their weight in gold. They help your executive team align investor expectations and lay a roadmap for company growth.

But for most SaaS companies, generating consistently-accurate projections isn’t as simple as dragging formulas across a spreadsheet. You need the right models, backed up by the right data.

The sales capacity model is a popular option for several reasons: it’s intuitive, easy to implement, and can help you quickly understand how many salespeople you need to hit your revenue goals.

In this post, we’ll break down what a sales capacity model is, what inputs you need, and how to use it for both top-down and bottoms-up forecasts.

What is a sales capacity model?

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A sales capacity model helps you forecast revenue based on how many reps you have and how well they’re performing against quota. It typically pulls data from your CRM (for attainment and pipeline) and HRIS (for headcount and ramp timing).

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It’s a go-to approach for sales-led SaaS companies, but it’s not limited to them. Any team with quota-carrying reps can use it to build more grounded revenue projections.

Beyond revenue forecasting, sales capacity models can also help you:

• Right-size your sales hiring plan
• Understand how many opportunities you need to source
• Evaluate pipeline efficiency
• Model realistic ramp-up periods

What should you keep in mind before building a sales capacity model?

Building a sales capacity model is pretty intuitive. But before you start plugging numbers into a template, you need to ground your model in two things:

1. Clean, reliable data

2. A firm grasp of your sales efficiency metrics

Let’s break those down. 

1. Start with clean data

Your model is only as good as its inputs. Inaccurate or disorganized information can lead to skewed forecasts and, ultimately, poor decision-making.

A comprehensive CRM like Salesforce might cover most of your needs. But if your HRIS tracks rep headcount or OTE separately, make sure that data is included too. You need a full picture of your current team before you start planning for growth.

2. Lock in your sales efficiency assumptions

Next, make sure you’ve got a handle on your core sales efficiency metrics. These are the levers that make or break the accuracy of your model:

Historical quota attainment rates

What % of quota do reps actually hit? If you have historicals, use them. If not, pull a benchmark for companies at your stage.

Rep ramp-up times

How long does it typically take new reps to hit full productivity? Many companies assume 50% quota in month 1, 75% in month 2, and 100% from month 3 onward.

Existing number of sales reps and their on-target earnings (OTE)

Know how many reps you have today and how much ARR they’re expected to generate based on their on-target earnings.

Building a sales capacity model

Once your data and assumptions are locked in, you’re ready to build the model. Here's a step-by-step walkthrough. (It’s even easier to follow if you have our template open.)

1. Establish your assumptions

There are a few assumptions you need to establish off the bat:

• New ARR goal: How much new ARR are you aiming for this year? For this example, let’s say $5M.
• Annual quota per rep: A common rule of thumb is 4x OTE. If your average rep’s OTE is $150K, their annual quota would be $600K.
• Expected quota attainment: Historical data shows your reps typically hit 80% of quota. We’ll use that here.
• Ramp schedule: Most reps take a few months to fully ramp. For simplicity, let’s assume:
  
  • 50% attainment in month 1
  • 50% again in month 2
  • Full quota from month 3 onward

2. Calculate "real" capacity

Next, calculate the real capacity of your sales reps.

Here's the formula:

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Annual Quota × Attainment Rate = Real Annual Capacity

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So, if a rep has a $600K quota and an 80% attainment rate, their real capacity is $480K ARR, or $40K/month.

3. Identify your resource shortfall

Now ask: how much ARR can your current team generate?

Let’s say you have 8 fully-ramped reps. At $40K per rep per month, they’ll bring in $320K monthly or $3.84M over the year.

That leaves you $1.16M short of your $5M goal. Time to hire more reps.

4. Set up a hiring plan to close the gap

Knowing that our existing sales team will leave us $1.16M short of our ARR goal, we can build out our model to see how many new reps we’ll need to hire and when.

We only have the capacity to onboard one rep per month. So, to reach $5M in new ARR by December, we’d need to hire 4 new reps. If we hire one per month starting in January, based on our ramp schedule, we’ll reach $5.2M in new ARR by December.

If we started hiring reps later in the year or only had the capacity to onboard one every two months, we’d have to hire more.

5. Use your model to build top-down or bottom-up projections

This example starts from the top: set a revenue goal, then work backwards to figure out headcount needs. But it works bottom-up, too.

If you already know how many reps you’ll hire this year, you can model the ARR they’ll generate by plugging in quota, attainment, and ramp assumptions.

Streamline your sales capacity model with Aleph

Our template is a great way to get started with a sales capacity model. But it can’t pull the data for you. Getting ARR, headcount, and attainment metrics out of your CRM and HRIS can be a tedious and error-prone process.

Aleph takes this part off your team’s plate. It connects your spreadsheets directly to your systems sources, giving you clean, reliable datasets without the copy-pasting.

Skip the data wrangling and get straight to the modeling. Schedule a demo to see how Aleph connects the dots automatically.