Basic model to scale headcount according to expected sales and respective labor costs
Introduction
As companies of any size begin to scale their operations, headcount is often a line item at the forefront since it tends to be the highest of all expenses. I’ve built a simple model that corresponds to the number of expected sales, cost per head and base and growth scenarios, with smaller growth steppers and geographic haircuts that serve as fine-tuning.
Process
Departments A, B and C can represent whichever subdivisions of the firm. Cost per head will be in accordance to market conditions -> how much are offers currently extended on average? Expected sales are the sales that the new representatives are expected to generate -> value generated for the firm. There are two divisions at-large: commercial and enterprise, then geographic locations between these and their corresponding subdivisions.
Model
Closing thoughts
While the growth assumptions are quite aggressive in my sample, they’re only placeholders. In reality, given that the onboarding process is costly in both tangible and intangible costs, hiring is typically more conservative than those displayed in projections. In the model here, I don’t account for such friction, I’ve just created a direct relationship between anticipated revenue and corresponding costs. The sensitivity towards headcount accuracy and the tendency to over or under hire will depend on the industry and stage of company. We’ve certainly seen how robust, large corporates can afford to over hire at the expense of excess support, as well as how more leanly staffed firms will understaff. These circumstances vary and can all be accounted for in the model by adjusting the variables (for example, leanly staffed firms will want to increase expected sales).
