Linking hiring planning to growth forecasting and finance

It seems straight forward and obvious to say we should strive to link our hiring to our growth and financial forecasts.

The reality however is hiring comes from HR, the selection of headcount (i.e. positions and number of people needed) generally comes from department heads, directors and managers, and the issue is that these positions generally don’t have a full understanding of the company’s growth and financial forecasts, so they are typically dealing with limited information in their decision making.

Its easy for managers and directors to outline how much resource they want without context of the implications for wage costs or salary increases, they are however likely to have a strong understanding of the workload implications that would justify their resource needs. Equally, HR would have some clarity of the cost implications and timeline needs for hiring planning, but would have limited exposure to the financial targets, revenue and client forecasts or even the workload capacity to make clear decisions, both team would also have limited understanding of the longer term growth plans and the implication of those plans of investment into hiring, i.e. the implication of hiring a team based on growth forecasts as opposed to existing clients.

What this all means is that the c-suite need to be able to breakdown growth, revenue and financial forecasts and figure out the ratio of workload to these forecasts by team and position, get some reconciliation on these workload ratios, then, use this to estimate hiring forecasting and set some guidelines on what to commence hiring for certain roles, and what indicators to look for in order to trigger hiring efforts. This all sounds very abstract when talking about it here in theory, so let me break it down sequentially and with a more applied example.

Here’s how it looks in real life.

As you being to grow your business, raise investment and start to plan for coming years, you generally will have clarity over the kind of numbers that your business needs to hit.

Taking these revenue targets, you should be able to formulate the blend of services (or products) needed to fulfil these targets, this means you should have a revenue target, with an average revenue per customer type number (ideally if you’re in SaaS this would be an MRR number), and from there some idea of the count of customers needed.

Turning to the other side of the formula, you’d be looking at your CAC, COGS and G&A numbers, you should, based on historics, be able to come up with a ratio fo CAC, COGS and G&A on a per-customer-per-month basis, this gives you an idea of your ‘unit economics’ and an idea of what it costs and what ratios you need to consider as you scale. 

Taking your per-customer-per-month CAC/COGS/G&A ratio, you can then extrapolate this out based on the number of clients, and number of months to give a forecast of the CAC/COGS/G&A ratio as revenue, and therefore customer count changes over time to meet the target, this now gives you an estimated budget based on historic CAC/COGS/G&A ratios from which you can start your headcount planning conversations with teams and HR.

So now, your HR will also be able to estimate the cost of various head counts, and from that work with the head of departments to negotiation what blend of levels and number of heads counts they need based on the allocate budgets which are derived from the financial forecasts and targets, then, HR can also start to look at the average time to hire a headcount and plan that against the dates and targets in the forecast, e.g. if we know we need to hire a director when revenue reaches 1mil, and we estimate it takes 3 months to hire a director, and we forecast we’ll reach 1 mil revenue by October, then we also know that if we hit our revenue targets for all months leading up to August, then we’re on-track to continue the trend and hit October targets, and therefore given the 3 months to find a suitable candidate we need to start searching in august. 

So in this way, hiring planning from which positions, to what level to when are all tied to the financial forecasts and  CAC/COGS/G&A unit economics of the business.

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