People are your organization’s greatest asset, but planning for them can be one of your biggest headaches. Siloed systems and constantly changing needs make the process incredibly complicated.
Another challenge is getting finance, HR, and department heads on the same page. Each plays a vital role—department heads determine what talent they need, HR sources and secures that talent, and finance ensures everything stays within budget.
The right systems and strategies can make all the difference in creating accurate, precise headcount plans. In this guide, we’ll break down the essential ingredients of effective headcount planning, sharing insider tips and practical templates to help you navigate this complex process.
What is headcount planning?
Headcount planning is the process of determining the optimal number of employees your company needs to achieve its goals. Think of it as a roadmap for your workforce: where it is currently and where it needs to be in the future.
It can help you answer questions like:
- How many employees do we need in each department?
- What skills and experience should they have?
- When should we hire them?
- How much will it cost?
- Do we have the budget?
Why is headcount planning important?
Employees tend to be an organization’s largest expense. This is especially true in low-overhead sectors like SaaS, where headcount expenses can easily make up 80% or more of total costs. And unlike other expenses, they are stickier and only tend to go one direction: up. After all, letting someone go is much harder than canceling a digital subscription.
But managing costs is only half the story when it comes to headcount planning. As your company grows, so do your staffing needs.
Effective headcount planning ensures you have the right talent to support your growth trajectory and forecasts. Without a robust plan, you risk being caught short on resources when demand surges or buckles under the weight of premature expansion and irresponsible spending.
The four core pillars of modern headcount planning
- Data quality and organization: Employee information often resides in a patchwork of systems: your human resource information system (HRIS), applicant tracking system (ATS), and countless spreadsheets. How will you get this data in one place and establish a single source of truth?
- Variable and overhead cost assumptions: Besides salaries, there’s also overhead (like benefits and taxes), contractor expenses, and dozens of other costs to consider. How detailed do you want to get in your forecasts?
- Different methodologies for forecasting the future: Will you build your headcount plan from the top down, from the bottom up, or use a mix of both? Hint: it usually requires elements of both.
- Live tracking and adjusting: Once your plan is in place, how will you track your progress, conduct variance analysis, and make adjustments as the macro landscape or business needs change?
How headcount planning is done today: A step-by-step guide
Calculate your total existing headcount costs
Most companies’ current headcount costs can be calculated via the following equation:
Headcount Cost = Salary * (1 + Benefits + Taxes) + Bonus + Overhead & other costs
Let’s break down what each of these variables entails.
Salaries
Salaries are by far the largest component of headcount expenses. In smaller companies, the approach to salary planning is usually straightforward: determine the base salary for each role and add a flat percentage (typically around 20%) to cover taxes and benefits.
But as companies grow, salary planning becomes more nuanced. You also need to factor in bonuses, merit increases, and other forms of compensation in your plans. Then there’s the added complexity of contractors and part-time workers—some companies categorize these as headcount, while others consider them overhead.
Finance and HR teams collaborate to establish salary bands for different roles and seniority levels, providing a framework for ensuring fair and competitive compensation while staying within budgetary bounds. Tools like Carta’s Total Compensation and Pave help companies stay ahead of the curve by benchmarking their salaries against the competition to make sure they’re attracting and retaining top talent.
Salary bands and bonus structures shouldn’t remain fixed. Regularly refresh and revisit these to remain consistent with the broader marketplace.
Overhead & other costs
Salaries are just one piece of employee expenses. Overhead costs, which encompass everything from office space to software licenses and training programs, are another significant line item.
Finance teams typically take the lead in determining overhead costs, factoring in assumptions for expenses such as:
- Benefits: Health insurance, retirement contributions, paid time off, etc. These can vary depending on an employee’s location.
- Taxes: Payroll taxes, unemployment insurance, and other government-mandated contributions—also location-dependent.
- Equipment and software: Laptops, monitors, office furniture, software licenses, and any other tools employees need to do their jobs.
- Office space: Office space for in-person roles, which can factor in costs like rent, utilities, and additional equipment.
- Training and development: Costs associated with onboarding new hires, as well as ongoing training and professional development programs.
- Relocation expenses: Depending on a new hire’s seniority, a relocation package may include reimbursement for moving costs, temporary lodging, and mortgage assistance.
- Travel and entertainment (T&E): Expenses related to business travel and company events.
- Other costs: Any additional expenses that don’t fit neatly into the other buckets, such as background checks, team building events, and company swag.
These categories aren’t set in stone—what one company considers overhead, another might classify as other costs. What’s universally true is that regularly reviewing and refining these assumptions as your company scales is critical.
Finance should constantly be tracking these costs to feed and maintain their models. Doing so keeps your headcount plans grounded in reality and prevents you from being caught off guard by unexpected expenses.
Forecast your future headcount needs
Once you have a handle on your current headcount costs, you can project what they will look like in the future. FP&A teams have two primary ways of doing this: top-down and bottom-up. Each has its merits, and the most effective strategies often involve elements of both.
Top-down planning
Top-down planning starts with your overarching strategic goals and determines the headcount required to achieve those goals. Finance typically spearheads this effort, projecting headcount needs several quarters or years into the future.
This flavor of planning utilizes techniques like:
- Trend analysis: Identifying patterns and trends within historical headcount data that can inform future needs.
- Ratio analysis: Using ratios to estimate future needs. For instance, the number of customer success managers per engineer or the number of sales managers per salesperson.
- Benchmarking: Comparing your company's headcount in different areas to industry benchmarks.
Bottom-up planning
In a bottoms-up forecast, department heads are asked directly how much headcount they need to achieve their goals. It’s a more granular approach that provides a detailed, on-the-ground perspective of staffing requirements at a team level.
Traditionally, this happens once a year during the annual budgeting process, setting the lanes for quarterly planning throughout the year.
Keep track of your headcount and make adjustments as necessary
Once you’ve put your yearly plan together, you need to keep it relevant by tracking variances and making changes as business conditions fluctuate.
Quarterly planning and updating
Most companies fine-tune their headcount plan on a quarterly basis. Department heads submit headcount requests, which are then reviewed and approved (or rejected) by finance and management. It’s a structured approach that keeps everyone on the same page, but waiting until next quarter to revisit your plans may be too restrictive for some companies.
Live tracking and variance analysis
For some hyper-growth companies, FP&A may maintain a rolling forecast that’s continuously updated every month. Whether your headcount plan is constantly in flux or remains relatively stable throughout the year, live tracking is the golden standard that modern businesses strive to achieve.
Providing real-time visibility into the plan alongside how actuals are trending keeps stakeholders aligned and agile, allowing them to adjust course between quarterly and annual cycles. But getting it right requires sophisticated FP&A software and collaboration between finance and department heads.
Tips for creating an effective, efficient headcount plan
Align with your North Star
Before diving into the numbers, take a step back and review your company’s long-term strategic objectives. Are you primarily focused on top-line growth or margin expansion? Which new markets are you planning to enter? Understanding these big-picture goals will help you determine the number and type of employees you’ll need to get there.
Wrangle your data and establish a single source of truth
Gather headcount planning data from all relevant sources—your HRIS, ATS, cost assumptions, and any other data sources or spreadsheets that may be used. Leverage a tool like Aleph to ensure it’s consolidated, up-to-date, and accessible.
Take stock of your talent
Thoroughly analyze your existing workforce. How does your headcount structure compare to similar businesses and industry benchmarks? Are there any glaring skill gaps that need to be filled? This assessment will paint a clear picture of your current strengths and weaknesses.
Make planning collaborative
No single department is entirely responsible for a headcount plan, which is why collaboration is key. Conduct a sanity check of your top-down planning and analysis with department heads, arming them with the data and insights to shape a more precise bottoms-up plan collaboratively.
Stay nimble
Create different scenarios, regularly track your progress, monitor hiring timelines and attrition rates, and be prepared to make adjustments as needed.
Take your headcount planning to the next level with Aleph
Plenty of point solutions on the market aim to streamline individual aspects of workforce management, from benefits administration and payroll to applicant tracking and performance reviews. However, none consolidate HRIS, ATS, ERP, and other cross-system source data, allowing finance to automate headcount planning with the flexibility of spreadsheets and the power of business intelligence and data visualizations.
That’s where Aleph comes in. Our FP&A platform gives you the ultimate control over your headcount plan by building a single source of truth for accessing, analyzing, planning and tracking financial data.
Headcount planning doesn’t have to be a headache. Schedule a demo to see how Aleph can streamline the process, making it more collaborative, efficient, and accurate.
