Forecasting

Headcount
Jul 26, 2023
Oct 05, 2024 Mar 08, 2022 Jul 26, 2023
Apr 14, 2022

Josh Aharonoff &

Nicolas Boucher

Helping You Grow In Finance & Accounting

About
this guide

This guide will cover

everything you need to

know about forecasting
your headcount spend

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Contents

1 Why you need to forecast 4

your headcount spend

2 How to Forecast your 10

headcount spend

3 How to Calculate 16
Projected Spend

4 Putting it all together 27

5 Bonuses 31

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 Why you
need to
forecast your
headcount
1 spend

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Your headcount spend will
often account for

50-80%
of your cash burn each
month

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The salary costs are
the main driver of
structure costs.

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A good forecast can help
determine what is the breakeven
point for the company to cover
the structure costs.

It helps know the volume it

needs to reach to be profitable.

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Your headcount spend can
also be one of the most
challenging costs to reduce,
with a number of challenges
ensuing from lay offs

Severance

Lawsuits

Decreased work morale

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Foremost define your
needs for the next

12 to 24 months
depending on your backlog
and sales projections

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 How to
Forecast your
headcount
2 spend

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1
Start by collecting information
on your existing hires from
your payroll platform, and
entering it into a spreadsheet:

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2
Next, begin adding your
projected hires…one by one

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3
For a long range forecast
(12 months or more into the
future), add roles in bulk

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4
If you have department heads, it
is suggested to check with each
on their upcoming hiring plan

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5
Consolidate and review the
consistency of all headcount
with the management team

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 How to
Calculate
Projected
Headcount
3 Spend

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Now that you have your
inputs, it’s time to
calculate your projected
spend for each month.

Here are some things

to keep in mind

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 The Simple
Method

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1
Determine the
departments with direct
FTE depending on the
business volume

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 2
Apply the business
growth ratio to the
direct FTE to calculate
the additional
headcount

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 3
Use one salary increase
rate across the board to
calculate the salary
costs of next year

Salary Next Year

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 4
Your salary costs of next
year should be

F T E n ex t ye ar
Num be r o f
x r o FT E
era g e sa l a ry p
A v
curren t y e a r
x s e)
la ry in c rea
(1+ sa

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 The Detailed
Method

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 1
Prorate the salary for
any hires who joined
this month, or were
terminated

$120,000 / year
Hired on the 15th
Get’s paid only $5k in first month

$120,000 / year
Terminated on the 15th
Get’s paid only $5k in last month

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2
Full time employees
have a number of other
incidental costs:

Employer Payroll taxes

Around 8-10% of salary

Health Benefits
Around 8-10% of salary, or a fixed $ amount
per employee

Payroll processing fees

Around 25% of salary, or a fixed $ amount
per employee

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 3
Other payroll costs to
consider:
Bonuses
Commissions
Could be monthly, quarterly or annually

Recruiting fees
Often times a % of first year salary

Training costs
Additional structure costs
(place, energy, equipment)

Could be marginal if the structure is already big, but for

smaller team, this is an impact to consider

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 Putting it all
4 together

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1
Slice and dice your data on
a departmental basis, and
by each cost type

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2
Use Graphs to understand
costs & hires by
department, and across
multiple periods

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3
Use ratio like FTE increase
vs sales increase.

FTE increase

Sales increase
40

30

20

10

0
Jan Feb Mar Apr May

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5 Bonuses

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Analysing Headcount
What are the types of analysis you can perform if you are in charge of
analysing or controlling headcount?

Headcount Full Time Equivalent

Evolution per
month and vs Full Time Equivalent is
budget based on the
contractual hours of
an employee. A full
time contract
represents 1 FTE, but a
part time employee
% of Direct employees with 50% represents
only 0.5 FTE
a direct employee works
directly on a project or
production order,
whereas an indirect Flexibility
employee has more a number of temporary
supervisory or a support workers, numbers of
function role hours in time account:
this will help you know
how much you can
reduce or increase
Capacity your activity to adapt
compare the gross to the business
capacity (hours before demand
holidays, sickness,
leaves) as well as the
net capacity. Identify
the root cause of Turnover rate
differences in your number of employees
capacity. It can help leaving the company
you explain why there compared to the total
is less or more hours number of employees.
worked You can see if there is
some anomaly in
some departments or
some regions

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 Check out my easy to use
headcount template:

https://www.mightydigits.com/headcount-template

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If you liked this
you may also like my course on intro
to building a 3 statement model

http://yourcfoguy.com/

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Thanks for
reading!
Did you enjoy this content?
Do you have anything to add?
Questions?
 Author

Nicolas
Boucher

I teach Finance professionals

how to become high
performers in FP&A,
Controlling and Finance

Follow me at

https://www.linkedin.com/in/bouchernicolas/

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Ring the bell to never miss a post

I post everyday about

Finance & Accounting tips
and Startups

Follow me at

linkedin.com/in/joshaharonoff/

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