As a growing company, every hiring decision affects your ability to scale efficiently and sustainably. A well-structured headcount plan helps ensure you have the right talent at the right time. But headcount planning isn’t just about the number of employees, it’s about aligning your hiring needs with your finances and business strategy.  

For HR and finance leaders, managing headcount effectively means balancing growth with financial discipline, adapting to changing market conditions and business needs, and ensuring compensation is competitive.  

And planning is just half of the equation. The challenge isn’t just figuring out how many people you need to meet your strategic priorities, it’s also about continuously monitoring the plan to see if it’s still the right approach and then deciding how to pivot when necessary.  

Here’s what you need to know about the essential steps for headcount planning, how to manage your plan once it’s activated, and common mistakes that small and growing companies make.  

What is a Headcount Plan? 

A headcount plan is a roadmap for your company’s talent needs and a projection of how many employees you’ll need in various roles across departments in the fiscal year to meet business goals.  

It includes the skills required for each role, job levels, and the timing for hires throughout the year. Because the budget factors in total rewards — base salary, bonus, equity, and benefits — when a company hires can have a significant financial impact.  

The Role of HR and Finance in Headcount Planning 

Headcount planning requires close collaboration across a company — from executives who set the strategic direction and hiring managers who request roles to fill. But it’s finance and HR leaders who lead the process.  

“Finance leaders set a headcount projection for the year, but they’re not necessarily looking at the caliber of employee,” said Kyle Holm, Sequoia VP of Compensation Advisory. “They outline the plan and give it to the talent team to execute.” 

Why headcount plans often drift

Talent teams frequently face challenges that push hiring beyond the initial plan. For example: 

  • They may need to make offers at the top of the range, or above it, because they find more qualified candidates than expected. 
  • Candidates from larger or public companies may have significant unvested equity, requiring more competitive offers to attract them. 
  • They may hire at a higher level than planned to attract top talent. 

“There are many factors that make the hiring team’s job difficult,” Holm said. “Even if they stick to the plan, consistently offering at the top of the range puts them over budget because they’re above the target their budget was based on. Typically, finance doesn’t have access to this level of detail in real time, and when the money is gone, it’s too late.” 

How to Build a Strategic Headcount Plan

Headcount planning typically begins in Q3 of the prior fiscal year, with board approval coming in Q1 of the headcount plan year. Here’s an overview of the key steps completed by stakeholders.  

Conduct an analysis of your current workforce: Identify existing roles, job levels, and pay ranges. And then pinpoint the gaps and surpluses.  

Forecast hiring needs: Determine how many roles you’ll need based on business objectives, department requests, and your predictions for turnover and changes to the labor market.  

Benchmark against market data: Compare compensation data for similar roles at companies of similar size, growth stage, and industry. Model different hiring scenarios based on your defined pay ranges to see how they would affect your budget.  

Allocate budget: Set the budget for the planned hires, factoring in total rewards, recruiting costs, and training. 

Develop an actionable plan: Once you have a budget and a plan, create an implementation timeline and assign responsibilities to HR and managers.  

Monitoring And Adjusting Your Active Headcount Plan

Once you’ve launched your headcount plan, you’re not done. Ongoing monitoring helps ensure your plan stays on track.  

“Review it as often as you’re making hires,” said Holm. “A common mistake is not tracking performance against the plan frequently and failing to make the necessary adjustments.” 

For example, if you’re consistently hiring at more senior levels than what you budgeted for, you’re going to have to make tradeoffs with future hires. That means you might have to defer, delay, re-level certain roles.” 

Effective monitoring requires an accurate view of your people costs so you can compare actual hiring and turnover rates with initial projections, while taking into account market shifts or unexpected changes. Accurate data also allows you to model different hiring scenarios so you can assess the potential impact on your budget.  

Challenges in Headcount Planning for Scaling Companies 

For small, growing, or VC-backed companies, headcount planning can be particularly challenging. Here are the most common mistakes: 

  • Over-hiring: Hiring too many people too fast is the most common mistake and can lead to layoffs.  
  • Title inflation: Companies often hire too many directors or use the director level too often to win and keep talent — a form of title inflation. “If someone is truly a director, they should be managing managers, and that is rarely the case at a growing company,” said Holm.  
  • Undervaluing critical roles and hot jobs: Failing to recognize the true market value of in-demand positions can overextend the budget. “That’s an area where companies get caught flatfooted,” said Holm. “If you’re not looking at the right market data or not being realistic about who you’re competing against, you may not be prepared for the price you’ll need to pay for top talent.” 
  • Using poor-quality data: Unreliable and unverified data can set your plan on the wrong foundation. As mentioned earlier, choose high-quality data from a reliable source that includes companies of similar size and stage in the same industry.  

How Do You Set Up the Next Headcount Planning Cycle for Success?

With funding often tied to specific milestones, it can be difficult to predict when to scale headcount in anticipation of growth. The drive to expand quickly can sometimes clash with the need to maintain a sustainable burn rate. 

That’s why it’s important to go into the next cycle with a solid understanding of your topline revenue and build a plan that aligns with your actual growth trajectory.  

“You want to make sure that that your hiring plan and the people you bring in don’t outpace your growth,” said Holm. “Growth should drive your hiring plan — not the other way around.” 

Headcount Planning with Sequoia 

If you could use help with headcount planning, Sequoia compensation advisors can guide you in building and managing a plan that supports your company’s unique needs. Along with the headcount planning features in Sequoia Comp OS, you’ll get expert guidance and real-time insights to guide your strategy. Reach out to a Sequoia advisor to learn more.