How to make headcount planning feel easy
September 22, 2026 | Edition #30
Hi there,
Every year, there comes a time β and often 2-4x β where Heads of People have to work with the Executive Team to come up with a headcount plan.
This can often feel chaotic, last-minute, and like the most persuasive people get the most headcount.
It doesn't have to be that way.
Here's how I like to approach headcount planning
βStart by understanding which of these 5 common budgeting models your organization uses. It can be a combination:
- Incremental budgeting: You assume that all of the existing expenses stay the same and add a $ amount or % on top.
- Activity-based budgeting: You take a top-down approach, setting targets (e.g., $25M ARR, 10% EBITDA) and then back into the activity that hits those thresholds (e.g., 6 sales reps at $750k quota each, plus product-led growth).
- Zero-based budgeting: You start with no line items allocated and everything has to be re-requested and approved.
- Value proposition budgeting: You cascade down the company's goals into specific programs or services β sometimes called Lines of Business (LOBs) β and determine if the cost of that business unit justifies the value, reallocating as needed.
- Flexible budgeting: A budget that uses hurdles and thresholds to adjust dynamically to performance throughout the year.
In a perfect world, your headcount planning is mapped to your budgeting process. That'll reduce friction.
But, and it's a big but, many organizations use incremental budgeting and I typically find this is a poor approach to headcount.
What's so bad about incremental headcount planning?
βOver time, a company's goals and resourcing needs change. When you use incremental headcount planning, you assume that your existing staff and organization shape are what is needed to take you to the next level.
That's often not the case.
Example: Let's say your company produces electric vehicles and the software inside of them. Then, over time, you realize that manufacturing is not your core competency. You can buy or lease similar vehicles and install the software, which is better margin.
When you exit manufacturing, you almost certainly have staff with skillsets that are no longer the most relevant to your future goals.
You might have teams reporting into each other that need to be separated, or to have a new leader give them a clear and compelling vision to ladder up to the new business goals.
If you use incremental budgeting, that existing staff and org structure stay fixed.
That creates organizational drag that slows you down.
Zero-based headcount planning will help solve that.
How to run zero-based headcount planning
βAssume you have zero people on the team. Then, look at the company's objectives and key results (OKRs) for the next period.
Go to each executive and/or department head and ask them what roles β not what people! β they need on staff to achieve the new goals.
Then, after they've mapped out an org chart with only role names and levels. Have them start placing people back into it.
You can do this two-ways: Either have them place high-performers first or have them place the most logical fits first. You'll get different results.
Personally, I like to have them make a list of people they absolutely want on the team. Then, place people by most logical fit (without looking at their high performers list).
At that point, we usually have an org chart like this that includes roles with some names in them, and a list of high-performers that are either included or not at that point:
From there, we have to decide, do these high-performers have a place on this or another team? How fungible are their skills?
Then, we look at the roles that still don't have names in them and all the names (e.g., average and low-performers) who don't yet have a seat.
The list of names you're left with is often illuminating.
It'll help you see where your hiring criteria have changed over time, if certain skillsets were valued in the past and now are not needed, or if you have individual performance issues you haven't been assertive enough with.
Go down the list of names person by person and make a plan.
- How will you set new expectations for a revised role and upskill them to match business needs?
- Do you need to have a serious performance conversation?
- Are they a better fit on another team now?
Be very hesitant about creating a role the business doesn't need just to retain someone. This rarely works out in the long-term.
You also have to be aware of local compliance requirements or contractual obligations (e.g., Is someone US-based out on military service and, as a result, you have an obligation to keep a role secured for them at equal or higher salary?).
At the end, you'll have an org chart that is either 100% complete or missing a few roles. Those roles become the requested hiring plan.
You also have a list of names that's either placed on the org chart or has an action plan next to it.
How frequently should you do zero-based headcount planning?
Zero-based headcount planning only makes sense to do once per year or when there are major disruptors (e.g., M&A, significant change in business model, RIF, etc.).
β
If there are major disruptors, you might want to expand the review beyond full-time employees (FTEs) to contractors, distributors, suppliers, and vendors. All the people that power your company's ecosystem are relevant.
β
As long as you are doing zero-based annually and at certain triggers, you can use an incremental or flexible headcount planning (where certain requirements have to be met to automatically unlock new headcount) the rest of the year.
β
Until next time,
Melissa