Decoding On-Target Earnings: The Essential Guide to OTE in Sales

On-target earnings (OTE) is a coveted term in sales compensation. But between quotas, commissions, and pay mix, OTE can also be complex. This comprehensive guide demystifies OTE, empowering you to optimize sales motivation. Learn how to calculate OTE, set realistic expectations, choose between capped vs. uncapped structures, automate management, and more. With the right OTE framework, you can incentivize sales teams to hit targets and maximize revenue. Let’s unlock the secrets to on-target earnings success!

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What Exactly is On-Target Earnings (OTE) in Sales?

On-target earnings, commonly referred to by the abbreviation OTE, is a term you’ll frequently come across when researching sales roles and compensation packages. But what exactly does it mean?

In simple terms, OTE refers to the total compensation a salesperson can expect to earn in a year if they hit 100% of their sales quotas or targets. It includes both their fixed base salary as well as variable commission earned by meeting goals.

So for example, if a sales job listing shows an OTE of $80,000, and you later find out the base salary is $50,000, that means $30,000 in commission is built into the compensation plan for achieving yearly targets.

The Elements of an OTE Salary

An OTE salary structure typically consists of two main components:

  • Base Salary – The fixed amount a salesperson earns regardless of performance. This provides a reliable income even in months where sales are lower.
  • Commissions – The variable portion of OTE that is earned by meeting and exceeding sales targets. Different commission rates may apply based on the type of sale, account, territory, etc.

Together, the sum of the base salary and expected commissions for hitting 100% of sales quotas makes up the on-target earnings amount.

How OTE Salary Motivates Performance

OTE provides a transparent framework where salespeople clearly understand their income potential based on meeting goals. The commission element incentivizes reps to maximize sales in order to earn the full on-target amount.

Rather than a straight base salary, OTE ties compensation directly to performance. This ensures salespeople are invested in pursuing growth and higher revenue for the company.

OTE also allows sales managers to accurately forecast budgets and expenses. When reps hit their targets as expected, commissions earned will align with the OTE salary projections.

Real-World Examples of OTE in Action

To better understand OTE salary in practice, let’s look at a few examples for common sales roles:

Account Executive OTE

An account executive is an entry-level sales position focused on managing existing accounts and acquiring new clients.

The OTE might be structured as:

  • Base Salary: $60,000
  • Commission Rate: 10% on all new sales
  • Sales Quota: $500,000 annually

Hitting 100% of their $500,000 quota would generate $50,000 in commissions. When added to the $60,000 base salary, it makes up the account executive’s on-target earnings of $110,000.

Sales Manager OTE

In a sales manager role, the OTE salary may be calculated as:

  • Base Salary: $90,000
  • Commission Rate:
    • 5% on team sales between $1M – $2M
    • 7% on team sales exceeding $2M
  • Team Sales Quota: $2.5M annually

At 100% of the $2.5M quota, the manager would earn $75,000 in team commissions. The base salary plus commissions brings the sales manager OTE to $165,000.

Sales Director OTE

For leadership roles like sales director, OTE may follow a tiered structure based on hitting revenue milestones.

  • Base Salary: $150,000
  • Bonus Structure:
    • $20,000 for hitting 80% of revenue goal
    • $50,000 for hitting 100% of revenue goal
    • $100,000 for exceeding 120% of revenue goal
  • Revenue Goal: $5M

If the sales director hits their exact $5M revenue target, they would earn the $50,000 commission bonus. This brings their total OTE to $200,000 including base salary.

As you can see, OTE provides a clear yet customizable earnings framework tailored to each sales role and compensation plan. Now that you understand the basics, let’s look at how you can calculate OTE salaries.

Why is OTE Important for Sales Professionals?

For both sales teams and the organizations they work for, on-target earnings structures offer some compelling benefits. Understanding these advantages can help you determine if an OTE-focused compensation model is the right fit.

Motivating Sales Teams to Hit Targets

One of the primary reasons companies utilize OTE is to motivate sales reps and teams. By directly tying earnings potential to achieving quotas, it provides a clear incentive for reps to push themselves.

Rather than just earning a flat salary, OTE gives salespeople a reason to stretch for higher performance. The commission portion encourages reps to find ways to create more value and drive growth.

This can lead to:

  • Increased sales productivity – Since compensation is tied to sales results, reps are motivated to make prospecting, presentations, closing, and account management as efficient and effective as possible. This optimization across the entire sales process leads to higher conversion rates and faster deals.
  • Renewed energy – OTE gives sales teams a tangible earnings goal to chase after each month and quarter. Even long-tenured reps have a renewed sense of purpose trying to max out their commissions each period.
  • Healthier competition – Friendly competition among sales teams to see who can exceed their OTE targets can lead to improved results across the board. Salespeople push each other to put in the work necessary to earn uncapped commissions.
  • Higher job satisfaction – When reps have transparency into their earning potential and a fair path to maximize compensation through their own efforts, job satisfaction increases. They feel empowered to take ownership of the sales process and improve their skills.

Accurately Forecasting Commissions Expenses

For finance and sales operations teams, one of the biggest perks of OTE salary structures is predictability.

When reps achieve 100% of their quotas in an OTE framework, they will earn the expected commission payouts used to calculate the on-target earnings amount. This makes forecasting much simpler compared to subjective bonus and commission programs.

With OTE, organizations can budget and model variable compensation expenses with greater accuracy. When reps hit their targets, commissions earned will match what was projected based on the OTE calculations.

This helps with:

  • Cash flow planning – With commissions directly linked to sales results, finance teams can align revenue forecasts with the corresponding variable compensation that will be owed. This ensures enough cash on hand to rapidly pay out commissions.
  • Risk management – Uncapped commission structures can sometimes lead to commission expenses blowing past budgets. Capped OTE helps control these risks. If reps far exceed quotas, companies are not on the hook for excess commissions not factored into financial planning.
  • Capacity planning – Having reliable OTE forecasts enables executives to allocate headcount budget wisely between base salaries and variable earnings for each sales role. Resources can be optimized to achieve sales goals at the desired compensation rates.

Attracting and Retaining Top Sales Talent

The final major benefit of OTE is the ability to bring top-tier sales professionals into the organization.

When structuring job offers, a compelling OTE salary range signals to candidates that they will be well-compensated for driving results. High potentials are attracted by uncapped earning upside.

Meanwhile, transparency around the commission plan reassures candidates the system will be fair and they’ll earn commissions owed by achieving targets. This perception of fairness also boosts retention.

With OTE models, organizations can:

  • Entice candidates with upside – A high OTE empowers recruiters to sell candidates on uncapped earning potential. Reps motivated by financial upside will be eager to learn more about positions with aggressive OTE ranges.
  • Set clear expectations – Candidates will have a concrete understanding of their income potential based on performance before choosing to accept an offer. This facilitates the right match between worker and company.
  • Improve talent retention – When reps feel the compensation plan is transparent and they are paid fairly for achievement, they will be more likely to stick around long-term. Career progression and earning potential are clear.

For each of these reasons, on-target earnings structures are popular in sales organizations. But implementing OTE is about more than just setting random commission rates. Let’s look at how you can calculate appropriate OTE salaries.

How to Calculate OTE for Different Sales Roles

While the fundamental OTE formula is straightforward (base salary + commissions at 100% quota attainment = OTE), determining appropriate amounts for each component across different sales roles can be tricky.

Let’s examine how to tailor your OTE calculations depending on the type of sales position.

Base Salary

When deciding base salaries for an OTE structure, a few important factors come into play:

  • Level of experience – More seasoned reps bring deeper relationships and selling skills, warranting higher base pay. For example, new account executives may get $40k base vs. $60k for senior AEs.
  • Job responsibilities – More complex roles focused on larger accounts or leadership deserve inflated base salaries. Sales managers guiding teams may earn $80k base while individual contributor reps get $50k.
  • Industry and location norms – Research base pay ranges for similar roles in your industry and geographic area. Align with norms to stay competitive, especially when locating in high cost-of-living cities.
  • Existing pay – If hiring from another employer, match or moderately increase existing base pay to avoid a decrease in fixed income. Sudden pay cuts can negatively impact morale and retention.

When balancing base salary with commissions in an OTE plan, you want to provide enough fixed income to meet living needs but low enough that reps are motivated to maximize commissions.

Commission Rates

Commission rates dictate the variable earnings portion of the OTE calculation. Assessing your sales process, metrics, and objectives enables defining appropriate commission rates.

Factors that influence commission rate design include:

  • Sales cycle length – For longer complex sales with lots of touchpoints, higher commission rates help maintain engagement. Short-cycle sales may only warrant 5-10% commissions.
  • Product or service profit margins – Higher margin offerings allow for more generous commission rates like 15-25% while lower margin products may be capped around 5%.
  • Sales objectives – If your goal is customer retention and upsells, you may grant higher commissions for add-on business from existing accounts vs. new logos.
  • Sales metrics – Commissions earned may vary based on the specific metric being rewarded, whether that be revenue, profit, usage, or customer satisfaction.
  • Team vs. individual sales – For team and channel sales, lower commissions around 2-5% are typical since responsibility is shared. But for individual AEs, 10-20% commissions are common.

New Hire OTE Ramp

When making OTE projections for new hires, be sure to account for their ramp-up period getting trained and building pipeline. It takes time before reps can reasonably achieve on-target commissions.

Smart approaches during the ramp period include:

  • Reduced or staggered quotas – Set quotas at 25-50% of the level expected for fully ramped reps. Increase quotas each quarter until reaching full OTE expectations at 9-12 months.
  • Accelerated commission rates – Maintain lower ramp quotas but boost commission rates by 2-3x during the ramp period to enable reasonable earnings. As reps gain expertise, decrease commission rates while increasing quotas.
  • Salary draw – Offer new hires a draw allowing them to earn a portion of OTE commissions guaranteed during the ramp window. Pay back draws if they underperform once ramped up.

Properly ramping OTE helps you set realistic expectations with new team members. Make sure quotas are achievable as reps build capabilities and networks.

Best Practices for OTE Salary Calculations

When designing OTE structures, keep these best practices in mind:

  • Research competitive base salaries and commission rates in your industry.
  • Get input from sales leaders on quota attainability for different roles.
  • Model commission payout costs against revenue forecasts.
  • Align OTE incentives with desired sales objectives and behaviors.
  • Consider uncapped commissions beyond 100% attainment to reward overachievement.
  • Reassess OTE components annually and adjust as needed.

Thoroughly planning OTE compensation, backed by data, helps optimize sales force motivation and corporate financials. Proactively managing on-target earnings enables sustainable sales growth.

The Pay Mix: How Base vs Commission Factors Into OTE

When constructing an on-target earnings compensation plan, one of the most important decisions is determining the pay mix – what portion comes from fixed base salary versus variable commission earnings.

Balancing these two OTE salary components helps maximize motivation and accuracy of sales expense forecasting.

Typical Sales Pay Mix Ratios

While pay mix strategies are unique to each sales role and organization, a few typical ratio ranges are:

  • 50/50 – The commission portion equals the base salary. This even split is common for individual contributor roles focused directly on acquiring new accounts.
  • 60/40 base-heavy – Pay mixes weighted slightly toward base salary provide stability for reps in volatile markets or longer sales cycles.
  • 70/30 commission-heavy – For sales teams able to directly impact deals and revenue, pay mixes emphasizing commissions incentivize higher performance.
  • 80/20 commission-dominant – Mainly reserved for senior individual contributors or profit-focused sales organizations, highly commission-centric pay structures reward top performance.

Again, there are no absolute standards, only guidelines informed by industry research. The right pay mix for your sales team balances risk, reward, predictability, and skills.

Key Factors In Pay Mix Decisions

When determining the ideal pay mix, consider how the following dynamics apply to each sales role:

  • Level of influence on deals – If reps can directly impact opportunities and accelerate deals, heavier commissions make sense. For roles in supporting functions, base salary should be greater.
  • Length of sales cycle – For long complex sales, base salary enables perseverance. But short-cycle sales rewardcommission-focused pay since reps close deals quickly.
  • Forecast reliability – Higher commissions increase variability in sales expense forecasts. More base pay enables stable predictions and capacity planning.
  • Industry norms – Researching pay mixes for similar sales roles in your industry provides helpful benchmarks.
  • Experience level – Tenured reps with deeper skills merit higher commissions. But developing junior reps may need more base salary as they learn.
  • Market volatility – In uncertain markets, sales can fluctuate wildly. Base salary cushions reps from commission swings.

Getting the pay mix right is crucial for motivating reps while controlling costs. Monitor sales data and OTE metrics to find the optimal ratios.

Ramped vs. Fully-Ramped OTE Pay Mix

When bringing on new sales hires, you may use a different pay mix for their ramp period before they reach full OTE expectations.

For example, a fully ramped key account executive has an OTE split of 65/35 base/commission. But during the new rep’s first 6-9 months, you might shift to a 90/10 pay mix while they learn your product and processes.

Once the ramp window ends and you set full quotas, transition them to the normal pay mix. Ramped pay mix shields new hires from unrealistic OTE pressures while training.

Tuning the Pay Mix Knobs

When planning your OTE pay mix strategy, be sure to model different options to find the optimal levers for your situation.

For example, you can tune the pay mix by:

  • Keeping base salary flat but increasing commission rates
  • Holding commission constant but adjusting base salary
  • Changing the quota calculations to impact commissions earned

Do not assume you must stick to industry norms. Tweak both pay mix and quotas to design the OTE plan that best incentivizes your team.

Be sure to clearly communicate pay mix and any changes to reps so they understand the compensation structure. Transparency and alignment set up OTE success.

Setting the Right Pay Mix

Though it requires work to set properly, an optimized pay mix tuned to your business can power sales team effectiveness. Monitor results and make thoughtful tweaks over time as market conditions and strategies evolve.

With both fixed and variable components structured appropriately in your OTE plan, you are positioned for sales success.

Setting Realistic OTE Expectations for Candidates

When recruiting sales talent, the on-target earnings you advertise play a key role in attracting interest from prospects. But simply touting impressive OTE ranges is not enough.

You must also set proper expectations around attainability, ramp-up, and how commissions are earned. Being transparent helps secure the best long-term fits.

Emphasize OTE is Not Guaranteed

While OTE represents potential earnings, candidates should understand most salespeople do not automatically achieve 100% of quota every year without exception. External realities impact sales performance.

Share historical data on actual OTE attainment percentages for both top performers and average reps. Provide context around variables impacting commissions like:

  • Economic conditions
  • Market changes
  • New product introductions
  • Sales training and coaching
  • Prospecting and productivity
  • Team collaboration

This demystifies commissions, portraying OTE as an achievable goal with effort rather than an absolute guarantee.

You want candidates who feel energized by the earning potential and are confident working hard toward OTE, not those seeking quick payouts.

Share Commission Payment Terms

To avoid misperceptions, educate candidates on when and how commissions are earned and paid:

  • Monthly calculation cadence
  • Payment frequency, timing, and methods
  • Clawback policies if deals are lost
  • Vesting schedules, if applicable

Full visibility into commission mechanics, even small details, prevents unpleasant surprises down the road.

Align on Ramp-Up Timelines

Be clear about the ramping periods for new hires to get fully up to speed. Share typical timeframes like:

  • Product training duration
  • Field coaching windows
  • Pipeline generation stages
  • REDUCED OTE levels initially

This demonstrates patience and investment in developing new team members rather than demanding instant results.

Establish periodic touchpoints post-hire to assess ramp progress and jointly troubleshoot any gaps. Proactively realign if ramp milestones shift.

Spotlight Development Opportunities

Illustrate how top performers grow OTE income over time through career development programs like:

  • Skills training
  • Mentor matching
  • Stretch assignments
  • Leadership development

This showcases your interest in talent beyond just commissions and builds loyalty.

Getting OTE Expectations Right

While highlighting uncapped commission upside attracts candidates, setting proper OTE expectations cements strong long-term team members.

Keep compensation expectations realistic and show how you will partner with new hires to maximize commissions over time. Investing in your people’s success above all else fosters results.

Pros and Cons of Capped vs Uncapped OTE Models

When structuring on-target earnings compensation plans, companies must decide whether to cap commission payouts or enable uncapped variable earnings.

Capped and uncapped OTE models each have advantages and drawbacks to weigh given your sales strategy.

Capped OTE Structures

With a capped OTE structure, the commission payouts salespeople can earn are limited to a set maximum amount, even if reps far exceed their sales quotas.

For example, an account executive might have an OTE of $100,000 with $60,000 as base salary and $40,000 as the capped commission amount. Even if the rep closes 200% of quota, their max commission payout is still $40,000.

Pros of Capped OTE:

  • Enables accurate sales cost predictions and budgets
  • Avoids runaway commission expenses from overachievement
  • Rewards top performers via accelerated payout timing
  • Reduces disputes around overpayment of commissions

Cons of Capped OTE:

  • Can limit motivation to continue high performance if reps max commissions early
  • Perceived as less exciting by ambitious sales candidates
  • Requires monitoring and adjusting caps to avoid disengagement

Capped OTE models are best for organizations focused on predictable expenses and willing to boost base salaries in return for defined commission limits.

Uncapped OTE Models

Under an uncapped OTE structure, high performing sales reps can continue earning progressively higher commissions the more they sell above 100% of their quotas.

For example, an uncapped model might pay out:

  • 5% commission on sales up to 100% of quota
  • 7% commission on incremental sales between 100-150% of quota
  • 10% commission for any sales above 150% of quota

Pros of Uncapped OTE:

  • Motivates reps to continually maximize sales performance
  • Rewards top talent for outstanding results
  • Attracts ambitious and competitive salespeople

Cons of Uncapped OTE:

  • Leads to wide fluctuations in commission expenses
  • Higher achievers can earn disproportionately large payouts
  • Makes budgeting and forecasting commission costs difficult
  • Heightens audit scrutiny of commission calculations

Uncapped OTE plans appeal to stretch-focused sales cultures comfortable withcommission variability and motivated by high upside earnings potential.

Hybrid Capped and Uncapped Models

Rather than a binary choice, some organizations blend attributes of capped and uncapped OTE structures.

For instance, they may cap commissions up to 150% of attainment but allow uncapped commissions beyond that for incremental sales. Or provide uncapped commissions on certain products but capped payouts on others.

Get creative to balance business objectives like budget discipline and salesforce motivation. Just be sure to communicately OTE plan details clearly.

Choosing the Right OTE Approach

Evaluate your corporate priorities, team dynamics, and willingness to manage complexity when deciding between capped or uncapped on-target earnings models.

Monitor performance and stay agile – you can always switch approaches in the future as business needs evolve. With any OTE compensation plan, transparency and fair incentives are key.

Common OTE Ranges for Sales Roles

While on-target earnings structures are tailored to each company and sales role, researching standard OTE ranges provides helpful guardrails when designing your compensation plans.

Below are typical base salaries, commissions, and resulting OTEs for entry-level, mid-level, and senior sales positions.

Entry-Level Sales Roles

For individual contributor reps just starting out in sales, common OTE figures are:

Sales Development Representative

  • Base Salary: $40,000 – $60,000
  • Commission Rate: Variable based on meetings booked, demos scheduled, pipeline generated
  • OTE Range: $80,000 – $100,000

Account Executive/Sales Representative

  • Base Salary: $50,000 – $75,000
  • Commission Rate: 5-15% of sales booked
  • OTE Range: $100,000 – $150,000

Customer Success Manager

  • Base Salary: $60,000 – $80,000
  • Commission Rate: 5-10% of upsell generated
  • OTE Range: $90,000 – $120,000

For entry-level sales roles, OTE often falls in the range of $80,000 – $150,000. Pay mixes tend to be more commission-heavy.

Mid-Level Sales Management

For sales managers overseeing a team of reps, typical OTE benchmarks are:

Sales Manager

  • Base Salary: $100,000 – $150,000
  • Commission Rate: Variable based on team sales results
  • OTE Range: $200,000 – $300,000

Channel Sales Manager

  • Base Salary: $80,000 – $120,000
  • Commission Rate: 2-5% of partner sales influenced
  • OTE Range: $160,000 – $250,000

Account Executive Team Lead

  • Base Salary: $80,000 – $100,000
  • Commission Rate: 10-20% of team sales achievement
  • OTE Range: $180,000 – $240,000

In mid-level sales management roles, $200,000+ OTE is common, with a pay mix balanced between base and commissions.

Senior Sales Executives

For heads of sales and C-suite sales leaders, OTE benchmarks are:

Head of Sales Ops

  • Base Salary: $150,000 – $200,000
  • Bonus Rate: 10-20% of sales revenue target achievement
  • OTE Range: $250,000 – $400,000

Chief Revenue Officer

  • Base Salary: $200,000 – $300,000
  • Bonus Rate: $100,000 – $500,000 tied to revenue achievement
  • OTE Range: $400,000 – $800,000+

VP Sales

  • Base Salary: $175,000 – $225,000
  • Bonus Rate: $200,000 – $500,000 based on sales quota attainment
  • OTE Range: $400,000 – $700,000

For senior sales executives, OTE packages approach and can exceed $500,000 – $1M+ at enterprise organizations, with significant bonus upside.

These ranges provide a starting point for tailoring OTE to your specific company and sales roles. Leverage market research and customization to optimize your compensation plans.

OTE vs Other Sales Compensation Models

While on-target earnings structures are popular in sales, other compensation models may be suitable depending on your business objectives, sales cycle, and talent motivations.

Understanding how OTE differs from base salary, commission, and bonus models helps you select the right approach.

Base Salary

A base salary provides guaranteed fixed earnings to salespeople separate from their performance. Some key differences vs. OTE include:

  • Predictability – Base salary enables reliable expense forecasting unaffected by volatility. OTE fluctuates based on commissions.
  • Motivation – Base salary alone lacks incentives to maximize sales results. OTE ties pay directly to defined sales targets.
  • Complexity – Base salary is simple to manage with no performance linkages. OTE requires quota setting and commission calculations.
  • Costs – Base salaries represent fixed ongoing expenses. OTE commissions are variable costs aligned to revenue.

Base salaries make sense for junior reps still developing skills and companies selling complex products requiring longer sales cycles.


Some direct sales roles are paid entirely based on commissions, with no base salary. Compared to OTE models:

  • Risk – Commission-only compensation takes risk off the company but can deter risk-averse salespeople. OTE balances risk between employer and employee.
  • Consistency – Commissions flowing from volatile sales can vary hugely month-to-month. OTE base pay enables stability through fluctuations.
  • ** ROI** – Paying purely variable commissions aligns spend directly with revenue. But OTE may improve retention and productivity.
  • Planning – Without base salary, accurate income planning is difficult for salespeople. OTE provides predictable base for budgeting.

Commission-centric OTE models with lower base salaries can mimic commission-only roles while offeringreps some income safety net.


Discretionary bonuses are additional incremental payments made for strong performance, retention, or other reasons. Differences from OTE include:

  • Transparency – Bonuses are subjective, while prescribed OTE formulas enable clarity on earnings potential.
  • Timing – OTE commissions are earned and paid out routinely. Bonus timing is unpredictable.
  • Motivation – OTE incents hitting routine targets. Bonuses reward one-off achievements or initiatives.
  • Measurement – OTE ties to specific quantifiable sales metrics. Bonuses may be based on softer qualitative factors.

Blending transparent OTE structures with discretionary bonuses provides a compelling combination of consistency and flexibility.

Choosing the Right Model

Look at your sales strategy, talent, and business priorities when determining if on-target earnings or another compensation model is a better fit:

  • Are you focused on predictable expenses or willing to tie pay to performance?
  • Do you want simplicity or are you equipped to manage complex commissions?
  • Does your sales cycle warrant salary stability or commissions to drive urgency?
  • Will uncapped commissions or bonuses motivate your team most?

Get clear on your goals, constraints, and culture before designing sales compensation plans. OTE provides a proven framework to start optimizing pay around.

Best Practices For OTE Management

Effectively administering OTE compensation plans requires forethought, tools, and processes to enhance execution.

Follow these best practices to keep your sales team motivated and OTE programs optimized.

Automate Commission Calculations

Manually calculating on-target earnings and commissions for an entire salesforce spread across multiple roles and geographies is extremely cumbersome.

Automating OTE management with sales commission software eliminates error-prone spreadsheets and provides greater visibility through reporting and analytics.

With automation, you can:

  • Centralize complex commission calculations based on quotas, caps, accelerators and other criteria
  • Access real-time dashboards and insights into OTE performance
  • Model hypothetical changes to OTE plans and instantly see potential results
  • Configure rules workflows to automatically handle commission processes
  • Accelerate payment processing to provide commissions earned to reps rapidly

Technology designed for sales compensation streamlines administering even the most sophisticated on-target earnings plans.

Maintain Accurate Quotas and Rates

As market conditions evolve, analyze whether your defined quotas and commission rates remain aligned with business objectives.

If quotas are set too high or low, your OTE calculations will be off and reps may become disengaged. If rates are not competitive, you risk losing top talent.

Set reminders to periodically:

  • Pull reports on projected OTE vs. actual earnings across your sales team.
  • Compare commission rates and attainment to industry benchmarks.
  • Weigh modifications to rebalance quotas, accelerate rates after quotas are met, or impose caps.
  • Gather feedback from sales leaders on quota relevance and pay plan competitiveness.

Keeping quotas and rates fine-tuned maintains the accuracy of your OTE forecasting and motivation of the salesforce.

Ensure OTE Alignment with Goals

Each component of an on-target earnings compensation plan should incentivize behaviors that ladder up to core business goals.

For example, if cross-selling existing accounts is a priority, your OTE design might:

  • Establish higher commission rates for add-on business from current customers
  • Require maintain quota minimums on new accounts in addition to installed base targets
  • Impose lower caps on new business commissions while leaving expansion commissions uncapped

Analyze whether your pay mix, quotas, commission rates, and caps align with strategic growth priorities and adjust where needed.

Enhance Transparency

Nothing demotivates sales teams faster than opaque compensation plans. Maximizing the transparency around OTE structure and calculations should be a top priority.

Ways to boost transparency include:

  • Provide clear documentation on pay mix ratios, quotas, commission and bonus criteria
  • Illustrate examples of how hypothetical sales scenarios would translate to OTE earnings
  • Show reps their real-time quota attainment and commission projections regularly
  • Automate personalized commission statements detailing earnings and payouts

With transparency, reps understand how their day-to-day execution ladders up to OTE commissions. This enables them to focus energy on the activities that drive the desired results.

Get OTE Right From the Start

A compensation structure based on accurate on-target earnings calculations, automation, and transparency sets your sales team up for maximum motivation.

But getting OTE right is a journey requiring collaboration across teams. Maintain flexibility to adapt as your business grows and new challenges arise.

Sample OTE Calculator for Sales Roles

Determining appropriate base salaries and target commission rates to build an optimized on-target earnings (OTE) compensation structure for your sales roles can be challenging.

This sample OTE calculator provides a hands-on tool to model different combinations of base pay and commissions so you can see the resulting earnings potential.

Feel free to tweak the below variables for different sales roles at your organization to help inform your OTE plan design.

On-Target Earnings Calculator

Sales Role: Account Executive

Annual Base Salary

Commission Rate

Annual Sales Quota

** Calculated OTE**

With a $50,000 base salary and a 10% commission rate, hitting 100% of the $500,000 sales quota generates $50,000 in commissions. The $50,000 base + $50,000 commissions = $100,000 OTE.

Check your understanding

Based on the calculator above:

  • If the rep exceeds quota by 50% (sells $750,000), what would their total earnings be?
  • If the commission rate was increased to 15%, how would that impact OTE?


  • At $750,000 sold, the rep would earn $75,000 in commissions (15% of $500,000), plus their $50,000 base salary, for total earnings of $125,000.
  • A 15% commission rate would increase the commission portion at 100% attainment to $75,000. The new OTE would be $50,000 base + $75,000 commissions = $125,000.

Now It’s Your Turn

Use the calculator below to model the OTE for different sales roles at your company. See how tweaking base salaries, commissions rates, and quotas impacts earnings potential.

This can help determine appropriate ranges as you design OTE compensation structures for your sales teams.

Sales Role:

Annual Base Salary

Commission Rate

Annual Sales Quota

Calculated OTE

As you can see, small changes to the base vs. commission pay mix ratios and quota assumptions can significantly sway OTE outcomes.

Be sure to model different scenarios and get input from finance, sales ops, and sales leaders on realistic goal setting before finalizing OTE compensation plans.

With thoughtful design and alignment, an on-target earnings framework can propel your sales team to higher levels of motivation and performance.

Key Takeaways on On-Target Earnings in Sales

On-target earnings (OTE) structures provide a proven yet customizable framework for optimizing sales compensation.

Key learnings to take away include:

  • OTE blends base salary with variable commission earnings tied to hitting quotas. This incentivizes sales teams to maximize performance and enables accurate forecasting.
  • Pay mix, or the ratio between fixed and variable OTE components, should be set based on role responsibilities, sales cycle, and desired behaviors. 50/50 is a typical starting point.
  • OTE is not guaranteed, so transparency on attainment averages provides candidates with realistic earning expectations.
  • Ramped quotas and accelerated commission rates help new hires transition to full OTE plans after 6-12 months.
  • Capped OTE improves predictability but uncapped OTE better motivates top performers to continually stretch. Hybrid approaches can balance the two.
  • Leading practices are to automate calculations, regularly review OTE components, and align quota criteria to business goals.
  • While base salary, commissions, bonuses and OTE each have pros and cons, OTE allows customizable pay for performance.

Leveraging on-target earnings frameworks, while adapting them to your sales strategy and culture, empowers sustainable revenue growth.

Frequently Asked Questions About OTE

What is OTE?

OTE stands for on-target earnings. It is the total compensation a salesperson can expect to earn in a year, including their base salary and commissions for hitting 100% of their sales quotas or objectives.

How is OTE calculated?

The basic OTE formula is:

Base Salary + Commission at 100% Quota Attainment = On-Target Earnings

Commissions are determined by quotas, rates, accelerators, and caps in the compensation plan.

What’s a typical OTE pay mix?

A standard OTE pay mix ranges from 50/50 to 75/25 base salary vs. commission ratio. 50/50 and 60/40 mixes are common for individual contributors. Higher ratios like 70/30 are seen in sales management roles.

Is OTE guaranteed?

OTE is not guaranteed. Most salespeople will not earn their entire OTE each year due to missing quotas or commission caps. However, OTE represents reasonable potential earnings for average to above-average performance.

How long does it take to reach full OTE?

Most sales roles have a ramp period before full OTE is in effect, usually 6-12 months. Companies use reduced quotas or increased payouts to offset the learning curve. After ramping up, the full OTE plan applies.

How often are OTE plans reviewed?

Best practice is to review OTE details at least annually to keep pay mix, quotas, and commission rates aligned to business goals and competitive. Adjustments may be required based on market changes.

What happens if a rep misses their sales quota?

Commissions are earned based on sales results, so missing quota targets means reduced commissions vs. the OTE plan. Most plans still pay partial commissions on underperformance to recognize effort.

How do bonuses factor into OTE?

Bonuses are usually incremental to OTE, paid for exceptional achievements or retention purposes. While discretionary bonuses are separate, some OTE plans build in quarterly or annual bonuses tied to results.

How does OTE differ from base, commissions and bonuses?

  • Base salary provides fixed earnings unaffected by performance
  • Commissions are variable pay directly tied to sales results
  • OTE blends base and commissions for total earnings potential
  • Bonuses reward milestones or retention on top of OTE

How is OTE typically managed?

Most companies use commission automation software to calculate, report on, and pay commissions tied to OTE. Manual administration via spreadsheets often results in errors and lack of transparency.