On-Target Earnings: A Complete Guide on OTE

by Hillel Zafir
  • 04
  • Jan, 24

On-Target Earnings (OTE) are crucial in incentivizing and rewarding performance within various industries.

From sales professionals to executives and HR managers, understanding OTE is essential for evaluating compensation packages, setting realistic targets, and motivating employees.

Whether you're a salesperson aiming to understand your potential income or an employer seeking to design a competitive compensation plan, this comprehensive guide on OTE will shed light on its significance, calculation methods, and how to create compensation plans confidently.

What is OTE in Sales?

OTE (on-target earnings) is the total compensation a salesperson can expect to earn if they meet or exceed their targets or sales quota. It is the sum of their base salary and variable components such as commissions, bonuses, or incentives.

base salary + calculating ote

How Do You Calculate OTE?

Add the base salary to the expected variable earnings based on performance to calculate the total salary and on-target earnings.

For example, if the base salary is $50,000 and the expected variable earnings based on meeting targets are $30,000, the OTE would be $80,000 (expected total pay).

on track earnings for sales manager

Benefits of OTE Jobs

OTE jobs can be beneficial to both the company and sales reps. These benefits include;

  • Competitive advantage: OTE positions often attract ambitious individuals who thrive in a results-driven environment, fostering healthy competition and driving sales performance to higher levels.
  • Retention and loyalty: The potential for higher earnings and recognition in OTE jobs can enhance job satisfaction, promote loyalty, and increase the likelihood of sales professionals staying with the company for the long term.
  • Performance-based rewards: OTE jobs offer significant compensation as variable earnings are directly tied to sales performance. These motivate sales professionals to achieve and exceed their targets.
  • Income potential: OTE jobs often have higher earning potential than fixed salary positions, as salespeople can earn additional income based on their sales performance.
  • Merit-based recognition: OTE salary recognizes and rewards individual achievements. Every sales representative can be acknowledged and financially rewarded for their exceptional sales results.
  • Alignment with company goals: On-target earnings align the interests of salespeople with the company's objectives, as their earnings are directly tied to the organization's sales targets and revenue growth.
sales process to calculate on track earnings

How to Determine OTE

Organizations must first define the components contributing to the OTE, such as the base salary, commissions, bonuses, or other performance-related incentives to determine which employee meets on-target earnings.

Next, establish clear performance metrics and targets that align with your business objectives. These can be based on revenue, sales volume, customer acquisition, or other relevant metrics.

You can then set sales commission rates or structures that reward salespeople based on their performance relative to the established targets.

Finally, OTE is calculated by combining the employee's base pay or salary and the potential variable earnings based on achieving or exceeding the targets.

Are OTE Jobs Worth It?

Whether OTE jobs are worth it depends on various factors such as job offers, individual preferences, risk tolerance, and career goals.

They can be highly rewarding for those who thrive in a performance-driven environment and have the skills and motivation to meet or exceed targets. The potential for higher earnings, recognition, and professional development can make OTE jobs attractive.

base salary + pay mix

The Importance of OTE

Sales Performance Alignment

On-target earnings ensure that sales professionals' interests are aligned with the organization's sales objectives. It motivates them to work towards achieving sales goals, resulting in increased revenue and business growth.

Performance-Based Culture

OTE salary fosters a performance-driven culture within the organization. Sales professionals are incentivized to improve their skills and meet or exceed targets continually.

Attracting Best Talent

OTE works with lucrative earning potential and attracts ambitious individuals who are highly motivated by financial rewards. This helps companies attract and retain top sales talent, leading to a more skilled and competitive sales force.

Retention and job satisfaction

The potential for higher earnings and recognition in OTE roles enhances job satisfaction and increases employee loyalty. Sales professionals who feel adequately rewarded for their efforts are likelier to stay with the company, reducing turnover and maintaining a stable sales team.

Revenue Growth

By linking compensation directly to sales performance, OTE drives salespeople to generate more revenue for the organization. The financial rewards of achieving targets incentivize sales professionals to maximize their efforts, increasing sales and profitability.

The Nature and Necessity of Uncapped Commission

The uncapped full commission rate is a compensation structure with no limit or cap on the sales commission sales employees can earn.

Unlike structures with predefined earning limits, uncapped commission allows salespeople to earn limitless income based solely on their performance.

It fosters a competitive environment where salespeople are motivated to surpass targets and push their limits, increasing sales, revenue, and overall business growth. This compensation model attracts and retains top talent and aligns individual goals with organizational objectives.

employee engagement + sales leaders

What Does Base Salary Mean?

An employee's base salary is the fixed amount of compensation an employee receives for their work, excluding any additional or variable earnings.

It is typically paid in annual commission, regardless of individual or company performance. It serves as a stable income for sales representatives, with the potential for growth through salary increases or promotions.

OTE is Not Guaranteed

OTE salary is never guaranteed as it indicates how much money a salesperson can earn IF they meet the targets set by the employer. Actual earnings can vary based on individual performance, market conditions, and other factors.

Other OTE Terms To Know

Other related terms commonly used in the context of compensation and sales performance include;

  • Quota: A salesperson must achieve a specific target or goal within a defined period.
  • Commission: A form of variable compensation that salespeople earn based on their sales performance. It is typically calculated as a percentage of the sales value or revenue generated.
  • Bonus: An additional variable compensation awarded to salespeople for achieving specific objectives or exceptional performance. Bonuses can be based on individual, team, or company-wide performance targets.
  • Accelerators: Also known as accelerator rates or commission tiers, they’re higher commission rates applied to salespeople once they surpass a certain threshold or annual sales quota.
  • Clawbacks: The process of reclaiming or reducing previously paid commissions or bonuses due to returns, cancellations of sales, or discrepancies in reported sales.
  • Rebates: Incentives provided by a manufacturer or supplier to customers as a form of refund or discount.

What is the Average OTE for a Sales Rep Role?

The average OTE compensation for a sales rep role can vary significantly depending on factors such as industry, company size, location, sales complexity, and the specific sales role.

On-target earnings can also vary based on the seniority and experience level of the sales representative.

According to Bravado, the average annual figure for on-target earnings for an account executive in small and medium businesses is $117,900, $155,200 for a mid-market account executive, and $212,000 for an enterprise account executive.

However, this range can be higher for industries such as technology or pharmaceutical sales, where higher commissions and bonuses are often offered.

longer sales cycles vs higher pay mix

Create Compensation Plans With Confidence

Compensating your employees to hit their targets motivates them, but coming up with those compensation plans is daunting.

Besides challenges in tracking performance, striking a balance between motivation and affordability, and inaccurate or incomplete data, commission plans can be intricate, especially in organizations with multiple sales roles.

But you can eliminate all these complexities with incentX's sales commission software.

Say goodbye to miscalculations and overpayments and make decisions based on actionable data.

With its user-friendly interface and powerful features, you can effortlessly design and implement effective compensation plans tailored to your organization's needs. Easily define and configure commission structures, set performance metrics, and calculate on-target earnings accurately.

The software's advanced capabilities allow for flexible commission structures, such as tiered rates or custom rules. This ensures alignment with business goals and incentivizes desired sales behaviors.

You will have real-time visibility into sales performance and earnings, enabling better tracking and analyzing individual and team performance. Consequently, you can make data-driven decisions, optimize sales efforts, and enhance overall performance.

By automating commission calculations, tracking sales data, and generating accurate reports, incentX eliminates manual errors and saves valuable time. With incentX, businesses can confidently create compensation plans that reward performance and drive results.

Contact us today, and let us show you how you can confidently design and manage your commission plans.

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