Have you ever wondered how sales professionals get paid?
It’s not just a simple flat salary, you know.
Many of them are compensated through a model called OTE or On-Target Earnings. Basically, it means they get a base pay plus commissions and bonuses if they hit their sales targets.
Sounds exciting, doesn’t it?
This way, their earnings are tied to their performance, motivating them to work harder and smarter.
But what exactly is OTE, and how does it work? Let me break it down for you in simple terms.
Table of Contents
What is On Target Earnings (OTE)?
OTE is a performance-based compensation model common in sales roles. It comprises a base salary plus commissions and bonuses at achieving full sales targets.
The base salary is guaranteed, but commissions and bonuses depend on meeting sales targets and goals. OTE offers career growth opportunities.
It motivates employees through a clear, performance-linked pay structure aligning their goals with the company’s.
Some companies offer OTE in the form of other benefits like:
🔹Mobile phones
🔹Spa
🔹Exclusive events (sports match tickets, concerts)
🔹Company-sponsored vacation
🔹Renewable Energy Investment Programs (e.g., Solar Panels, Wind Farms)
🔹Employee Education Funds
🔹Child Education
🔹Company-sponsored Health Savings Accounts (HSA)
🔹Employee Purchase Programs for Company Products or Services at Discounted Rates
🔹Employee Housing Programs
🔹Employee Investment Programs
🔹Cryptocurrency
🔹Deferred Compensation Plans (e.g., Deferred Savings Plans, Stock Bonus Plans)
🔹Employee Stock Options and Equity Plans (ESOP)
🔹Corporate Bonds or Debt Securities
🔹Employee Savings Plans with Matching Contributions
Example:
Imagine a tech company looking to hire a Sales Development Representative (SDR) with a total earning budget (OTE) of $80,000. Here’s how the pay is structured:
| Component | Amount |
| Base Salary | $50,000 per year |
| Commission | $30,000 per year (at 100% target attainment) |
The base salary of $50,000 is guaranteed, and the SDR will receive this amount regardless of their sales performance. The additional $30,000 is the variable component, which the SDR can earn by meeting or exceeding their sales quota.
Here’s how the commission structure might work:
| Goal Achievement % | Commission Earned | Compensation |
| 100% | 30,000 | 50,000+30,000=80,000 |
| 80% | 24,000 | 50,000+24,000=74,000 |
| 120% | 36,000 | 50,000+36,000=86,000 |
The Importance of OTE
In the sales industry OTE (On Target Earnings) plays a vital role in attracting and retaining top sales talent. Companies offering appealing OTE packages can position themselves as employers attracting motivated professionals and ambitious sales professionals who excel in performance driven settings.
Additionally the OTE model aligns the interests of sales reps with those of the company and customers.
By linking a portion of compensation to sales performance it motivates sales people to prioritize relationships over revenue generation and customer satisfaction ultimately benefiting both the company and customers.
A designed OTE structure can also promote a culture of healthy competition and collaboration, within sales teams.
Sales representatives may feel encouraged to share practices, support each other and work together towards common goals knowing that their individual successes or setbacks can impact the overall performance and potential earnings of the entire sales team.
OTE Benefits for Employees
On-Target Earnings (OTE) is a popular sales compensation model that blends base salary with variable pay like commissions and bonuses. This table highlights the key benefits of OTE plans from the perspectives of the employee:
| On Target Earnings Benefits for Employee |
| ✅Incentivizes strong sales performance ✅Accelerator rates can significantly boost OTE at high performance levels ✅Commission/bonus payouts feel like “extra” income ✅Potential for higher earnings if sales targets are exceeded ✅Provides a clear line of sight between effort and rewards ✅Earnings potential is uncapped for top performers ✅Pay mix of salary + variable pay provides some income stability |
OTE Benefits: Business
Providing an OTE (On Target Earnings) package is a smart tactic for companies to motivate and compensate their sales staff. Let’s dive into the advantages that an OTE framework offers organizations:
| OTE Benefits for Business |
| 💼Aligns employee compensation with company revenue/profit goals 💼Helps attract and retain top sales talent 💼Pay is variable based on actual results achieved 💼Lower fixed costs compared to salary-only plans 💼Costs scale with revenue generated 💼Motivates salespeople to exceed quotas, not just hit them 💼Supports a high-performance, results-driven culture |
How do you calculate OTE?
The OTE calculation varies across companies, but typically follows this formula:
| OTE = Base Salary + Commissions (at 100% target attainment) + Potential Bonuses |
For example, if a top salesperson whose role is selling process, offers a prospective customer a $50,000 base salary, $30,000 in commissions at 100% quota attainment, and a potential $10,000 bonus, the OTE would be $90,000.
It’s important to note that the commissions and bonuses are variable components, dependent on meeting or exceeding sales targets. The base salary is the only guaranteed portion of payment for those offering the OTE package.
Employers often structure OTE packages based on industry standards, market rates, job responsibilities, and the buyer or company of the buyer’s overall compensation philosophy.
They aim to create competitive OTE offers that attract and retain top sales talent.
OTE Examples
To better understand the OTE model in action, let’s explore some real-world examples across different sales roles:
Account Executive
- Experience-3 years
- Base Salary: $60,000
- Commission Rate: 10% of closed deals
- Potential Bonus: Up to $20,000 for exceeding annual quota
- OTE (at 100% target attainment): $110,000
For an account executive role, the OTE package typically includes a base salary, commission rate tied to closed deals, and a potential bonus for exceeding annual sales targets.
The total OTE of $110,000 at 100% quota attainment provides a clear understanding of the earning potential, while the commission and bonus components serve as motivators for high performance.
Sales Development Representative (SDR)
- Experience-3 years
- Base Salary: $45,000
- Commission: $100 per qualified lead
- Potential Bonus: $5,000 for exceeding monthly targets
- OTE (at 100% quota attainment): $70,000
In the case of a sales development representative (SDR) role, the OTE package may include a lower base salary but compensate through commissions earned for each qualified lead generated.
The potential bonus for exceeding monthly targets further incentivizes consistent high performance, making the OTE model a powerful motivator for SDRs.
Sales Representative
- Experience: 1-3 years
- Base Salary: $45,000
- Commission Rate: 8% of closed deals
- Potential Bonus: Up to $10,000 for exceeding annual quota
- OTE (at 100% target attainment): $85,000
For a sales representative role, the OTE package typically includes a base salary, commission rate tied to closed deals, and a potential bonus for exceeding annual sales targets.
The total OTE of $85,000 at 100% quota attainment provides a clear understanding of the earning potential, while the commission and bonus components serve as motivators for high performance.
Sales Manager
- Experience: 5+ years
- Base Salary: $90,000
- Commission Rate: 5% of team’s closed deals
- Potential Bonus: Up to $30,000 for exceeding team’s annual quota
- OTE (at 100% target attainment): $160,000
For a sales manager role, the OTE package typically includes a base salary, commission rate tied to the sales team’s closed deals, and a potential bonus for exceeding the team’s annual sales targets.
The total OTE of $160,000 at 100% quota attainment provides a clear understanding of the earning potential, while the commission and bonus components serve as motivators for driving the team’s high performance.
Director of Marketing
- Experience-3 years
- Base Salary: $120,000
- Commission: 1% of team’s closed deals
- Potential Bonus: Up to $50,000 for achieving company revenue goals
- OTE (at 100% quota attainment): $200,000
For a director of marketing role, the OTE package often includes a higher base salary commensurate with the leadership responsibilities.
However, the commission component, tied to the entire sales process, outside sales team and business to consumer side’s closed deals, and the potential bonus for achieving company revenue goals align the director’s interests with the overall success of the organization, fostering a results-driven mindset.
As you can see, OTE packages can vary significantly based on the specific product, role, company, and industry, highlighting the importance of carefully evaluating job offers and understanding the earning potential associated with each opportunity.
Here is a chart showing the average base salaries of different sales positions:
Source: PayScale’s 2023 Compensation Best Practices Report
FAQs
👉Is OTE the same as base salary?
No, OTE (On-Target Earnings) is not the same as base salary. OTE is the total potential compensation that includes base salary, commissions, and bonuses if sales targets are met.
👉Can I earn more than the NOTE amount?
Yes, it’s possible to earn more than the OTE amount. OTE represents the compensation at 100% quota attainment. If you exceed your sales targets, you can potentially earn higher commissions and bonuses, resulting in a higher overall income.
👉Is the OTE amount guaranteed?
No, the OTE amount is not guaranteed. Only the base salary portion of OTE is guaranteed. The commissions and bonuses components are variable and depend on your sales performance.
👉How do companies determine OTE packages?
Companies typically consider factors such as industry standards, market rates, job responsibilities, and their overall compensation philosophy when determining OTE packages.
👉Is OTE only for sales roles?
No, while OTE is commonly used in sales roles, it can also be used in other performance-based roles such as marketing, or business to the transactions, business development, or account management.
Conclusion
Understanding the concept of OTE is crucial for anyone in the sales industry or considering a career in sales. The key takeaways are:
🎯OTE offers a transparent and performance-based compensation model
🎯It aligns the interests of salespeople ands reps with the selling company and salespeople’s goals
🎯It provides the opportunity for higher earnings and career growth
Embracing the OTE model can be a powerful motivator for businesses, fostering a culture of hard work, accountability, and success in the dynamic world of sales.