What is OTE? On-target earnings definition + examples
OTE stands for On-Target Earnings. Your OTE is the amount of money you can expect to earn if you hit 100% of your quota. This number is usually given in an annual figure. For example, a sales job posting might say "$90,000 OTE". This number is sometimes rounded to an even earnings number for convenience. For example, your true OTE might be $90,240 but you might be told that it is $90k for simplicity.
The equation for OTE is very simple:
Do you need help calculating OTE, setting a sales quota, or determining a commission rate? At QuotaPath we built an entirely free sales compensation calculator, no sign up required.
Also, if you want to automate calculating commissions and quota attainment, QuotaPath is here for you. We take the spreadsheets and human error out of calculating commissions with automated commission software. Get started for free or sign up for a demo.
If you’re interviewing for a sales job, make sure you also ask the hiring manager about average attainment. The OTE for the role might be $120k, but if average attainment is 50% of quota, the average earnings will be substantially lower. OTE shouldn’t be impossible for even top talent to attain. It should be possible for most salespeople on your team to see success.
Fully-ramped OTE: most sales roles require some ramp time. Because of this, OTE usually doesn’t consider ramp quotas and payouts. However, good sales organizations will either give you a draw or increase your commission rate to make up for the lower quotas.
Pay mix: this refers to what % of your OTE is base salary and % is commission. The industry norm for SaaS sales is 50% base and 50% commission/bonus, but there are industries where the pay mix is different.
On-target commissions (OTC): the second half of that equation above. Some organizations refer to on-target commissions to mean how much a rep earns if they hit 100% of their quota.
Average rep earnings: remember the fact that OTE isn’t guaranteed. Some hiring managers will provide what an average rep earns in a year. If the average rep hits 100% of quota, they’re going to brag about this! However, if their reps are hitting 40% of quota and therefore drastically under-earning, expect to have to quiz them on this.
An Account Executive has an OTE of $100,000. Their base salary is $52,000 per year. They have a monthly quota of $40,000 and earn a 10% commission off every deal they sell. Therefore, if they close 100% of their quota every month, they would earn $4,000 every month. This means $48,000 in commission every year. Add that $48k to the $52k base salary, and you get the $100k on-target earnngs.
Sales Development Representative (SDR)
A Sales Development Representative (SDR) has an OTE of $70,000. Their base salary is $42,000 per year. They have a qualified meeting quota of 35 per quarter, and they get paid a $100 bonus per qualified meeting. They also have a sourced revenue quota of $210k per quarter, and they get paid 3.33% commission on deals they source. If they hit 100% of their quota every quarter, they earn $7,000 every quarter. This means $28,000 in commission every year. Add that $28k to the $42k base salary, and you get the $70k on-target earnings.
Director of Marketing
A Director of Marketing is responsible for overseeing the entire marketing department. Their annual quota is centered around revenue generated by the marketing team. Even though some disagree with holding marketing’s compensation to a metric! They have a base salary of $130k and their quota is $2.4 million. Once they hit 50% of their quota, they earn a $5,000 bonus. They earn another $5,000 bonus once they hit 75%. Finally, they earn a $10,000 bonus if they hit 100%. Adding their $20k possible bonus to their $130k base salary, their OTE is $150k.
If this all sounds like it’s too complex for you to solve on your own, don’t worry, we’re here to help! I’m happy to sit down with you for a free compensation plan strategy session. I promise we can cut some complexity out of your compensation plans and give you an understanding of how to build a great plan.
QuotaPath is the most adaptable compensation solution for sales reps to finance to everyone in between. Try it for free today!