Generating quotas, commission rates, and on-target earnings can be a bit of a chore, especially with all the different formulas and variables. We want to make it as easy as possible for anyone to figure out how to pay salespeople with this Sales Compensation Calculator tool.
Quotas are targets set for sales reps. Quotas are most often a revenue goal.
The commission rate is the percent of every closed deal that a salesperson receives.
Variable comp is the total annual commission earned if a salesperson hits their quota.
Base salary is a flat rate earned by a salesperson regardless of their performance.
On-target earnings (OTE) is the total amount a salesperson can expect to earn (base salary + variable comp) if they hit their quota.
Period is used to refer to the duration of time a salesperson has to hit their quota. The most common periods are monthly, quarterly, and yearly.
While this may seem very basic, it’s important that salespeople have a quota that is high enough to pay for their base salary, benefits, etc. and produce profit for your company. A generally accepted rule of thumb is that a sales rep’s quota should be somewhere between 3x and 5x their on-target earnings (OTE).
Depending on the length of your sales cycle, your average contract value, and your company stage, you’ll want to have a quota that is either monthly, quarterly, or yearly. If your sales cycle is longer than 45 days on average, you should probably use a quarterly quota. If your sales cycle is shorter than a month, you should probably use a monthly quota. If your company sells mainly high dollar, several month-long sales cycles, you can consider a yearly quota.
Nothing is more demoralizing than a salesperson who always misses their quota. While it would be great to have a quota that is 15x OTE, it’s most likely not realistic for the salesperson to hit that number month after month. If your reps can’t hit a quota that’s only 3x OTE, then consider a larger, more sweeping change: pricing, sales methodology, or base salary, to name a few.
Not every compensation plan is as simple as a single rate commission. And while simplicity is important when building a comp plan, sometimes you need to add a little complexity. With QuotaPath, you can enter your entire compensation plan and automate your commissions.
For roles like Sales Development Reps (SDRs) where you’re tasked with setting meetings or making calls, reps are often compensated based on a number, rather than a commission rate.
Many plans have accelerators, which pay a higher commission rate for overperformance. These can incentivize quota carriers to continue selling once they’ve hit their target and are a useful tool.
Whether single rate or multiple rate, bonuses are a set amount of money paid to a rep for accomplishing a specific task. For example, a $1000 bonus for hitting a quarterly quota or a $500 bonus for every multi-year deal sold.
Each of the three calculators uses the same five variables: quota, commission rate, variable comp, base salary, and on-target earnings (OTE). You’ll notice that with every calculator, you’re asked for three of the variables, and in turn, you get the other 2 calculated for you. Keep reading if you’re interested in the math behind the calculator.
For this calculator, we ask for base salary, OTE, and commission rate. We then take OTE and subtract base salary, which gives the variable compensation value. We then take the variable compensation value and divide by the commission rate. This gives us the annual quota. If you’ve selected monthly or quarterly quota, we divide by 12 or 4 respectively.
Just like the sales quota calculator, we ask for base salary and OTE, but in this instance, we also ask for the quota. We follow the same logic to find variable comp — OTE minus base salary. We then take the variable comp and divide it by the quota you’ve entered. If you’ve selected yearly quota, we’re done. If you’ve selected monthly or quarterly, we again divide by 12 or 4 respectively.
If you’re trying to find OTE, we ask for base salary, commission rate, and quota. We take the quota and multiply it by the commission rate, then multiply that by 1 for yearly, 4 for quarterly, or 12 for monthly quotas. That gives us the variable compensation, which, when added to the base salary, gives us your OTE.
