What is OTE in Sales? Learn to calculate on-target earnings (OTE), its role in sales compensation plans, and how it affects quota & sales rep performance.
Author: Abhilash Dama
You just opened a sales job posting, skimmed the responsibilities, and then your eyes locked on OTE: $120,000. You stopped for a second thinking, "does that include your base salary? What are these on-target earnings(OTE) really based on?"
I know how it feels, staring at numbers that you couldn't understand. It can be quite a pain trying to figure out how your pay is structured and what you can actually earn.
In this blog, I’ll tell you about what exactly OTE in sales is, explain how it is calculated, and show you how earnings can vary depending upon different sales roles. By the end, you’ll have a clear idea of your earnings compensation and how it is connected to your target earnings.
OTE, or on-target earnings, is the total amount of compensation a salesperson can expect to earn when they hit their sales quota. It includes base salary with the on-target commissions, showing the full potential earnings tied to their sales performance.
In simple terms, OTE salary reflects how your sales compensation plan is structured. It’s the benchmark that sets clear expectations for both your sales team and leadership. For example, a sales rep or account executive with a strong OTE structure knows exactly what they can achieve when they reach their sales targets.
Research from Everstage shows that the average on-target earnings (OTE) for Account Executives in SaaS companies sit at around $154,000 annually. While this varies by industry, deal size, and sales cycle, it gives a clear picture of how incentives are evolving.
An OTE compensation structure defines how your sales team earns when they meet their sales quota. It links sales performance to pay, creating a clear line between effort and reward.
Most sales organizations structure OTE with a pay mix that combines employee's base salary and variable compensation:
A well-designed OTE structure helps you:
Even with a well-structured OTE model, many sales managers struggle to accurately track performance and ensure their sales development representatives are on pace to meet sales goals. Monitoring activities, calls, and real-time productivity can be time-consuming.
This is where Qoli comes in. With features like employee monitoring, call recordings, and performance dashboards, Qoli gives you a clear view of how your sales representatives are performing. With real-time insights into who’s hitting their targets and where support is needed, Qoli helps you make confident decisions about total compensation and ensures your standard OTE structure truly aligns with performance.
Now that we’ve looked at how an OTE compensation plan is structured, let’s dive into how you can calculate total compensation for your sales positions and understand what your team can realistically earn.
Calculating OTE helps sales leaders understand exactly what a salesperson can earn if they hit their sales targets. Here’s a simple step-by-step approach:
Step 1: Identify the Base Salary
Start with the guaranteed pay for the role. This is the fixed part of the compensation that the sales rep receives regardless of performance.
Step 2: Determine Variable Compensation
Next, include the performance-based pay such as sales commission or bonuses tied to achieving quota or monthly sales targets.
Step 3: Combine Base and Variable Pay
Add the base salary plus variable compensation to get the total OTE. This represents the projected earnings for meeting all sales targets.
For Example:
Let’s say an account executive has a base pay of $60,000. Their OTE package includes $40,000 in on-target commissions if they meet their sales quota.
OTE = Base Salary + Variable Compensation
OTE = $60,000 + $40,000 = $100,000
This OTE figure represents the total earnings that sales representatives can expect when they achieve their sales targets.
After seeing how to calculate OTE, it’s helpful to look at typical sales earnings across different roles. While the previous section showed the calculation, the average OTE gives a benchmark of what sales professionals actually take home when hitting their quotas.
Here’s a snapshot of average OTE figures for common sales
| Sales Role | Average OTE |
|---|---|
| Sales Development Representative (SDR) | $85,000 |
| Account Executive (AE) | $185,000 |
| Enterprise Account Executive | $260,000 |
| Sales Engineer / Solutions Consultant | $193,000 |
| Sales Manager | $255,000 |
These figures combine base salaries and commissions, providing a reference for assessing compensation plans and ensuring they remain competitive.
While the average OTE gives an ideal figure, the way salespersons earn their incentives can vary widely depending on their role, experience, and the company’s compensation plan.
Let’s break it down by role: (Source: RepVue)
1. Sales Development Representatives (SDRs)
2. Small-to-Medium Business Account Executives (SMB AEs)
3. Mid-Market Account Executives
4. Enterprise Account Executives
5. Sales Managers
6. Sales Engineers / Solutions Consultants
OTE Numbers alone don’t tell the whole story. A good compensation plan drives performance, engagement, and results for sales professionals.
Let’s look at some of its key benefits:
Even some of the best OTE plans can encounter challenges if not designed or managed carefully. Here are some common issues:
Unrealistic sales targets can demotivate even top performers. A study by Varicent found that a company reduced quotas by 15% and experienced a 15% increase in sales over the next three months, highlighting the importance of achievable goals.
While variable compensation can drive performance, over-reliance on it can lead to stress and burnout. Research indicates that salespeople with high variable pay shares (>30%) experience increased stress and burnout, particularly if they lack strong social resources.
Timely recognition of performance is critical. Delayed incentive payouts can reduce trust and lead to undesirable behaviors, such as gaming the system, as salespeople may feel short-changed.
Focusing solely on team-based metrics can under-reward high-performing individuals. Research shows that individual contributors are 32% less likely to receive promotions than managers, and over time, they experience pay-growth rates that are 20% lower than their managerial counterparts.
Understanding the potential pitfalls of OTE plans is crucial, but the real value comes from designing a structure that avoids these issues.
Designing an OTE plan that drives performance and keeps your sales team motivated requires careful planning. Here’s how to approach it:
1.Define Clear Sales Targets
Set achievable quotas that balance company goals with realistic expectations for your sales team. Avoid overly aggressive targets that could demotivate top performers.
2.Determine Base and Variable Pay
Decide on a fair pay mix combining guaranteed base salary with performance-based commissions. This ensures stability while rewarding high achievement.
3.Align Incentives with Business Goals
Structure commissions and bonuses around the outcomes that matter most, such as revenue growth, deal size, or customer retention.
4.Include Interim Metrics for Long Sales Cycles
For complex sales with longer cycles, consider milestone-based incentives to keep reps engaged and motivated throughout the process.
5.Communicate the Plan Clearly
Make sure every sales professional understands how their total earnings are calculated, including base pay, variable compensation, and potential upside.
6.Review and Adjust Regularly
Monitor performance, gather feedback, and adjust quotas or pay structures as needed to maintain alignment with market changes and company objectives.
Understanding OTE in sales means recognizing how base salary, variable compensation, and incentives combine to drive results. From calculating total earnings to comparing average OTE across roles like SDRs, Account Executives, and Sales Managers, a clear picture of on-target earnings helps both sales professionals and leaders make informed decisions.
At the same time, being aware of common challenges like unrealistic quotas, over-reliance on variable pay, or ignoring individual contributions, ensures your OTE plan motivates the team rather than creating frustration. By designing a well-structured OTE plan with clear targets, aligned incentives, and transparent communication, you can drive performance, keep top talent engaged, and ensure every effort is rewarded fairly.
