On-target earnings is the total pay a salesperson can expect if they meet 100% of their targets. Continue reading to find out more with examples.
On-target earnings, on-track earnings, or OTE, is the total pay a salesperson can expect to receive if they meet 100% of their targets. OTE is a combination of base salary and variable compensation, such as commission and bonuses. Usually, OTE refers to the annual compensation.
OTE is calculated by adding up the base salary, the commission, and the potential bonuses of the salesperson.
The actual calculation of the variable components (commission and bonuses) of the OTE varies a lot between industries and countries. The same applies to the split of the fixed and variable components of the OTE. For example, the typical account executive in the USA has an OTE consisting of 50% base and 50% commission. In Europe, a mix of 60% base and 40% commission would be more common.
Let’s shed some more light on different OTE calculations for different sales roles. Here are some examples:
An AE has an OTE of $95,000 and their base salary is $50,000. For each deal the AE closes, they receive a 10% commission. With an annual target of $350k and a 100% target achievement, this makes $35,000 in commission. Additionally, they receive a $10,000 bonus when their customer reports a net promoter score (NPS) above 8. The AE’s OTE calculation is:
A BDR, also referred to as Sales Development Representative (SDR), has an OTE of $60,000 and their base salary is $36,000. The BDR is paid $200 for each sales-qualified lead (SQL) they generate, and the monthly target is 10 SQLs. With a target achievement of 100%, this leads to an annual commission of $24,000. The BDR’s OTE calculation is:
The base salary of a VP of sales is $180,000 and the annual target of the sales team is to generate $5 million in ARR (annual recurring revenue). If 50% of this target ($2.5 million) is reached, the VP of sales receives a $10,000 bonus, if 80% of the target is achieved ($4 million), they receive a $35,000 bonus. Upon a 100% target achievement, a $70,000 bonus will be paid to them, which leads to an OTE of $250,000. The VP of Sales’ OTE calculation is:
That depends on the specific commission or bonus plan. In general, variable compensation, and thus OTE, should not be capped to motivate salespeople to overachieve their targets.
No, OTE is not guaranteed; only the fixed part of the salary is guaranteed. The variable component varies based on the target achievement and, thus, directly impacts the OTE.
When a salesperson joins a new company, they need some time to get familiar with the new environment and the new processes. During that ramp-up time, they will not achieve their full targets. Fully ramped OTE is the total pay a salesperson can expect after their ramp-up period.
Sales targets should advance company goals. When they are set with the bigger picture in mind, they can align the interests of an organization, its teams, and constituent members.
To measure a company's gross profit accurately, all costs must be allocated to either product costs or period costs. So, which category does sales commission fall under?