OTE (On-Target Earnings): A Quick Guide
OTE Salary, or “On-Target Earnings”, is a metric used to forecast the potential compensation for a particular position or job role. OTE sales professionals are common, as companies use on-track earnings as a way of indicating how much a sales professional could earn, provided they hit all of their targets for a specific period. OTE Sales contracts help to guarantee a specific commission percentage for sales experts.
OTE Definition: What is OTE?
OTE, or on-track, or on-target earnings refers to the base salary a sales rep can expect if they manage to achieve all of their designated sales targets (or quota). The number is usually presented as an annual figure or quota, rather than a monthly or weekly specified wage.
For instance, a company may advertise an OTE sales position by claiming someone in this position could earn “$85,000 OTE”, this would mean your on-target earnings would be $85,000, but your actual earnings could be different (smaller or larger). To earn the full $85,000, the professional would need to earn all of their sales quota for the year.
How is OTE Calculated?
An On-track earnings number can either be a fixed, lump, or specific commission percentage – or a combination of these things.
A good guideline most companies follow is to base the OTE on one fifth of the annual sales quota, but guidelines used for calculating the exact number vary based on the experience of the salespeople, the competitiveness of the industry, and the complexity of the sales processes.
In many simple cases, OTE is calculated by adding together base-salary and on-target commissions. This means if the base salary is around $60,000 for a sales position, and an on-target commission rate is around $40,000 for the year, the OTE would be $100,000, provided you hit your sales goals.
The calculation of OTE sales salaries can become a little more complex when you begin to consider the various ways you can break down OTE. For instance, you can look at things like monthly, quarterly, or even semesterly payments. You’d also need to consider how you can slice various payments across different time periods.
How Does OTE Work for Sales Professionals?
OTE doesn’t tell a sales professional exactly what they’re going to earn in a job – but instead tells you what you might earn if you reach your targets. For Sales professionals, an OTE should be considered as the “possible” project commission and annual salary you can get combined together.
The overall OTE number can include a number of things, including salaries for traditional work hours, to allowances and commissions. On-target earnings, however, will usually not include overtime, which is why it’s also possible for individuals to earn more than their OTE.
In some sales commissions scenarios, reps also need some additional ramp time to develop their skills and get used to the market. The OTE doesn’t usually take ramp quotas and pay-outs into consideration, and instead looks at what happens when you’re fully immersed in the company. Many sales organizations offer sales reps a pump on their overall commission rate to compensate for the low initial quotas.
Are On-Target Earnings Good for Sales Professionals?
OTE is one of the strategies companies can use to properly reward and compensate sales representatives for their work towards hitting their quotes. The biggest benefits of OTE for companies is that it can increase employee motivation and engagement. A good sales OTE which is easy to achieve can even create long-term employees and dedicated brand ambassadors.
For OTEs to be effective however, they need to be simple, honest, and realistic. The number needs to be something both business leaders and reps agree to, and it should be something the rep can fully understand. Since an OTE is never completely guaranteed for a sales professional, it’s often important for experts to have a general idea of what their annual wage is going to be too. This can help professionals to determine whether they’re getting a good base income beyond commissions.
On track earnings also need to include a good insight into “Pay Mix”, the ratio of base salary to commissions. The pay mix will determine how motivated your sales team might be to reach their quotas, but it can also make an impact on a company’s ability to attract talent.