What is OTE in Sales? What You Need to Know!

January 26, 2023
January 31, 2023

At least four times per year, salespeople everywhere feel the pinch.

Why? The end of the quarter usually means the end of a quota period.

It’s when sales reps eagerly (or anxiously) review their On-Target Earnings (OTE) to see how much they've raked in ... or how much they are short. 

This article will cover what OTE is, “good OTE” numbers, tips for negotiating OTE, and more. We’ll even weave in a simple OTE calculator.

What is OTE in sales?

OTE salary or OTE or “On-Target Earnings” is the total compensation a salesperson earns if they meet (or exceed) their sales quota.*

Does OTE include base salary? Yes. Total compensation typically consists of a base salary (earned no matter what) + variable compensation such as commissions or bonuses (earned based on performance). 

Does OTE include equity? Yes, but it depends on the company’s compensation structure.

Some organizations base OTE only on variable pay, which is different from the typical calculation method. We’d argue that 99.98% of the time, OTE will be base + on-target variable (OTV) — OTV estimates how much a salesperson can earn if they meet or exceed their sales targets.

*Note: Quota time period (e.g., “is quota annual?“) can vary, but the OTE portion will match the quota. So, quarterly quota = quarterly OTE; annual quota = annual OTE.

But what’s a typical OTE? What’s an OTE to strive towards?

What is a good OTE for sales? 

The amount considered a "good" OTE for a salesperson can vary depending on the industry, the specific company, the level of experience and skill of the salesperson, whether or not the company offers equity, and so on. 

That being said ...

Our State of Sales Compensation Report 2022 surveyed hundreds of sales reps and managers, asking them about their pain points and how they approach compensation. We uncovered a lot. Specifically, what’s a good quota-to-OTE ratio for your compensation plan?

While there is undoubtedly a range (<5x to over 30x), about 44% of salespeople shared that 10-20x is their quota to on-target earnings ratio. 

While this might be high for mid-market SaaS companies, it may work for non-tech industries: $200k OTE = $2-4M quota isn’t too unrealistic, depending on what’s being sold.

Something to keep in mind when looking at expected OTE is average quota attainment. You may have a very high OTE at your organization, but if the average quota attainment is low, your actual overall earnings will be lower!

A simple OTE salary calculator

How to calculate OTE? It’s really quite simple. The most straightforward on-target earnings calculator: 

Annual Base Salary + Annual Commission Earned at 100% Quota = OTE

So let’s say your base salary is $50k, and your annual commission earned (when you hit 100% of your quota) is $50k — your OTE = $100k.

If you only reach 50% of quota, your OTE = $75k ($50k base salary + 50% of the $50k potential quota).

Let’s look at this another way: 

Let’s say your annual OTE is $54k, of which $30k is your base salary. Your monthly quota is $40k, and you earn a 5% commission if you hit that quota. On-target = $40k x 5% per month = $2k/month or $24k per year.

When calculating OTE, remember that the formula varies from company to company, but it typically involves adding base salary, commission, bonuses, equity, and other incentives.

What annual OTE can you expect to make? 

It’s always tricky to talk averages as many factors go into what a salesperson can expect to make. So with that, here are some standard guidelines. 

Average OTE for Sales Development Representatives

Let’s start with the average OTE for SDRs: $80-86k.

According to Glassdoor,* in the United States, at all experience levels, in all industries, as of January 2023, a Sales Development Representative (SDR) can expect an OTE of $86.2k per year with $57.3k base pay + $28.9k variable pay (which could include “cash bonus, commission, tips, and profit sharing”).

Indeed.com puts that average at $83.3k per year ($72.4k base + $10.9k commission).

Our friends at RepVue cite the medium OTE for an SDR at $80k ($55k base + $25k variable).

*Glassdoor allows you to change location, experience, and industry to hone in on a more accurate number.

Average OTE for Account Executives

What about the average OTE for account executives?

An Enterprise Account Executive can expect an OTE of $183.8k per year with $100k in base pay and $83.8k in additional pay (source: Glassdoor).

Indeed.com puts that average at $131.1k annually (they don’t break down by base/commission).

RepVue breaks down medium OTE based on segments:

But again, averages are just that ... averages. It’s always best to look at the most recent benchmarking data from reputable sources and get as specific as possible (industry, role, comp structure, etc.).

What are some recommendations for how to negotiate OTE?

Before talking through some tips for negotiating OTE, review rule #8 in Harvard Business Review’s 15 Rules for Negotiating a Job Offer: Consider the whole deal.

To paraphrase: “Negotiating a job offer” and “negotiating a salary” (or “negotiating OTE”) are far from the same thing. Earnings are one thing — a significant factor for many — but the “value of the entire deal: responsibilities, location, travel, flexibility in work hours, opportunities for growth and promotion, perks, support for continued education, and so forth” can be equally if not more valuable. 

What are some suggestions when it comes to salary negotiation techniques?

  • When it comes to negotiating a figure, play your cards close. Let them give the first number, and then start bargaining with an idea of what you'd like. It's all about keeping your options open — so don't forget to have that crucial range ready to go!
  • Knowledge is power. Research what other people in your role are making in the company and industry. See the previous section for details.
  • Don't think the first offer is final. Negotiating can be a great way to increase your salary, and many companies have some room for negotiation (due to pay scales). There are some industries where salaries are pretty set, but there is often a “band” where hiring managers can wiggle a bit.
  • Play hardball when you want to make a big impression with your negotiation skills. Keep in mind that this can be seen as an aggressive stance and may not always result in the outcome you desire. Be ready for either success or rejection!

OTE is not just about money

As it turns out, many (if not most) comp plans don't motivate sales teams — at least not in the way they are intended to.

OTE is far more than just rewards for exceptional performance — it's about creating long-term motivation and transparency between employer and employee. 

The statistics speak for themselves: over 90% of sales reps and managers feel that compensation transparency is a critical motivator. No transparency? Incentives lose their oomph.

Luckily, CaptivateIQ is the answer to both motivation and transparency: custom dashboards, flexible statements, preview-ability, inquiries, and more.