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 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% 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.
How do you calculate OTE?
The most straightforward formula for calculating on-target earnings is: 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: 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.
But what’s considered “good” regarding OTE and OTV?
What is a good distribution of OTE and OTV to quota?
A "good" ratio for a salesperson will depend on various factors. While there’s undoubtedly a wide quota:OTE range, generally speaking, a good benchmark for a mid-market SaaS company is 1-3x. For a non-tech company, it might be 10-20x: $200k OTE = $2-4M quota isn’t too unrealistic, depending on what’s being sold.
Many experts caution against comparing quotas, and we agree. Companies should be aware that comparing quotas among different industries, sizes, etc., may not provide a complete picture and could lead to misinformed internal decisions.
To illustrate this word of caution, consider the following:
- Two direct competitors (Company A and Company B) could have very different quotas if the respective win rates differ significantly.
- If all deals are head-to-head between Company A and B, and Company A had a 66% win rate, while Company B had a 34% win rate, then having identical quotas may not make sense.
- Due to Company A’s higher win rate, we expect AEs to close more business than Company B even with identical effort and skills from AEs.
Instead, it’s important for sales leaders to fully understand and analyze the numbers behind OTE and OTV distributions to get deeper insights into the ROI of your compensation program.
Our friends at The Alexander Group put it perfectly:
“Analysis of quota performance distributions yields a wide range of insights to improve the quality of your quota program and thus the performance and health of the sales force and the ROI on your sales investment. Determine which sub-groups to review based on the structure of your organization and your sense for specific problem and opportunity areas. From there, you can formulate hypotheses about root causes, dig deeper where needed, and more importantly, change how you set goals next year.”
What is a good OTV in sales?
The percentage of OTV in OTE, aka the OTV split, can vary widely from plan to plan. According to a sample of our customer data, certain plan structures have more common OTV splits. Here’s a breakdown by plan type:
- Pre-sales activity and pipeline generation (e.g., business development reps): 30% splits
- New business sales (e.g., account executives): 50% splits
- Renewals (e.g., account managers): 20% splits
- Technical sales support (e.g., sales engineers): 20% or 30% splits
Account executives, account managers, and sales leaders (roles that are often accountable for new business and upsells) more commonly have higher OTV splits. Conversely, BDRs or SDRs (roles that are often accountable for pipeline generation) more commonly have a lower OTV split.
What is the average OTE in sales?
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 for two typical sales roles: sales development reps and account executives.
Average OTE for Sales Development Representatives
According to Glassdoor,* in the United States, at all experience levels, in all industries, as of January 2023, an 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
An enterprise AE 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:
- Enterprise Account Executive: $230k ($120k base + $110k variable)
- Mid Market Account Executive: $160k ($80k base + $80k variable)
- SMB Account Executive: $120k ($65k base + $55k variable)
But again, averages are just that ... averages. It’s always best to look at your company’s historical data (if available) and benchmarking data from reputable sources. And remember, get as specific as possible (industry, role, comp structure, etc.).
OTE isn't just about money
As it turns out, many comp plans don't motivate sales teams — at least not in the way they're 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, engaging statements, preview-ability, and more.
