If you’re in sales, chances are you’ve come across the term “OTE.” But what does OTE mean in sales, exactly? This article teaches you all you need to know about OTE including how to calculate it.
What does OTE mean in sales? On-target earnings definition plus examples
What does OTE mean in sales? OTE stands for On Target Earnings. OTE is the expected amount of money that a sales person will earn if his quota is 100%.
This number is usually expressed in an annual number. A sales job posting might state “$90,000 OTE”. For convenience, this number may be rounded to an even earning number. For simplicity, you might be told your true OTE is $90,240, but it might actually be $90k.
How do you calculate OTE?
The equation for OTE can be summed up as follows:
Annual base salary + commission earned at 100% of the quota = OTE
OTE is not guaranteed
Ask the hiring manager about your average attainment if you are interviewing for a sales position. OTE for this role may be $120k. However, if the average attainment is less than 50%, the average earnings will be significantly lower.
Even top talent shouldn’t have to achieve OTE. However, it should be possible to achieve OTE for all salespeople in your organization.
Additional OTE terms to be aware
Fully-ramped OTE: Most sales roles require some ramping. OTE doesn’t usually consider ramp quotas or payouts. Good sales organizations willgive you a drawto make upthe lower sales quotas or increase your commission rate.
Pay mix: This refers to how much of your OTE is based and what % is commission. SaaS sales are typically 50% commission/bonus and 50% base salary. However, there are other industries that have a different pay mix.
On target commissions (OTC): The second half of the equation above. On-target commissions can be used by some organizations to refer to how much a sales rep earns when they reach 100% of their sales quota.
Average earnings of sales representatives: Keep in mind that OTE isn’t guaranteed. Some hiring managers will give an estimate of what an average rep makes in a year. They’ll brag about it if the average rep hits 100% of their quota. If their sales representatives are earning 40% less than quota, you’ll have to ask them about this.
An account executive has an OTE of $100,000. Their base salary is $52,000 annually. They earn a $40,000 monthly quota and a 10% commission on every deal they close. If they close 100% of their monthly quota, they would make $4,000 per month.
This would translate into $48,000 in annual sales commissions. Add $48k to the $52k salary base and you get the $100k target earnings.
Sales development representative (SDR)
An OTE of $70,000 is the salary for aSales Development Representative (SDR). Their base salary is $42,000 annually. They have a 35-member qualified meeting quota and receive a $100 bonus for each meeting.
They also have a $210k quarterly sourced revenue quota. They get a commission rate of 3.33% for deals they source. They can earn $7,000 if they reach 100% of their quota.each quarter.
This is $28,000 in annual commission. Add $28k to the base salary of $42k and you get $70k OTE.