Understanding On-Target Earnings (OTE) in Sales

If you're in sales, you've probably come across the term "on-target earnings" or OTE. It pops up in job postings, compensation plans, and recruiter pitches. But what does it really mean? In simple terms, OTE is the total amount you could make in a year if you hit all your sales targets. It includes two key components: your base salary (the fixed part of your paycheck) and your commission (the extra earnings you get for closing deals and meeting quotas). Think of it as your ideal paycheck—assuming you bring your A-game and the numbers go your way. For companies, OTE is a way to attract top sales talent and keep them fired up to sell. For sales professionals, it’s a crucial number that helps gauge earning potential before taking on a new role. But here’s the catch—OTE isn’t always as straightforward as it seems. The way it’s structured, whether it’s actually achievable, and how companies define “hitting target” can vary a lot. So, before you sign that offer letter or set your sights on a six-figure payday, let’s break down exactly what OTE means in sales—how it works, what to watch out for, and how to make sure you're getting a fair deal. Also read: Mastering Sales: Proven Techniques for Closing Deals and Driving Growth What Are On-Target Earnings (OTE)? On-target earnings (OTE) in sales refer to the total compensation a salesperson can earn in a year if they hit 100% of their sales targets. It’s made up of two key parts: a guaranteed base salary and a variable commission component. Since commissions depend on performance, your actual take-home pay can fluctuate—sometimes significantly. If a role leans heavily on commissions, your paycheck will vary depending on how much of your quota you achieve. Some sales jobs have a low base salary but high earning potential if you consistently hit or exceed targets. On the flip side, if the base salary makes up a larger portion of the OTE, your income will be more predictable and stable, though with less room for explosive earnings. A well-structured OTE keeps sales teams motivated and driven. When reps have a clear understanding of their earning potential, they’re more likely to stay engaged, push for deals, and consistently perform at their best. Companies also use OTE as a way to attract top talent—after all, competitive compensation is a major factor in a salesperson’s decision to take or stay in a role. But while OTE sounds great on paper, it’s essential to dig into the details—how realistic the targets are, how commissions are structured, and whether past employees actually hit their OTE. Understanding these nuances can help you separate a solid offer from one that’s too good to be true. Also read: Is Hirey legit? Here's what you need to know How Does OTE Work? OTE is usually a mix of base salary and commissions. Let’s say you’re applying for a sales job with an OTE of $250,000. During the interview, they tell you the base salary is $150,000. That means the other $100,000 comes from commissions. If you hit your targets, you’ll earn the full OTE. If you crush your targets, you could make even more. Companies calculate OTE based on industry benchmarks, the specific job role, and the salesperson’s experience. It’s meant to give you a realistic idea of what you can earn if you perform well. How to Calculate OTE Figuring out OTE isn’t rocket science—it’s just a matter of breaking down the key components of a salesperson’s earnings. Here’s how you do it step by step: 1. Set the Base Salary The base salary is the fixed portion of a salesperson’s income, providing financial stability regardless of performance. How much this should be depends on several factors, including: Industry standards – Some industries, like SaaS or enterprise sales, tend to offer higher base salaries than others, like retail or insurance sales. Experience level – A senior sales rep or account executive will typically have a higher base salary than an entry-level sales development rep (SDR). Company budget & competition – To attract top talent, companies need to offer a base salary that’s competitive with what others in the industry are paying. 2. Define Sales Quotas Salespeople earn commissions based on their ability to meet or exceed sales quotas. Setting the right quota is crucial—it should be: Challenging enough to push reps to perform at their best. Achievable, so they don’t feel demotivated by unrealistic expectations. Aligned with business goals, ensuring the targets drive meaningful revenue growth. For example, if a company expects a rep to close $500,000 in deals per year, that’s their sales quota. 3. Determine the Commission Structure This is where the earnings potential gets exciting. Commissions are the variable portion of OTE and should be: High enough to motivate reps to work hard and close deals. Realistic for the company, ensuring the business remains profitable while rewarding sales performance. Commission structures vary widely. Some companies offer a flat percentage of each sale (e.g., 10% commission on all revenue generated). Others have a tiered structure, where reps earn higher commission rates as they exceed quotas. Some roles also include bonuses for surpassing targets. 4. Do the Math Once you have all the pieces, calculating OTE is simple. Use this formula: Base Salary + Commissions at 100% Quota = OTE Example Calculation: Let’s say a sales rep has: A base salary of $65,000 A commission structure that allows them to earn $20,000 if they hit 100% of their quota Their OTE would be: 65,000+20,000=85,00065,000 + 20,000 = 85,000 If they overperform and exceed their quota? Even better. Many commission plans offer accelerators, meaning reps earn even higher commissions when they go beyond their targets—leading to six-figure paydays for top performers. Understanding how OTE is calculated helps both employers and sales reps ensure that compensation plans are fair, motivating, and aligned with realistic sales expectations. Also read: In the increasingly complex world of hiring platforms, here's why customers chose Hirey Why OTE Matters in Sales Compensation On-target earnings (OTE) play a crucial role in structuring fair and effective sales compensation plans. A well-designed OTE system benefits both sales reps and employers by ensuring clarity, motivation, and financial stability. Here’s why OTE is important: 1. Better Commission Forecasting For companies, OTE helps with financial planning by providing a clear estimate of commission payouts. Instead of unpredictable expenses, businesses can: Budget accurately for salaries and commissions. Manage cash flow more effectively, ensuring that incentives remain sustainable. Align sales targets with business goals, making sure that the compensation structure drives the right outcomes. By knowing how much they’ll need to pay out if sales reps meet their quotas, companies can avoid financial surprises and plan for growth. 2. Clear Earning Potential for Sales Reps For salespeople, OTE offers a transparent look at how much they can realistically earn in a given year. This clarity is essential because: It sets clear expectations—sales reps know what’s achievable if they perform well. It motivates reps to hit their targets, since they can directly see how performance translates into earnings. It helps candidates evaluate job offers, ensuring they understand how much of their income is fixed versus performance-based. A clearly communicated OTE can make the difference between attracting top talent or losing them to competitors offering more transparent pay structures. 3. Fair and Competitive Commission Structures OTE ensures that sales compensation is competitive and balanced, benefiting both employees and employers: For sales reps: It guarantees that commission rates are reasonable and aligned with industry standards, preventing unrealistic quotas or unfair earnings gaps. For employers: It helps companies design compensation packages that attract and retain top talent while ensuring pay structures remain profitable and sustainable. By striking the right balance between base salary and commission, OTE allows businesses to create pay structures that keep reps engaged and financially motivated while still protecting the company’s bottom line. A well-structured OTE isn’t just a number—it’s a powerful tool that helps businesses attract great salespeople, keeps teams motivated, and ensures financial stability. Whether you’re a sales rep evaluating a job offer or a company designing a compensation plan, understanding OTE is key to making smart, strategic decisions. Also read: App reviews can be manufactured and misleading. Here's what legit users have to say about Hirey. Average OTE for Sales Reps OTE varies depending on industry, experience, and role. According to the Bureau of Labor Statistics, here’s what sales reps made on average in 2023: $65,630 (wholesale and manufacturing, non-technical sales) $99,710 (technical and scientific product sales) U.S. News & World Report puts the median salary for sales reps at $63,280, with top earners making $93,280+. These figures include both base salary and commissions. OTE Pay Mix Examples 70/30 OTE Split (Base/Commission) Median earners: $44,296 base + $19,000 commission Top earners: $65,300 base + $28,000 commission 80/20 OTE Split Median earners: $50,600 base + $12,700 commission Top earners: $74,600 base + $18,700 commission Key OTE Terms You Should Know Understanding OTE means knowing a few other related terms. Here are some key ones: 1. Fully-Ramped OTE This is the expected earnings once a salesperson is fully up to speed. Most companies allow for a ramp-up period before expecting full performance. 2. Pay Mix This refers to the ratio of base salary to commission. A 60/40 mix means 60% of your earnings come from salary, while 40% is commission-based. 3. On-Target Commission (OTC) This is the commission you earn when you hit 100% of your quota. It’s the variable part of OTE and depends on how well you sell. 4. Average Rep Earnings OTE isn’t always guaranteed, so some companies also provide an “average earnings” figure to help set realistic expectations. OTE is a game-changer when it comes to structuring sales compensation. It helps companies attract and retain top talent while keeping sales teams motivated. By finding the right balance between base salary and commissions, businesses can create a winning pay structure that drives performance and keeps everyone happy. If you’re in sales, understanding OTE can help you evaluate job offers, set personal income goals, and maximize your earnings. And if you’re an employer, getting OTE right is the key to building a high-performing sales team. Also read: Unlocking the Sales Associate Role