What are On-Target Earnings?
On-target earnings (OTE) refer to the total amount sales reps are compensated for and includes their base salary plus commissions. OTE is often measured based on performance, revenue generated, and if overall expectations have been met.
Salaries based on OTE are often used for sales teams as they help bolster high-performance and motivate sales reps to not only achieve their targets but go above and beyond expectations.
Why Are On-Target Earnings Important?
Sales positions are paid differently from other roles within a company, as they include a commission component on top of a salary, whereas other roles tend to be paid only a salary. As a result, OTE are important when it comes to hiring new sales reps as they will expect to know what their earning potential is in a new role.
Seasoned sales reps will also look for new roles that have higher OTE, so it can be useful to leverage when recruiting and hiring. A sales rep won’t leave a role for a lower salary, so ensuring your sales team’s average OTE is competitive is key for attracting new talent.
OTE can also be used to set goals and measure the performance of individual sales reps. Part of OTE is calculated based on performance and hitting targets, so a sales rep’s goals and objectives should align with what they’re expected to earn. Planning out goals and potential commission goes hand in hand.
If a sales rep isn’t receiving their full OTE, it’s usually a sign that they’re underperforming. Pay attention to who is and isn’t achieving their targets and follow up to see where improvements can be made to boost performance.
How to Calculate On-Target Earnings
The formula used to calculate OTE is simple: Annual base salary + annual commission (assuming 100% of their quota is earned) = a sales rep’s annual OTE.
For example, if a sales rep’s base salary is $65,000 and their on-target commission is $75,000, then their OTE would be $140,000 per year.
If a sales rep achieves more than their annual quota, they can earn more than their OTE.
It’s important to note that OTE is not guaranteed. If a sales rep fails to meet their annual quota, then they will earn less than their OTE.
Are On-Target Earnings Jobs Worth It?
If you’re new to sales, you might be wondering if OTE jobs are worth it. If they weren’t worth the time and effort, there wouldn’t be anyone in these roles.
Yes, they are different from traditional salaried careers and may be more stressful at times, but the payoff is well worth it if you’re able to thrive in the role.
The key is finding a company that is transparent and openly communicates with its sales team. Before accepting a role that relies on OTE, find out if their expectations are realistic and fair. How often does the company achieve their targets, and how does the sales team play into this success?
If a company sets realistic targets that are historically achieved, then an OTE job within its sales team is worth it.