What is OTE? (Examples, FAQs)

This article provides an in-depth look at the concept of OTE (On-Target Earnings). Below, I’ve shared examples of OTEs and listed down steps to analyze OTEs from a job applicant’s perspective. Lastly, discover five commonly asked questions regarding OTEs.

When sales reps go job hunting, they want some sort of idea as to how much they can earn in a particular role if they hit all their targets.

Similarly, if companies want to attract the right talent, they need to include a salary estimate in their job listings — something that is juicy enough to draw reps in, but at the same time reasonable enough to actually be achieved.

That figure is called OTE, short for On-Target Earnings.

In this article, I’ll cover what is OTE and its examples. I’ll also provide a few steps to calculate OTEs along with four frequently asked questions.

What is OTE?

On-target earnings (OTE), also known as on-track earnings, is the total salary an employee (usually a salesperson) can expect to earn if they achieve all the targets for that role.

These targets are generally expressed in the form of a sales quota which can be monthly, quarterly, or annual — though, in the case of OTE, the quota is usually annual.

For example, a software sales rep looking for jobs online might come across a listing that says: OTE $120,000, Quota $500,000, Pay Mix 60:40

Let’s break these down:

  • $120,000 is the amount the sales rep can expect to earn if they make quota.
  • $500,000 is the amount of revenue (quota) the sales rep must generate within a year.
  • A 60:40 pay mix means 60% of the OTE ($72,000) will be fixed pay, while 40% ($48,000) will be commissioned.

To sum up, the sales rep will take home a fixed annual salary of $72,000 no matter what, but if they want to earn $48,000 in annual commissions, they will need to sell company products worth $5,00,000 across the year.

That works out to an average commission rate of roughly 10.4% ($5,00,000/$48,000).

OTE Fact:

In some cases, along with fixed salary and commissions, OTE may also include bonuses that come with the role, provided the employee does well.

3 Common Examples of OTE-based Roles

Let’s look at three common OTE-based roles and what a sample OTE for each of them might look like:

1. SDR / BDR

Sales development representatives (SDRs) and business development representatives (BDRs) are considered entry-level sales roles for most industries.

They are mainly responsible for researching prospects, cold calling, qualifying leads, and setting meetings for sales reps.

SDR/BDR OTE Example:

1. OTE: $50,000
2. Fixed Pay: $30,000
3. Commission: $20,000
4. Quota: 100 qualified meetings a year

2. Account Executive

Account executives, commonly known as AEs, are sales reps who handle leads generated by SDRs/BDRs and convert them into clients.

They’re responsible for meeting clients, pitching products, addressing customer concerns, and closing deals.

Account Executive OTE Example:

1. OTE: $70,000
2. Fixed Pay: $40,000
3. Commission: $30,000
4. Quota: $330,000 in revenue

3. Recruitment Consultant

While OTE is largely used for sales roles, there are a few exceptions. Like recruitment consultants, for example.

They also have OTEs, although their targets are not converting leads into customers but candidates into hires. It’s still revenue at the end of the day, but the way it’s packaged is a bit different.

Recruitment Consultant OTE Example:

1. OTE: $80,000
2. Fixed Pay: $50,000
3. Commission: $30,000
4. Quota: $300,000 in recruitment fees

Additionally, managers can have OTEs that include bonuses they can earn based on the performance of their team or branch office.

Head over to this article to learn how to calculate and determine OTEs for sales roles.

Note: Using unrealistic OTEs to attract sales reps is unethical, not to mention detrimental to your business. As a general rule of thumb, the quota should be 4-6 times the OTE.

How to Evaluate OTEs (for job applicants)

Let’s assume you’re applying for a sales job and you’ve shortlisted a few firms. All of them have great OTEs (in the ballpark of $100,000), but now you want to analyze each OTE on a granular level.

Here’s how you could go about doing that:

1. Find out how each firm treats OTEs

Usually, OTE represents the total pay an employee can expect to earn if they make quota. But sometimes, OTE may also mean a guaranteed amount employees will earn for fulfilling their basic duties, or an estimate of the average pay they can expect if they work hard.

Finding out each firm’s outlook towards OTE will give you a clearer picture of your potential earnings and also an insight into the company culture.

2. Dive deeper into your targets

As seen in the OTE examples above, every role has its own quota or targets. Some are directly related to closing deals, while others may include setting up meetings or conducting cold calls.

When applying for any OTE role, you should always find out what your targets are, and what the company expects from you in return for your commission.

Also, not all job listings will mention the quota or pay mix, so you should ask for clarity on those as well.

3. Enquire about ramp time

It’s common practice for companies to grant new sales reps an initial ‘resting period’ where they aren’t expected to sell anything. This time, known as ‘ramp time’, is used to onboard the rep and educate them about the company’s products and use cases.

For many companies, ramp time is usually either the length of one sales cycle or three months — although it can be something entirely different, too.

During ramp time, companies handle sales commissions differently as well.

Let’s say, a rep has a monthly quota of $50,000 and a commission rate of 10%. That works out to $5,000 in commissions per month. If the ramp time is three months, the company might pay the rep a non-recoverable draw for each of those three months without the rep closing a single deal.

These non-recoverable commission payouts would likely reduce each month, and look something like this:

  • First month: 100% ($5,000)
  • Second month: 50% ($2,500)
  • Third month: 25% ($1,250)

From the fourth month onwards, the rep would be on a fully-ramped OTE, i.e. they will need to sell $50,000 if they want to make $5,000 in commissions. No sale, no commission.

That’s why it’s important you find out the ramp time at your prospective firm. This will help you understand how much breathing space you have and how much you can expect to earn during that time.

4. Request for the latest OTE performance data

You could consider asking the hiring manager how many sales reps in the firm are currently below, above, and at the median OTE. This will give you a good idea about how practical that firm’s OTE-setting techniques are.

While you’re at it, you could also ask the hiring manager how new hires generally perform with regard to OTE. Are they surpassing it easily, or struggling to even come close?

Pro tip: If 60-70% of the sales team is consistently hitting their OTEs, it usually means the OTEs at that firm are fair yet competitive.

4 Frequently Asked Questions About OTE

Let’s look at the four most common questions surrounding OTEs:

Q1: Are OTEs capped, or can they be exceeded?

This depends on the company. At most firms, OTE represents the highest amount that can be earned for any sales role.

However, if the firm doesn’t have a capped commission structure, sales reps there could most certainly surpass OTE if they sell like champions.

Q2: Is OTE a guaranteed amount?

No. In most cases, OTE is never a guaranteed amount. Employees will only receive OTE if they meet all their targets.

That said, firms with a more conservative outlook might have OTEs that reflect the average pay for a role as opposed to the maximum amount that can be earned.

Q3: Which jobs include OTE?

OTE is predominantly seen in sales and finance. People in these roles tend to have targets that span across months or years.

Some common OTE positions include:

  • Sales reps
  • Mortgage advisors
  • Finance managers
  • Stock brokers
  • Real estate agents

Q4: Does OTE include overtime?

No. In almost all cases, OTE does not include overtime pay.

Final Thoughts

OTEs are a great way to set benchmarks for a role. But only if they truly represent the role’s responsibilities and earning potential.

And regardless of whether you are an employer or a job seeker, it’s always a good idea to research the current OTE trends in your industry before posting a new job opening or applying for one.

Aloha, good folks 👋

Managing sales commissions over spreadsheets is a soul-sucker.

Here’s why:

• You can’t track commission data in real-time as it’s not integrated with your CRM or invoicing software.

• You find yourself resolving way too many disputes and answering tons of back-and-forth emails.

ElevateHQ kills this drama.

See you around?