What is On-target earnings (OTE)?
On-target earnings refers to an employee's pay structure made of basic salary and the additional variable component such as commission as their compensation.
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On-target earnings definition (OTE)
On-target earnings refer to an employee's pay structure made of basic salary and the additional variable component such as commission as their compensation. Most commonly found in sales it involves a contract between the company and the salesperson that ensures a specific commission percentage. It can also refer to an executive pay schedule contingent upon the achievement of specified goals.
Benefits of on-target earnings (OTE)
OTE is mostly used to reward sales employees for hitting sales targets. Increasing their OTE potential motivates them to be more efficient and productive. That being said, one of the biggest benefits of on-target earnings is employee motivation and employee engagement.
If you are looking for ways to improve your salespeople's productivity, OTE is one of the best ways to do so.
On-target (OT) earnings synonyms
There is one synonym for on-target earnings: "on-track earnings".
On-target earnings example
Let's say your salesperson has a base salary of $75,000 and has actual commissions for the year of $30,000. To calculate the OTE, just add the two numbers together. Their OTE in their current position is $105,000, and you can validate that number at hire via W2 earnings.
What is a good OTE?
One-fifth of quota is, generally, a good rule of thumb. That means if a rep’s annual quota is $700,000, their on-target earnings would be $140,000.
The “ideal” ratio is approximately six to eight times quota.
Note that these are just suggestions, not guidelines. Salesperson's salary should vary based on how competitive your industry is, how knowledgeable and experienced your salesperson is, the complexity of your sales process, your company’s maturity, revenue, and so on.
