American sales representatives earn a wide range of salaries. OTE makes the difference between modest and impressive earnings. The average sales rep makes $65,630 annually. Sales reps selling technical and scientific products earn a lot more.

Data analysis shows most companies follow a 65% base salary and 35% commission split for their OTE structure. A typical sales representative's base pay comes to $44,296 with commission targets close to $19,000. Top performers can reach $65,300 in base salary and earn up to $28,000 in commissions [Salesforce].

Let's explore everything about on-target earnings in sales - from calculations to implementation strategies. You'll discover how OTE works in different sales positions and create a compensation model that drives results for your business.

What Does OTE Mean in Sales Compensation?

OTE (On-Target Earnings) shows the total amount sales representatives can earn by hitting 100% of their sales targets. Many sales professionals get confused about this concept, so let's break it down.

The simple formula for OTE calculation

Here's how you calculate it:

Annual base salary + Annual commission earned at 100% quota = On-Target Earnings.

Picture this: your base salary is $65,000 and your on-target commission is $20,000. This means your OTE would be $85,000. The formula helps you understand your potential earnings clearly.

Base salary vs. commission components

Sales teams use a "pay mix" to show the ratio between base salary and commission. Our research shows that most companies prefer a 65% base salary and 35% commission split in their OTE plans. The ratio changes based on these factors:
- The specific role (SDRs vs. Account Executives)
- Industry standards and competition
- Length of sales cycles
- Sales rep's influence over deals

Sales reps who can't control deal closures should get a higher base salary. Those with more influence over sales usually get commission-heavy structures.

Why companies use OTE in sales roles

Companies use OTE models to arrange sales incentives with business goals. This setup helps them attract talented, self-motivated salespeople without financial risk—better sales mean better pay.

The accounting team can forecast sales and commission payouts better. Sales professionals benefit too. They see exactly which targets lead to maximum earnings.

Note that OTE isn't guaranteed—it shows what you could earn at 100% performance. During interviews, ask about average attainment rates to get a realistic picture of your potential earnings.

How Does OTE Work Across Different Sales Positions

A close look at OTE reveals remarkable differences in how companies structure compensation across the sales ladder. Recent industry data shows fascinating patterns in on-target earnings at each career stage.

Entry-level sales roles (SDR/BDR)

Sales Development Representatives work with the most straightforward OTE structure. Recent salary data shows the average SDR in 2023-2024 earns a median OTE of $80,000. The median base salary stands around $55,000. New SDRs usually receive a 70/30 pay mix - a 70% fixed salary with 30% commission.

To name just one example, see how an SDR with $72,000 OTE might receive their compensation:
- $45,000 base salary
- $27,000 potential commission tied to specific metrics
- Bonus structure with $25 per qualified meeting and $75 per chance

The data shows quota attainment for these roles averages just 53.4%. This means many SDRs don't reach their full OTE potential.

Account Executive OTE structures

Account Executive compensation shows significant variations by market segment. My experience with sales teams reveals these notable differences:
SMB Account Executives earn $120,000 OTE ($65,000 base + $55,000 variable)
Mid-Market Account Executives receive $160,000 OTE ($80,000 base + $80,000 variable)
Enterprise Account Executives make $230,000 OTE ($120,000 base + $110,000 variable)

The pay mix changes toward higher commission percentages at this level and often reaches 50/50 splits. Companies implement accelerators that double commission rates once teams exceed quotas.

Sales management compensation

Sales leadership packages focus on team performance and typically include:
Base salary: ₹100,000 to ₹150,000
Variable commission: Based on team performance
Tiered rates:
5% on team sales between ₹1-2 crore
7% on team sales above ₹2 crore

Channel sales managers and team leads earn between $160,000-$250,000 OTE. These figures reflect their strategic value in revenue generation.

Benefits of The OTE Sales Model

A well-laid-out OTE model provides powerful advantages beyond its simple structure. My experience implementing these compensation plans has revolutionized sales performance at multiple companies.

Attracting and Retaining Top Talent

High-performing sales professionals gravitate toward competitive OTE structures. Talented salespeople look for positions that offer clear paths to higher earnings. They prefer opportunities where their skills directly boost their income over fixed salaries.

Clear communication about earnings potential helps candidates set realistic expectations. Recruiters who showcase both base salary and uncapped commission potential attract confident professionals who trust their abilities to exceed targets.

The benefits of retention are equally vital. Research shows uncompetitive pay ranks as the second most common reason sales professionals leave their jobs. Top performers stay with companies where they consistently reach their full OTE potential.

Lining Up Sales Incentives with Business Goals

Sales teams achieve perfect harmony between individual and company objectives through an effective OTE model. My consulting work shows that teams with well-laid-out commission plans focus on closeing opportunities rather than pursuing personal interests.

This alignment drives salespeople to focus on activities that stimulate business growth and success. Companies create a win-win scenario by linking rewards to strategic goals, which lets representatives thrive financially as the business grows.

Improving Forecasting and Revenue Predictability

OTE models give finance teams valuable predictability. They can accurately budget for maximum commission payouts while retaining control over total payroll costs.

This helps with:
Cash flow planning– Aligning revenue forecasts with corresponding variable compensation
Risk management– Controlling commission expenses through properly structured plans
Capacity planning– Allocating headcount budget wisely between base and variable earnings

The entire organization benefits from better financial forecasting and resource allocation.

How to Calculate OTE

OTE calculations might look complex, but here's a simple four-step breakdown based on my experience designing compensation plans for sales teams. Let me guide you through each step.

Determine your team's base pay

Start by researching base salaries that fit your industry and role types. My first step involves checking competitor offerings. The base pay should reflect geographical location, experience levels, and skill requirements. This component gives your sales reps financial stability no matter how they perform.

Base salary makes up about 85% of total OTE in the UK, though industries differ. Technical sales positions need higher base pay to attract qualified talent.

Establish sales quotas

Sales targets determine the commissions your team can earn. Most SaaS companies set quotas at 3-5 times the OTE, though there's no fixed formula. SMB-focused roles with smaller deal sizes tend toward lower ratios (around 3x), while enterprise sales with larger deals aim higher (4-5x).

Your quota should match company revenue goals with realistic selling capacity. My experience shows that unrealistic quotas lead to quick turnover.

Set commissions

Commissions should motivate reps toward specific goals. The commission percentage depends on target difficulty and achievement time. Revenue growth priorities might shape commissions to reward closed deals.

Commissions exist to encourage behaviors that match company objectives.

Add it up

The formula works like this: Annual base salary + annual commission earned at 100% quota attainment = On-Target Earnings.

Here's an example:
A rep's base salary of $50,000 plus $22,000 in commission at 100% quota equals $72,000 OTE. An executive might have $100,000 base plus $150,000 in potential bonuses, totaling $250,000 OTE.

Many companies structure OTE around one-fifth of annual sales quota, though company size and industry create variations.

How to Set up OTE Model That Works for Your Business

Strategic planning balances company goals with market realities when you create an effective OTE model. My experience in designing compensation plans has taught me that customization leads to success.

Arranging OTE with Your Growth Strategy

Your OTE structure should directly support business objectives. Startups that focus on market expansion benefit from higher commission percentages that reward new client acquisition. More established companies might put emphasis on account growth by structuring OTE around upselling metrics.

What behaviors drive your success? When customer retention matters most, link a portion of OTE to renewal rates. Companies that prioritize new business should weight commissions toward first-time deals.

The best OTE models connect daily sales activities to long-term strategic goals. This connection creates focus in your entire sales organization.

Sales Cycles and Risk Appetite

Sales cycle length shapes OTE structure dramatically. Products with 6+ month cycles need specific approaches:
- Higher base-to-variable ratios (70/30 instead of 50/50)
- Milestone payments for pipeline progression
- Quarterly bonuses that keep motivation high between closes

Your company's risk tolerance plays a crucial role. Startups offer higher OTE potential with lower bases, while older businesses provide more stability. Your model should match both financial reality and sales team expectations.

Making Your OTE Plan Competitive and Sustainable

Competitive intelligence helps shape effective OTE planning. Industry measures ensure your compensation attracts top talent. All the same, avoid copycat strategies - your OTE should reflect your unique business conditions.

Sustainability needs regular assessment. Quarterly reviews of OTE plans should check:
- Actual attainment rates versus targets
- Top performer earnings compared to market rates
- Financial impact on company margins

An OTE plan changes with time. The best models grow with your business and adapt to market conditions while keeping your sales team motivated.

Conclusion

My experience in designing compensation plans has shown how the right OTE structures can energize sales teams. Base salaries offer stability, and well-crafted commission structures lead to outstanding performance. Most companies find success with a 65/35 split between base and variable pay. This ratio should reflect your business requirements.

Sales compensation needs a custom approach. Entry-level SDRs typically start at $80,000 OTE, and enterprise AEs can earn $230,000 or more. Your OTE model must reflect your company's growth stage, sales cycles, and position in the market.

Note that these elements are crucial to build your OTE plan:
- Research competitive pay rates for your market
- Match commission structures to desired behaviors
- Review and adjust plans quarterly
- Balance team motivation with business sustainability

Thoughtful OTE planning helps you attract top talent, line up sales efforts with company goals, and create predictable revenue growth. Clear targets and fair commission rates will help your sales team succeed.

FAQs

Q1. What exactly is OTE in sales compensation?

OTE, or On-Target Earnings, represents the total amount a sales representative can expect to earn when they achieve 100% of their sales targets. It combines the annual base salary and the commission earned at full quota attainment.

Q2. How is OTE typically structured in sales roles?

Most companies structure OTE with a 65% base salary and 35% commission split. However, this ratio can vary depending on factors such as the specific role, industry standards, length of sales cycles, and the level of influence a rep has over sales outcomes.

Q3. Is OTE guaranteed for sales representatives?

No, OTE is not guaranteed. It represents potential earnings when all performance requirements are met. Actual earnings may be lower or higher depending on individual performance and quota attainment rates.

Q4. How does OTE differ across various sales positions?

OTE varies significantly across different sales roles. For example, entry-level SDRs might have an OTE around $80,000, while Enterprise Account Executives can reach $230,000 or more. The ratio of base salary to commission also tends to shift towards higher commission percentages in more senior roles.

Q5. What are the benefits of using an OTE model for businesses?

An effective OTE model helps attract and retain top talent, aligns sales incentives with business goals, and improves forecasting and revenue predictability. It motivates sales professionals to focus on activities that directly contribute to business growth while allowing companies to budget accurately for commission payouts.