What Does OTE Stand For?
On-Target Earnings (OTE) is the total amount a rep can expect to earn if they meet their sales quota in full. In general, OTE is an annual figure that varies depending on the position, industry, organizational goal, and a variety of other factors.
OTE includes the base salary as well as the compensation amount, which is determined by the reps’ quota.
The Advantages of OTE:
One significant advantage of OTE is that it keeps your reps motivated throughout the process of meeting their quota. Incentives in OTE also encourage your employees to push their limits and stay engaged. This increases sales productivity, which can lead to further growth for your company.
How Does OTE Function?
Here’s how to deconstruct an OTE.
les OTE = Base salary + Commissions if quota is met at 100% for the year.
OTE for an executive = base salary + bonus
OTE primarily applies to roles that are compensated based on performance, such as Sales Executives, BDRs, CSMs, and so on.
You have a gross salary for non-performance-based positions.Such calculations are eased with the help of Incentive softwares.
There are three possible outcomes:
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If quota achievement is 100%, then gross salary equals OTE.
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If the quota is met 100% of the time, the gross salary OTE is increased.
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If the quota is exceeded, the gross salary exceeds the OTE.
How Do You Determine OTE for Sales?
Let’s look at the OTE calculation now that you have a basic understanding of What is OTE.
Determine Your Employee’s Starting Salary
The first step is to establish a base salary for each of your employees based on their position. Make sure it is set at a reasonable rate for the amount of work they do. One effective method is to look at the average base salary for the specific position in the industry in which you work.
Complete the Sales Quota
The next step is to establish the quota that your employees must meet in order to earn their commission. The general rule is that quotas should be 4x-6x of OTE. However, this is subject to change depending on the circumstances. You must strike the proper balance when establishing your quota; it should not be too high while also being challenging.
Your commissions should be in line with your objectives.
The goal of commissions in OTE is to motivate your rep to achieve a specific goal. For example, you might want your sales team to increase monthly revenue or close more deals at a specific time.
Determine the commission rate based on how difficult these goals are and how long it will take to achieve them.
Total the Base Salary and the Commission.
Once you’ve determined your base salary and commission, add them together to calculate your OTE.
Your commissions should be in line with your objectives.
What is the relationship between your pay mix and your expected earnings?
The pay mix is the proportion of base salary to commission that determines the OTE. If your pay mix is 60/40, your base salary is 60% of your OTE, and the commission rate is 40%. You can finalize the pay mix by taking into account the following factors.
The Situation
A sales rep and a sales manager will be compensated differently. Some higher-level positions have varying responsibilities, and you can adjust the pay mix accordingly.
Your Sales Cycle’s Length
When your sales cycle is longer, your reps will need an extra push to stay motivated and focused.
If you are looking for a tool to help you determine the activities related to sales activities, Elevate HQ can assist you with the Sales commission structure template. It is now time to check out the website.