Imagine this: Q4 is coming to an end, and your team hasn’t just met their quotas; instead, they’ve exceeded them.

Each one of your reps has consistently demonstrated value in meetings and built strong relationships with their clients, leading 100% of those customers to renew their contracts. By all accounts, your team’s performance surpassed your expectations.

You get to deliver some great news: They can expect to receive OTE, or on-target earnings, this year. This is a great opportunity to reward and retain your staff, especially considering we found that 64% of sales professionals say they would leave if offered a similar job with better pay.

In this article, we’ll break down what OTE means, how to calculate it, and how to use it to build a fair, motivating compensation model that attracts and retains top talent.

What you’ll learn:

• What is OTE in sales?
• How does OTE work?
• Benefits of the OTE sales model
• How to calculate OTE
• Examples of different pay mix structures in OTE
• Positions with on-target earnings compensation
• Average OTE for sales reps
• How to set up your OTE sales model
• OTE FAQs

What does OTE mean?

OTE stands for on-target earnings. It is the compensation a salesperson can expect to earn in a year when they meet all the requirements, objectives, and target metrics laid out for their position. It’s a projected salary based on a combination of their guaranteed base salary plus their non-guaranteed commissions.

Depending on the proportion of base salary to commissions, OTE can fluctuate. If your team’s pay is based largely on commissions, OTE will change depending on quota and likely quota attainment. If their base salary is a large piece of the earnings pie, then OTE won’t throw things off that much.

A well-designed sales compensation plan, with OTE as an earnings guide, can keep your team excited and motivated. When you put your reps in the driver’s seat for their earnings, you encourage them to perform at the top of their game.

Now let’s dive into how it works and how you can use it on your team.

How does OTE work?

Typically, OTE is a split between base salary and commissions. For example, let’s say a candidate is applying for a sales rep role with an OTE of $250,000. During the interview, they learn that the base salary is $150,000. However, if they hit quota, they’ll earn the other $100,000 in commission.

OTE gives them a sense of what kind of earnings to expect in the role. OTE calculation varies, but many companies set parameters based on position and tenure.

Not all OTE structures are the same. Some are capped, meaning there’s a limit on how much commission a salesperson can earn, while others are uncapped, allowing high performers to keep all their earnings, far beyond their targets.

Capped OTE vs. Uncapped OTE

	Description	Best for	Potential issues
Capped OTE	Commission stops once the rep reaches their target or a maximum payout.	Companies with fixed budgets or predictable revenue models.	This will demotivate top performers once they hit the cap.
Uncapped OTE	No earnings limit, reps can continue earning commission beyond their target.	High-growth or competitive sales environments that reward performance.	Harder to forecast payroll costs, and may even encourage selling to the wrong buyers.

Is OTE guaranteed?

The catch with OTE is that it’s never guaranteed. It represents what a salesperson can expect to earn only if they reach 100% of their target. They will have a guaranteed base salary, but they will only reach their OTE if they’ve met their target for commission and bonuses.

It’s important to remember that achieving OTE often comes down to factors like quota, sales cycle length, and market conditions. For those looking for a job in sales, it’s not advised to rely on your full OTE due to these external factors.

The benefits of OTE

Here are some of the key benefits you can expect from developing an OTE plan. 

• Transparency: Reps know what to expect, and leaders know what to plan for.
• Attraction and retention: Talented, self-motivated salespeople seek out companies with strong OTE potential. According to the Salesforce State of Sales, the second most common reason sales professionals consider leaving their job (after limited career growth) is uncompetitive pay.
• Clarity and motivation: OTE structures remove uncertainty around earnings and goals, helping to align expectations between leaders and teams.
• Performance-driven flexibility: When your OTE ratio leans toward commissions, you can offer higher potential pay without increasing your risk, since rewards are directly tied to results.
• Positive culture: OTE plans attract high-performing, optimistic salespeople who thrive on clear targets and friendly competition.
• Financial forecasting: OTE gives finance teams a consistent way to project sales and commission payouts, making planning and reporting easier.

How to calculate OTE

While some research is needed (like reviewing industry benchmarks and your own financial reports), the actual calculation is straightforward.

Here’s the basic formula: Annual base salary + annual commission earned when 100% of quota is hit = On-target earnings (OTE).

To work out your team’s OTE, you can follow these simple steps.

1. Determine base pay: Start with each role’s base salary. Check competitor benchmarks to ensure your pay is competitive.

2. Establish sales quotas: Set realistic quotas that balance your company’s revenue goals with your reps’ selling capacity. Try not to set your targets too high; otherwise, they can have the opposite effect and discourage staff.
3. Set commission rates: Decide how much commission reps earn when hitting targets. Make sure the ratio reflects both the effort and difficulty it takes to sell the product.
4. Add it up: Combine the base salary and expected commission to get the total OTE.

Examples of OTE calculations

Below are two simple examples comparing how this might look for capped and uncapped OTE structures.

Examples of OTE Calculations

Example	Base Salary	Commission Potential	Structure	Total OTE
Capped OTE (100% quota)	$70,000	$30,000 (max)	Capped	$100,000
Uncapped OTE (100% quota)	$70,000	$30,000 (minimum, can exceed)	Uncapped	$100,000+
Uncapped OTE (150% of quota)	$70,000	$60,000	Uncapped	$130,000

Different pay mix structures in OTE

The ratio of OTE plans is generally 65% base salary and 35% commission. However, pay mixes can be all over the map. 

Here are some examples (base pay/commission pay):

• 0/100: This lack of mix, based entirely on commission with no base salary, is typically reserved for independent contractors. Using it for employees is generally considered unethical, as it removes income stability and shifts all financial risk onto the worker.
• 50/50: Not sure where to start? Try this pay mix to encourage sales reps to meet and exceed their quotas while providing them with a base salary safety net. With this baseline, you can follow the performance of your sales team and adjust the pay mix as necessary.
• 70/30: A bit less aggressive than more commission-focused pay mixes, this ratio is good for customer success managers, as they have a mix of CSAT and upselling targets. This pay mix also works for industries like telecommunications and financial services, which have longer sales cycles.
• 90/10: Offering more security with a majority base salary, this pay mix works best for employees whose main responsibilities lie mostly outside sales. It offers just enough incentive for staff to go that extra mile to help close deals.

Which professions use OTE?

OTE is most common in sales-led roles across industries like SaaS, telecommunications, and finance. It is also sometimes used for customer success managers and sales leaders with team-based targets.

Here are some examples of OTE compensation for various roles:

Sales development representative (SDR)

SDRs connect sales reps with leads that seem like good candidates for a sale and other business opportunities. They’re responsible for cold calling potential clients, sales prospecting, and setting up meetings to make connections.

Here’s what an OTE would look like for a 70/30 pay mix (fairly standard for SDRs):

• Base salary ($70,000) + Commission: ($30,000) + (uncapped) = OTE ($100,000+)

Account executive

Responsible for building ongoing relationships with clients, account executives work in many industries, including tech, health care, and financial services.

Here’s what a 50/50 pay mix may look like for an account executive earning 10% commission with a monthly quota of $75,000:

• Base salary ($90,000) + Commission ($90,000) = OTE ($180,000)

Field sales representative

Field sales representatives work outside the office, building customer relationships and following up on leads in person. For an entry-level position like this, a typical field sales rep may have a pay mix of 70/30 with an uncapped commission.

Here’s how that might break down:

• Base salary ($60,000) + Commission ($25,700) = OTE ($85,700)

Sales manager

Sales managers are responsible for hiring and leading sales teams, including training and setting goals. They may offer guidance to reps throughout the entire sales cycle, including evaluation, proposal, negotiation, and closing.

Depending on the organisation and industry, these roles are typically paid somewhere between a 50/50 and a 70/30 pay mix. Some also have uncapped commissions. Here’s a look at how that might play out:

• Base salary ($135,000) + Commission ($115,000+) = OTE ($250,000+)

Average OTE for sales reps

According to SEEK, the average salary for sales representatives in Australia ranges between $75,000 and $95,000 per year, depending on industry and experience.

Using that benchmark, a 70/30 pay mix would see a rep earning around $85,000 base salary and $36,000 in commission when hitting quota, bringing their total on-target earnings to $121,000, plus super (12% of both their base salary and commission) and any other benefits.

For higher-performing reps, especially in tech or enterprise sales, with an uncapped OTE, this number can be much higher. 

How to set up your OTE model

If you’re not sure where to start when setting up your OTE model, consider the following four factors to guide you.

1. Determine what your company is trying to achieve

What are your company’s current goals? Remember: Behaviours follow incentives. So, the rewards you offer to your sales team must tie back to strategic company objectives. These could relate to growth, margins, or market expansion. Once you have those pillars defined, you can better ensure your OTE goals link back to them.

2. Understand your sales cycle and your ideal rep’s risk appetite

Your OTE should be heavily based on the length of your sales cycle. Sales reps who can close on products and services relatively quickly may be able to operate on 100% commission. This can even be good for reps who have a strong hunting mentality.

The more transactional the sale and the less complex the sales cycle, the more you can rely on commissions. Just keep in mind that reps who sell offerings with longer sales cycles may need a ratio closer to 50/50 or even 70/30. For instance, selling hardware to the public sector involves a lengthy procurement process. In this case, the organisation would likely offer reps a 70/30 OTE.

Finally, while some reps may be excited to accept a 50/50 OTE, others might want something like 80/20. Consider the profile and goals of your ideal reps, including their risk appetite, to understand what they are comfortable with or might expect.

3. Ensure your OTE plan is sustainable for your company and your reps

This one should involve a collaborative conversation between your finance and sales leaders. Consider the funding style of your company and ask whether your OTE plan will allow it to achieve profitability (or keep it from doing so). Then consider whether the targets tied to your OTE are achievable. At least 30% of your sales reps should be hitting their quotas; otherwise, you’ve set an unrealistic goal and risk losing them.

4. Look at market benchmarks to make sure your OTE package is competitive

Good sellers have transferable skills. This means they also have options. Look at what your peers are offering and make sure you’re not at risk of losing out on the best talent. You can also ask people to express their expectations during your recruitment process. Finally, include a salary range in your job descriptions and get a feel for how people respond.

5 tips for OTE success

A well-designed OTE plan works best when it’s backed by clear goals and helpful software. Here are a few simple ways to help your team reach their targets and stay motivated:

1. Set realistic quotas: Base goals on data and past performance so targets feel achievable, not overwhelming.
2. Review results regularly: Give reps ongoing visibility into their progress and earnings.
3. Empower your team with better tools: Use Salesforce CRM with Sales Cloud to automate reporting, track performance, and forecast commissions in real time.
4. Reward consistency: Recognise reps who steadily meet their goals to build long-term motivation.
5. Keep pay structures transparent: Make sure every team member understands how their earnings are calculated and what success looks like.

Attract strong candidates with OTE 

Offering a competitive OTE compensation plan can attract strong candidates to your sales team and keep top talent on board. When reps know exactly how much they’ll earn if they hit their sales quotas, they’ll be incentivised to work hard to reach those goals. That benefits you and your business, as well as your team.

With Salesforce Sales Cloud, you can design, track, and optimise your OTE plans with real-time visibility across your entire pipeline. Try it free for 14 days here.

FAQs

What are the average rep earnings?

The average salary for a sales representative in Australia falls in the range of AU $75,000 to $95,000 annually. This does not include commission. 

What is a draw, and how does it affect OTE?

A draw is an advance that a company pays a sales rep against their anticipated earned commissions. Businesses will often offer a non-recoverable draw or guarantee for a few months to ease reps into their role. This is also known as a ramp-up.

An example of a draw against commission would be a salesperson who earns $1,000 per week. If they earn $2,000 in commissions during that pay period, they will earn $3,000 total that week. But if they have a slow week and only earn $250 in commissions, they will earn $1,250 for that pay period.

Ultimately, a draw does not affect OTE; it is subtracted from future commissions.

What is ramp time?

Ramp time is the time needed for a sales rep to consistently hit their sales targets. Many companies offer new sales reps an initial period to ease into the role where they aren’t expected to sell anything. This period can vary, but typically it’s one sales cycle or three months.

What is a fully ramped OTE?

During the ramp time, a new sales rep will spend time learning about the products or services they’re selling, understanding the company’s sales process, and building a pipeline. Since the rep is not making sales during this time, they’re not earning a commission. Instead, they’re typically earning a draw. Once a sales rep is fully ramped, they are making sales independently and achieving their assigned sales quota.

What are on-target commissions (OTC)?

On-target commissions (OTC) are the compensation sales reps can earn if they hit 100% of their quota. You need to know your OTC to calculate your OTE.