On-Target Earnings

What is On-Target Earnings?

On-Target Earnings (OTE) is the total annual compensation a sales professional receives when achieving 100% of their assigned performance quota, calculated as the sum of base salary plus all variable compensation components including commissions, bonuses, and performance incentives. This compensation model establishes a clear, measurable target that aligns individual earning potential with company revenue objectives while providing transparency for both employers and sales professionals.

The OTE framework represents a fundamental element of B2B sales operations, serving multiple strategic purposes: it attracts qualified sales talent by clearly communicating earning potential, motivates desired selling behaviors through performance-based pay, and ensures compensation costs scale predictably with revenue generation. Unlike pure commission structures or straight salaries, OTE balances income stability (through base salary) with performance incentives (through variable pay), creating sustainable motivation for consistent quota achievement rather than feast-or-famine earnings volatility.

In practice, On-Target Earnings functions as both a recruitment tool and a performance management framework. When companies advertise positions with "$160K OTE," they're signaling to candidates that someone performing at expected levels—hitting 100% of quota—will earn $160,000 annually. This transparency helps set realistic expectations and attracts candidates whose skills match the role's requirements. According to The Bridge Group's SDR Metrics Report, structured OTE plans with clear performance metrics improve sales team productivity by 25-40% compared to ambiguous compensation structures.

Understanding On-Target Earnings is essential for sales leaders designing compensation plans, revenue operations teams modeling costs and quotas, finance teams forecasting profitability, and sales professionals evaluating career opportunities. Well-structured OTE packages balance market competitiveness with business sustainability, ensuring companies can afford to pay for performance while sales professionals understand exactly what's required to achieve their financial goals.

Key Takeaways

• Performance-Based Compensation Framework: On-Target Earnings combines guaranteed base salary with variable pay that sales reps earn by achieving specific, measurable quota targets

• Target vs. Actual Distinction: OTE represents earnings at 100% quota—actual compensation varies with performance, with top performers earning 120-200%+ through accelerators and underperformers earning below-target amounts

• Base/Variable Split Strategy: The ratio between base and variable pay (commonly 50/50, 60/40, or 70/30) reflects sales cycle characteristics, role complexity, and the degree of control reps have over outcomes

• Market Positioning Tool: Competitive OTE levels are critical for talent acquisition, with benchmarks varying significantly by role type, deal size, industry vertical, and geographic market

• Business Economics Foundation: Effective OTE design ensures sales compensation scales sustainably with revenue, typically targeting 8-15% of ARR while maintaining positive CAC/LTV ratios

How It Works

On-Target Earnings operates through a comprehensive compensation architecture that defines base pay, variable components, quota thresholds, commission mechanics, and payout structures to create alignment between individual performance and organizational revenue goals.

The system begins with role definition and OTE positioning. Companies first determine appropriate total OTE for each role by benchmarking against industry standards for similar positions, adjusting for geography, company stage, and deal complexity. An enterprise Account Executive in San Francisco might have $200K OTE, while a mid-market AE in Austin has $150K OTE, reflecting both market differences and the roles' respective deal sizes and sales cycles.

Next comes the base/variable split determination. This ratio reflects several factors: sales cycle length (longer cycles justify higher base ratios), outcome controllability (reps with less control over results need more stability), and role type (relationship roles favor higher base, transactional roles favor higher variable). A Customer Success Manager might use 80/20 because success depends on long-term relationships and factors beyond quarterly control, while an inside sales rep uses 60/40 because they can directly influence meeting volumes and opportunities created through daily activity.

Quota assignment establishes the performance threshold for achieving OTE. For an AE with $160K OTE (50/50 split), this means $80K base salary plus $1.2M quota generating $80K variable compensation at 100% attainment. Quota setting must be rigorous—too aggressive and most reps fail to hit target (destroying motivation and retention), too soft and compensation costs exceed sustainable levels. Best-in-class organizations set quotas where 60-80% of reps achieve 80-100% of target, proving the OTE promise is realistic while maintaining performance standards.

Commission structure design determines exactly how variable pay is calculated. The simplest approach uses flat commission rates: $80K variable target ÷ $1.2M quota = 6.67% commission on all closed business. More sophisticated structures incorporate performance tiers with accelerators (higher rates above 100% quota) and sometimes decelerators (lower rates below thresholds). For example: 5% for revenue under 70% of quota, 6.67% from 70-100%, 8% from 100-120%, and 10% above 120%. These tier structures reward high performance with disproportionate upside while managing costs on underperformance.

Payment timing and mechanics affect both cash flow and motivation. Most B2B organizations pay commissions monthly or quarterly based on closed-won bookings, though timing varies: some companies pay upon contract signature, others upon customer payment, and some use draws (monthly advances against annual quota). Payment frequency balances administrative efficiency with motivational impact—more frequent payments provide faster feedback loops between performance and reward.

Performance monitoring and adjustments occur continuously. Revenue Operations teams track attainment rates, analyze quota achievement distributions, and identify issues like consistently low attainment (quotas set too high) or consistently high attainment across the team (quotas set too low, creating excessive compensation costs). They also model how changes in quota, commission rates, or accelerator structures affect both compensation costs and sales behaviors.

The cost modeling dimension ensures sustainability. Finance and RevOps teams calculate total compensation costs by multiplying OTE by headcount, then adjusting for expected attainment (if average attainment is 85%, actual costs will be approximately 92.5% of total OTE pool). This modeling verifies that compensation scales appropriately with revenue, typically targeting 10-15% of ARR for sales costs in efficient SaaS businesses.

Key Features

• Two-Component Structure: Guaranteed base salary providing income stability combined with at-risk variable pay that rewards quota achievement and creates performance alignment

• Quota-Based Performance Gates: Clearly defined revenue, opportunity, or activity targets that determine variable pay eligibility and amount, creating transparency and accountability

• Tiered Commission Mechanics: Rate structures that often include accelerators for over-quota performance and sometimes decelerators for under-performance, shaping motivation and behavior

• Role-Specific Architectures: Different OTE configurations for SDRs (activity-based), AEs (revenue-based), CSMs (retention/expansion-based), and leadership (team performance-based)

• Benchmarked Competitiveness: OTE levels calibrated to market standards ensuring talent attraction and retention while maintaining unit economics sustainability

Use Cases

Enterprise Sales Team Design

A B2B SaaS company building an enterprise sales motion structures AE positions with $220K OTE using 50/50 splits ($110K base, $110K variable). Each rep carries $2M annual quota, requiring 5-8 deals annually at $250K-$400K average contract value. The commission structure pays 5.5% base rate with accelerators at 7% for revenue from 100-125% of quota and 9% above 125%. This design attracts experienced enterprise sellers accustomed to $200K+ OTE, provides sufficient base for long 6-9 month sales cycles, and creates significant upside (top performers can earn $300K+) while managing costs through graduated rates.

Sales Development Representative Compensation

An SDR organization uses $70K OTE with 70/30 split ($49K base, $21K variable) based on qualified pipeline creation rather than closed revenue. Each SDR has quota of 120 qualified opportunities annually (10/month), with variable pay calculated as $175 per qualified opp that converts to SQL status. This metrics-based structure pays on outcomes SDRs directly control, removes frustration from poor AE close rates, and provides clear line-of-sight between daily activity and compensation. Monthly payouts (rather than quarterly) provide fast feedback loops critical for entry-level roles.

Customer Success Expansion Revenue Model

A Customer Success team managing post-sale accounts uses $130K OTE with 75/25 split ($97.5K base, $32.5K variable) tied to net dollar retention and expansion objectives. Each CSM manages a $3M book of business with goals to maintain 95%+ gross retention and deliver 15% expansion through upsells and cross-sells. Variable compensation splits evenly between retention achievement (maintain renewal rates) and expansion revenue (commission on growth). The higher base ratio reflects the relationship-focused, long-term nature of CS work while still creating accountability for revenue outcomes that fuel SaaS growth.

Implementation Example

Comprehensive OTE Structure Framework

Here's a detailed On-Target Earnings design for a mid-market B2B SaaS company showing calculations, scenarios, and business modeling:

Sales Team OTE Architecture

Detailed OTE Calculation Example (Mid-Market AE)

On-Target Earnings Breakdown
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Role: Mid-Market Account Executive
Annual OTE: $160,000
├─ Base Salary: $80,000 (paid bi-weekly: $3,077/paycheck)
└─ Variable Compensation: $80,000 (paid monthly in arrears)

Performance Quota: $1,200,000 ARR (new bookings)

Commission Rate Calculation:
Variable Target ($80,000) ÷ Quota ($1,200,000) = 6.667% base rate

Commission Structure with Tiers:
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Tier 1 (0-70% quota): 5.0% commission rate
  Rationale: De-accelerator for below-threshold performance

Tier 2 (70-100% quota): 6.667% commission rate (base)
  Rationale: Standard rate for on-track performance

Tier 3 (100-120% quota): 8.5% commission rate
  Rationale: First accelerator for above-quota performance

Tier 4 (120%+ quota): 11.0% commission rate
  Rationale: Maximum accelerator for exceptional performance

Earnings Scenarios by Quota Attainment:
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

50% Quota Achievement ($600K closed):
├─ Base: $80,000
├─ Variable: $600,000 × 5.0% = $30,000
└─ Total: $110,000 (69% of OTE)

75% Quota Achievement ($900K closed):
├─ Base: $80,000
├─ Variable: [$840K × 6.667%] + [$60K × 5.0%]
│   = $56,003 + $3,000 = $59,003
└─ Total: $139,003 (87% of OTE)

100% Quota Achievement ($1.2M closed):
├─ Base: $80,000
├─ Variable: $1,200,000 × 6.667% = $80,004
└─ Total: $160,004 (100% of OTE) ✓

125% Quota Achievement ($1.5M closed):
├─ Base: $80,000
├─ Variable: [$1,200K × 6.667%] + [$240K × 8.5%] + [$60K × 11.0%]
│   = $80,004 + $20,400 + $6,600 = $107,004
└─ Total: $187,004 (117% of OTE)

150% Quota Achievement ($1.8M closed):
├─ Base: $80,000
├─ Variable: [$1,200K × 6.667%] + [$240K × 8.5%] + [$360K × 11.0%]
│   = $80,004 + $20,400 + $39,600 = $140,004
└─ Total: $220,004 (138% of OTE)

Team Revenue Planning & Cost Modeling

Sales Team Economics Model
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Company Annual Revenue Goal: $18M New ARR

Sales Team Composition:
├─ 12 Mid-Market AEs @ $1.2M quota each = $14.4M capacity
├─ 5 Enterprise AEs @ $2.0M quota each = $10.0M capacity
└─ Total Quota Coverage: $24.4M (136% of plan)

Rationale: 130-150% quota coverage accounts for ramp time,
turnover, and variance in individual performance

OTE Pool Calculation:
├─ Mid-Market: 12 × $160K OTE = $1,920,000
├─ Enterprise: 5 × $210K OTE = $1,050,000
└─ Total OTE Pool: $2,970,000

Expected Performance (Historical Average: 88% attainment):
├─ Mid-Market AEs: 12 × $1.2M × 88% = $12.672M
├─ Enterprise AEs: 5 × $2.0M × 88% = $8.800M
└─ Total Expected Revenue: $21.472M (119% of goal) ✓

Actual Compensation Cost at 88% Attainment:
├─ Base Salaries: ($960K + $525K) = $1,485,000
├─ Variable Payout: ($960K + $525K) × 88% = $1,306,800
└─ Total Comp Cost: $2,791,800 (94% of OTE pool)

Sales Efficiency Metrics:
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Sales Cost as % of Revenue:
$2,791,800 ÷ $21,472,000 = 13.0% ✓ (Target: 10-15%)

CAC Efficiency (Comp Component):
$2,791,800 ÷ $21,472,000 = $0.13 per $1 ARR ✓

Average Revenue per Rep:
$21,472,000 ÷ 17 reps = $1,263,059 per rep

Average Compensation per Rep:
$2,791,800 ÷ 17 reps = $164,224

Quarterly Payment Schedule Example

*Mixed rates due to exceeding annual quota (accelerators apply)

Annual Performance: 117% of quota, total compensation 109% of OTE

This framework demonstrates how On-Target Earnings translates from concept to practical compensation plans with detailed calculations, tiering structures, and business modeling that ensures both competitiveness and sustainability.

Related Terms

• OTE: Acronym form of On-Target Earnings, commonly used in sales role descriptions and compensation discussions

• Quota: The specific performance target (revenue, meetings, deals) that gates variable compensation and determines OTE achievement

• Bookings: The contract value or revenue amount that commission calculations are typically based on in OTE structures

• Annual Recurring Revenue: The primary quota metric for subscription-based SaaS sales roles determining variable pay

• Sales Qualified Lead: Opportunity creation metric often used for SDR variable compensation within OTE frameworks

• Revenue Operations: Function responsible for designing OTE structures, quota setting, and compensation modeling

• Customer Acquisition Cost: Metric that includes sales compensation and must remain sustainable, directly influenced by OTE design

• Commission: The variable pay component of OTE calculated as a percentage of revenue or dollars per unit of performance

Frequently Asked Questions

What is On-Target Earnings?

Quick Answer: On-Target Earnings (OTE) is the total compensation a sales professional earns when achieving 100% of their quota, combining guaranteed base salary with performance-based variable pay like commissions and bonuses.

On-Target Earnings provides a transparent framework for sales compensation that aligns individual earning potential with company revenue goals. It represents realistic earnings for expected performance—not minimum or maximum possible compensation. For example, an Account Executive with $150K OTE might have a 50/50 split: $75K base salary paid regardless of performance, plus $75K variable compensation earned by closing $1M in new business. Top performers exceeding quota earn above OTE through accelerated commission rates (commonly 120-180% of OTE), while those missing quota earn below OTE. This structure balances income stability with performance incentives, making it ideal for roles where results directly correlate with effort and skill.

How is On-Target Earnings calculated?

Quick Answer: Calculate OTE by adding base salary to the variable compensation earned at 100% quota attainment: OTE = Base Salary + (Quota × Commission Rate).

To determine OTE, start with the base salary amount, then calculate the commission rate that delivers target variable pay at quota. For an AE with $80K base, $1.2M quota, and $80K variable target, the calculation is: $80K base + ($1.2M × 6.67% commission rate) = $160K total OTE. For SDRs or other non-revenue roles, variable pay might be calculated as dollars per unit: $175 per qualified opportunity × 120 opportunities = $21K variable, plus $49K base = $70K OTE. The key is that the formula should yield the variable amount when the rep performs exactly at quota (100% attainment).

What's a good base to variable split for OTE?

Quick Answer: Common splits are 50/50 for field sales and enterprise AEs, 60/40 for inside sales and mid-market roles, and 70/30 for SDRs and longer-cycle positions—chosen based on sales cycle length and outcome controllability.

The optimal split reflects several factors: Sales cycle length (longer cycles justify higher base ratios providing stability during dry spells), outcome controllability (roles with direct control over results can handle more variable pay), role seniority (senior roles typically expect higher base), and market standards (candidates have expectations based on previous roles). According to SaaStr benchmarks, transactional inside sales (30-60 day cycles) typically uses 60/40 splits, enterprise field sales (6-12 month cycles) uses 50/50, and customer success or account management uses 75/25-80/20 because success depends on longer-term relationships. Very high variable ratios (40/60 or worse for base) create income volatility that makes roles difficult to fill and retain.

Why do companies use OTE instead of straight commission or salary?

OTE balances the advantages of both straight salary (predictable income, stability) and pure commission (performance alignment, upside potential) while avoiding their disadvantages. Straight salaries don't create incentives for exceeding targets and can reward mediocre performance equally with excellence. Pure commission creates income volatility that makes it difficult to attract talent and can drive short-term behaviors harmful to customer relationships. On-Target Earnings provides base salary covering essential living costs while variable pay rewards performance, creating sustainable motivation without feast-or-famine earnings. This structure attracts professional sales talent who want career stability with performance upside, and it helps companies scale compensation costs predictably with revenue generation.

How does OTE affect recruiting and retention?

On-Target Earnings serves as the primary communication tool for sales compensation in recruiting, directly influencing candidate attraction and acceptance rates. Competitive OTE benchmarked against market standards is essential—offering $130K OTE for a mid-market AE role in a market where competitors offer $160K makes hiring nearly impossible regardless of other benefits. According to Pavilion's Sales Compensation Report, 73% of sales professionals evaluate opportunities primarily based on OTE level and achievability. Equally important is OTE credibility: if companies advertise $180K OTE but average attainment is only 65% ($117K actual earnings), reputation damage makes future hiring difficult. Retention correlates strongly with OTE achievement—reps consistently hitting 85-115% of quota typically show 90%+ retention, while those below 70% have retention under 40%. Transparent, achievable OTE structures build trust and tenure.

Conclusion

On-Target Earnings represents the foundational compensation architecture for modern B2B sales organizations, creating transparent frameworks that align individual earning potential with company revenue objectives while balancing income stability with performance incentives. By clearly defining the total compensation achievable at quota performance, OTE structures set expectations for both employers and sales professionals, provide powerful recruitment and retention tools, and ensure compensation costs scale sustainably with business growth.

For sales leaders, well-designed OTE packages are critical for building high-performing teams that can reliably deliver revenue targets. RevOps teams depend on OTE frameworks to model compensation costs, design quota structures, and ensure unit economics remain healthy as organizations scale. Finance teams use OTE modeling to forecast costs and maintain predictable expense structures aligned with revenue plans. Sales professionals benefit from the transparency and earning potential that well-structured OTE provides, knowing exactly what performance is required to achieve their financial goals.

As GTM motions continue evolving—with product-led growth models, customer success becoming revenue-generating, and increasingly complex multi-stakeholder sales processes—On-Target Earnings structures will adapt to reflect new roles, metrics, and success criteria. Organizations that thoughtfully design compensation frameworks balancing market competitiveness, internal equity, and business sustainability will build sales engines capable of predictable, efficient growth. Explore related concepts like revenue operations and sales development to deepen your understanding of comprehensive sales compensation strategy.

Last Updated: January 18, 2026