What is On Target Earnings (OTE) in Tech Sales?
When we talk about On Target Earnings (OTE) in Tech Sales, we’re referring to a compensation model that includes both a base salary and a performance-based commission. Simply put, OTE is the total amount of money a sales professional can expect to earn if they hit their sales targets 100%. It’s a way for companies to incentivize their sales teams by offering financial rewards for meeting or exceeding their goals.
The Anatomy of OTE
Base Salary + Commission = OTE
In most tech sales roles, the OTE is usually split between a base salary and a variable commission component. Typically, this split is 50/50 for Account Executives, meaning half of your total potential earnings come from your base salary, and the other half from commissions earned through hitting your sales targets.
For example, if an Account Executive (AE) has an OTE of $200,000, their compensation structure might look like this:
- Base Salary: $100,000
- Commission: $100,000 (achieved by meeting a predefined sales quota)
How is OTE Set?
Setting an OTE isn’t arbitrary; it’s a strategic decision based on several factors:
- Market Standards: Companies often benchmark against industry standards to ensure their OTE is competitive.
- Sales Quotas: The sales targets or quotas set for the role play a crucial part in determining the commission portion of the OTE.
- Ramping Period: New hires usually go through a ramping period of 3 to 6 months. During this time, they are expected to gradually build up to their full sales capacity. The OTE may be adjusted to reflect a lower target during this ramp-up phase.
Multipliers for Overachieving
While hitting your target will earn you your full OTE, many tech sales roles come with additional incentives for overachieving. These are often structured as multipliers that increase your commission rate once you surpass your quota. This means that not only do you get rewarded for meeting your goals, but you also earn extra for going above and beyond.
For instance, if the same Account Executive surpasses their $1,000,000 quota and achieves $1,500,000 in sales, their commission might increase by a multiplier, amplifying their earnings beyond the initial $200,000 OTE.
Understanding OTE through a Real-World Example
Let’s break down an example to see how OTE works in practice:
Setting: Account Executive (AE)
Base Salary: $100,000
Quota: $1,000,000
Commission Rate: 10% of the quota (for simplicity)
When the AE hits their quota of $1,000,000 in sales, they will earn:
- Base Salary: $100,000
- Commission: $100,000 (10% of $1,000,000)
Total OTE = $100,000 (Base Salary) + $100,000 (Commission) = $200,000
If the AE exceeds their quota and sells $1,500,000, and assuming a multiplier of 1.4x for overachievement:
- Base Salary: $100,000
- Commission for first $1,000,000: $100,000
- Commission for extra $500,000: $70,000 (10% of $500,000 * 1.4)
Total Earnings = $100,000 (Base) + $100,000 (Commission) + $70,000 (Overachievement Bonus) = $270,000
Conclusion
Understanding OTE is critical for any sales professional aiming to maximize their earnings potential. It’s not just about meeting targets; it’s about knowing how those targets translate into real dollars and cents. By understanding your OTE, you can better strategize your efforts, anticipate your earnings, and even negotiate more effectively during job offers.
If you’re ready to take the next step in mastering the world of tech sales, consider connecting with our community at Tech Sales Temple. We offer resources and support to help you excel in your career and achieve your highest potential.