For certain industries and job roles, you might see salaries advertised as “€50k basic OTE €70k.”
But what does OTE even mean? This compensation structure is often found in sales-based industries and refers to on-target earnings or OTE.
These earnings are broken down into a base salary, sales commissions, and bonuses. Knowing how OTE salaries work is essential for HR teams, employees, and job seekers. OTE salaries can attract top talent and drive performance — but to achieve this they need to be carefully calculated.
Let’s look at the OTE salary meaning in more detail, including how it’s calculated and why knowing how it works matters.
What Is OTE Salary?
Our OTE salary definition: the maximum salary an employee can potentially earn — if they meet their sales targets.
Sometimes referred to as on-track earnings, OTE salaries are most commonly seen for commission-based roles including:
- Sales director
- Sales manager
- Field sales representative
- Financial advisor
- Real estate agent
- Account executive
- Marketing manager
This type of salary structure incentivizes employees to perform their best — because they earn more money when they do. For companies, it also makes sense from a budget point of view, because they can pay a lower base salary but still attract top talent who are confident in their abilities to meet their sales targets.
OTE is typically made up of a few different components.
Components of OTE
OTE includes three main components that together, make up an employee’s total pay:
- Base salary: a fixed salary.
- Sales commission: a percentage of the revenue generated by sales of products and services. For example, if the employee sold €20,000 of products or services and received a 10% commission for every sale, they would be paid an additional €2,000.
- Bonuses: paid if specific targets are met within a set timeframe. Bonuses aren’t always part of every OTE calculation.
Here’s an example:
- Base salary: €40,000
- Sales commission: €10,000
- Bonus: €1,000
- Total OTE: €51,000
What OTE doesn’t include:
- One-time bonuses
How do you calculate OTE?
Ready to discover how to calculate OTE? Here are the steps you need:
- Set a base salary. Using salary benchmarking helps you set a realistic base salary using real-time market data.
- Set a sales quota (for example, €200,000 per year)
- Set a commission rate (for example, 10% of every sale)
Now you have all those details, you’re ready for the formula: Base salary + on-target commission + bonuses = OTE
Let’s take a closer look at this process in action:
- For a base salary of €60,000, an on-target commission of €20,000, and a bonus of €5,000 the advertised OTE salary would be €85,000.
- If the employee reaches 100% of their quota, their gross salary will be €85,000.
- If they reach 75% of their quota, (equalling €15,000 in sales commission), their gross salary will be €80,000 (assuming their bonus remains the same)
- If they reach 150% of their quota, (equalling €30,000 in sales commission), their gross salary will be €95,000
Why OTE Matters
Here’s more about why OTE matters, for job seekers, employees, and employers.
If you’re applying for jobs with an OTE salary, it’s important to understand how the salary is structured, and the breakdown between the three different components.
It’s also crucial to remember that the advertised OTE salary isn’t guaranteed. Before applying for a job with an OTE salary, consider whether the base salary is enough to meet your expected living costs, and whether you have the skills and motivation to meet the level of sales required.
One way to achieve this is to ask to see the anonymised OTE performance analysis for current employees. If this data is available, it can give a good indication of whether most employees are meeting their targets and earning the advertised OTE salary, or not.
Employees earning an OTE salary need to know the difference between their guaranteed base salary, and any additional sales commissions and bonuses. While their base salary is guaranteed, it might not be enough to cover their living costs.
Understanding how OTE salaries work can help employees set realistic goals for their earning potential, and plan their finances because they have a clear target to work toward.
OTE salaries can also help employees connect the dots between their performance and their earnings — because the harder they work and the more sales they close, the more they earn. This can sometimes be very motivating, but OTE salaries can have their downsides for employees too.
Some people may find it stressful knowing they have to consistently perform and meet their targets. Others may become frustrated with a capped OTE because they feel this limits their earning potential.
Employers need to carefully consider if the targets they’re setting are realistic enough for employees to attain, but challenging enough to maintain performance and motivation.
OTE salaries are a way to attract top talent without offering above-average market rates because these employees are generally confident in their ability to meet their targets.
During the salary benchmarking process, it’s a good idea to look at the breakdown of employees on OTE salaries and analyse how many are above, on, and below the median. This can help when adjusting the breakdown between the different components of an OTE salary in the future.
OTE salaries are a good way for companies to plan their budget because it’s easier to account for the fixed base salary of each employee while accounting for any additional expenses and revenue generated through sales and their associated commissions.
How to negotiate your OTE salary
Like any salary, OTEs aren’t set in stone and can often be negotiated during job offers and performance reviews. But this can be a daunting task, especially if you haven’t done it before! Follow our four top tips for getting those conversations right.
1. Do your research
During a job search, you’ve probably looked through a lot of different adverts and applied to more than one role. It’s a good idea to keep track of the OTE salaries on offer, and the breakdown of the different components (if advertised).
If you’re heading into a performance review, set aside half an hour to check adverts within your industry and location, to see what the current market rates look like.
This research is a powerful way for job seekers and employees to gain an understanding of the typical OTE salary for their role, and whether their salary falls within their expected range.
2. Know your worth
Before entering any negotiations, job seekers and employees should understand the value they bring to the company.
Take some time to summarise your achievements and abilities, so it’s easy to highlight these within your review.
3. Practice your negotiation skills
Negotiating can be scary. Writing down a script of what you want to say can help, as can practising this with a friend or colleague.
4. Be flexible
Salary negotiations should be a two-way conversation. Be open to discussions and compromise, and consider that your employer may offer other types of compensation during your negotiations, such as additional benefits or bonuses.
Comparing OTE to other payment types
OTE isn’t the only compensation structure out there. Other metrics include:
- Base salary: a fixed salary that doesn’t include any additional bonuses or sales commissions.
- Total compensation: base salary plus any other benefits like healthcare, flexible working, retirement contributions, paid time off, and more.
What are the advantages and disadvantages of OTE?
- Motivating employees to perform their best
- Offers high earning potential
- Attract top talent
- Allow for budget planning when setting base salaries
- They’re not suitable for all industries and job roles
- Setting sales commission too high may demotivate some employees
- Capped OTE may frustrate other employees who prefer unlimited potential
What’s the difference between a capped versus uncapped OTE salary?
A capped OTE sets an upper limit, or cap, on the commission an employee can earn. For example, €50,000. Once they reach this cap, they can’t earn any additional commission. This is a good option if a company needs to define strict budgets, but it can limit motivation and performance once the cap is reached.
An uncapped OTE accounts for the fact that some employees may exceed their target commission. It allows them to earn over and above this projected figure and can motivate high performers to continue making sales.
What’s a good OTE percentage?
Many factors influence this percentage, from the specific industry to a company’s size, budget, and market positioning. It can also be influenced by an employee’s job title, sales quota, and experience. Generally, the OTE should be 50% higher than the base salary.
What is a 50-50 OTE?
This is an OTE with equal percentages of base salary and commission.
How realistic are OTE earnings?
Most OTE earnings are carefully calculated to be a realistic target for sales professionals. OTEs are designed to help motivate employees to achieve their targets — so if they’re set too high they can end up being counter-productive. But, OTE salaries aren’t guaranteed earnings, and reaching them depends on hard work and dedication.