One of the things you should know when applying for sales positions is what OTE means. This term states how much money you will earn at a particular sales job. Companies often put the OTE salary in their job advertisements to attract potential employees.
The sum of money is not fixed, and your salary on this job may be higher or lower than the written OTE sum. Let’s not confuse calculations. Let’s see what OTE salary means in sales and how to negotiate better pay. After all, you deserve to know what you are signing for to avoid any unpleasant surprises on the payment day.
Summary
OTE in sales most commonly, means the intended salary in sales if you hit the specified quota. Being cooperative but knowing what you want is the best way to negotiate better pay in sales.
Here are the topics we’ll cover in this article:
- What does OTE salary mean in sales?
- What it consists of
- Benefits of using it
- Common commission structures
- How to counter a salary offer and negotiate
What does OTE salary mean in sales?
OTE stands for on-target earnings, which are the potential salary you will get annually. It includes an expected wage and some extra commissions. However, it does not cover the money you will get for working overtime or any additional bonus. OTE does not point out precisely the amount of money you will get for the job. It only gives you an overview of what you can expect from working in that sales position.
On-target earnings are often used in sales because they increase the performance of employees. The sum you see in the job ad states the potential earnings for hitting expected targets. If you work harder and achieve great success in sales, you will be paid more for any positive results of your work.
This payment system is equally advantageous for businesses and their employers. It’s because employers do not waste money on unproductive workers and often get positive results by meeting estimated targets. At the same time, workers are motivated to do more to get a better salary.
Here’s a quick recap:
- OTE is the projected salary with the compensation structure at a company.
- It can either be capped or uncapped.
- The commission is added to the base to figure out overall compensation.
What it consists of
As mentioned before, on-target earning consists of a base salary and commissions. Every company can have its own percentage of each constituency of OTE. The standard norm is 50% of base salary and 50% of on-target commissions.
While applying for the job, you should ask the hiring manager about average earnings. Make sure that it will be possible for you to hit 100% of your quota. Suppose employers in this company rarely hit the estimated on-target commission percentage. In that case, your salary will likely be lower than what is written in your job application.
Remember that many sales jobs require extra working time, and OTE often does not include the money for ramp time. However, reasonable employees will make a commission quota for possible overtime work. There would be no drastic difference between those two quotas.
Benefits of using it
As you may have already noticed, OTE is quite beneficial for businesses. One of the most obvious benefits of OTE is that it allows businesses to manage their finances following the outcomes they expect from their employees. This system increases workers’ productivity and helps establish long-term relationships in companies. Moreover, it reduces employees’ poor performance and promotes businesses development and growth.
An on-target earnings system allows companies to forecast their commissions and give an appropriate sales representative payment. Suppose the company manages OTE properly and puts realistic numbers in the job ad. In that case, it will give you a better understanding of your future earnings.
When applying for a sales position, it is important for you to know what OTE is to avoid any misunderstandings and undesirable complications. For better understanding, look at a few examples showing how the system works in practice.
Examples
When you see that the sales position states an OTE of $150,000, it means that the base salary for one year is $78,000. The quota for the month will be $60,000, with 15% of commissions per sale. As a result, if you reach 100% of your monthly quota, you will earn $6,000 in commission per month and $72,000 per year.
| Base | Sales per month | Commission | Earnings per month |
| 6,500 | 0 | 0 | 6,500 |
| 6,500 | $15,000 | $2,250 | $8,750 |
| 6,500 | $25,000 | $3,750 | $10,250 |
| 6,500 | $35,000 | $5,250 | $11,750 |
| 6,500 | $45,000 | $6,750 | $13,250 |
| 6,500 | $55,000 | $8,250 | $14,750 |
| 6,500 | $65,000 | $9,750 | $16,250 |
| 6,500 | $75,000 | $11,250 | $17,750 |
| 6,500 | $85,000 | $12,750 | $19,250 |
| 6,500 | $95,000 | $14,250 | $20,750 |
| 6,500 | $105,000 | $15,750 | $22,250 |
| 6,500 | $115,000 | $17,250 | $23,750 |
If the on-target earnings are $90,000, your base salary will be $46,800. The monthly quota for OTE of $90,000 is $36,000, which equals 9% of the commission on the sale. You will get $3,600 in commission every month and $43,200 every year. You should also take into account that most of the time, hiring managers round on-target earnings numbers for convenience. If you see OTE at $100,000, it can be $100,120 in practice.
Common commission structures
The percentage of commission companies choose to pay their sales representatives directly impacts profits and sales success. Most of the time, having high-rate commissions is a productive strategy in business development. Employees choose to pay more to attract the best sales reps. There are different types of commissions you should know about to choose what is best for you.
| Commission Structure | Main Benefit |
|---|---|
| Straight Commission | Simple and easy to understand |
| Tiered Commission | Encourages salespeople to hit higher sales targets |
| Draw Against Commission | Provides a guaranteed income for salespeople |
| Residual Commission | Rewards salespeople for maintaining long-term customer relationships |
| Hybrid Commission | Combines different commission structures to suit the needs of the company and sales team |
Commission draw model
This system mixes only-commission OTE and base salary plus commission models. A rep with a right to draw $1000 and earn $800 in commission will get the entire amount of commission as well as $0. He earns $800 in commission and will get the entire amount of commission as well as $200. It is the draw amount.
This OTE structure is a complex metric. However, companies often use it because it is good for beginners in sales who need time to adjust. However, an employer who experiences bad sales a few times in a row can end up in debt to the company. It’s because all the money paid in advance should be returned.
100% system
One of the most widely used structures of payment in sales is the 100% commission plan. It involves paying only according to a rep’s progress in work. It does not have a base salary, and the money you will get depends on your sales achievements.
This structure allows you to earn a higher income if you wish to work as much as possible. However, employers often choose jobs with a fixed amount of money for the base salary. It guarantees a salary even if they are not highly efficient at selling.
Territory commission structure
This type focuses on the income for a certain region as a whole. All the reps work as a team, and the commission from their work is split up evenly. It can seem that this model creates equality in the team but in reality, reps who work harder carry most of the weight. The other disadvantage is that this structure requires leaders who will manage the whole team’s work. Therefore, the territory type is not a popular sales payment system.
Base salary and commission
Suppose a business uses a 100% system. In that case, it can struggle to find new people for sales positions. It’s because only experienced workers can feel secure in that type of job. As a result, many businesses opt for a structure that includes both a base salary and a commission. With this system, the company agrees to pay a fixed sum of money to employers. It’s regardless of their performance and gives additional money for each sale.
Even if it seems that companies will lose money by paying a fixed salary, this system can be advantageous for both parties. The base salary is often low and does not fill the needs of reps, so they still stay motivated to work harder for more money. At the same time, there is a guarantee that you will not be out of payment in the case of an unprofitable day in sales.
Tiered system
A salesperson’s job is to keep their team motivated and strive for new goals. A tiering payment structure is a successful strategy. It ensures that reps want to work efficiently to earn more money or avoid losing them. This system is based on benchmarks that represent different percentages of commission.
For example, you may generally earn 5% in commission. Still, you can pass this mark and earn 7% in commission or more. In some cases, businesses use the same structure to address underperformance. If an employer does not meet expected goals, they lose money.
The example below assumes all sales receive the same commission rate but that it changes depending on whether certain targets are met.
| Base | Sales per month | Commission rate | Commission | Earnings |
| 6,500 | 0 | 10% | 0 | 6,500 |
| 6,500 | $15,000 | 10% | $1,500 | $8,000 |
| 6,500 | $25,000 | 10% | $2,500 | $9,000 |
| 6,500 | $35,000 | 10% | $3,500 | $10,000 |
| 6,500 | $45,000 | 15% | $6,750 | $13,250 |
| 6,500 | $55,000 | 15% | $8,250 | $14,750 |
| 6,500 | $65,000 | 15% | $9,750 | $16,250 |
| 6,500 | $75,000 | 15% | $11,250 | $17,750 |
| 6,500 | $85,000 | 20% | $17,000 | $23,500 |
| 6,500 | $95,000 | 20% | $19,000 | $25,500 |
| 6,500 | $105,000 | 20% | $21,000 | $27,500 |
| 6,500 | $115,000 | 20% | $23,000 | $29,500 |
Base salary only
This type of salary is rarely used in sales because it fails to motivate reps for better performance. Suppose everyone gets the same amount of money for different performances. In that case, there is no reason for salespeople to aspire to close more deals. However, suppose the job of employers in the company is focused more on consulting than on selling. In that case, this strategy is the best option. In this case, all employers will be satisfied with their payment.
Revenue structure
This type of commission structure concentrates not so much on the profits as on how big the sales deals are. For example, the deal for $1000 will be estimated at 10% of commission, and the deal for $2500 will make 25%. The more expensive the item you sell, the higher your salary.
This system is widely used for selling products at fixed prices. It also ensures that top reps will get the payment they deserve. Moreover, it is good for businesses that want to enter new markets for more deal opportunities.
Gross margin model
This model is related to the profit from each sale the rep makes. Simply put, a product that costs $2000 and is worth $1500 in expenses will give a salesperson a percentage of the remaining $500. Reps sometimes give a lot of discounts to make more deals. They will be reluctant to do so within this system, and the company will not lose profits from products. A gross margin model motivates salespeople to sell products at prices that will give them the best profits.
Residual structure
All businesses are interested in sustaining long-term customer relationships and finding new clients. A residual model motivates salespeople to work on establishing continuing agreements with clients. In this system, reps get a commission if the company profits from long-run revenues.
How to counter a salary offer and negotiate
Negotiation is an important part of the process that stands between you and the desired work terms in a sales position. If you do it right, your job will bring you satisfaction and a desirable salary and benefits. To achieve that, you should use some tips for better negotiation.
1. Have a printed version of the job offer.
First of all, print out the job ad. Suppose you have everything that the company offers in a printed version. In that case, it will be much easier for you to understand it and go through the negotiation process. As a lot of jobs have complex terms, it is necessary for you to choose the easiest way to understand them.
2. Ask about the average salary.
During a job interview, don’t forget to ask about the average salary of reps with the same experience level as you. Some companies write unrealistic OTE to attract more candidates. Therefore, you should first check whether people who earn that amount of money exist.
3. Make a list of demands.
You probably have certain demands and expectations for what your job terms should look like. Write a list of your demands for better negotiation. It starts with the most crucial points and ends with ones that are unimportant. When stating your demands, bring out each of them independently, so the hiring manager won’t feel you want too much.
4. Use a cooperative tone.
One of the crucial things is not what you want but how you present it. Use a cooperative tone and are willing to negotiate for both parties to achieve mutually good terms. You will have a better chance of success. You can as well use pronouns “we” and “us” instead of “I” and “me.” That will create a collaborative atmosphere and a better tone of the negotiation.
5. Show all your best sides.
Don’t be shy; show all your best sides. If you ask for better pay, prove that your skills and experience are worth the company’s money. You can as well show your W2 as evidence of your value as a worker. The good strategy is to point out that a good salary motivates you for better performance. As you know, performance is crucial in sales. Many companies are willing to pay for good results.
Have you found out which model works for the business you own or are thinking about joining?
- Commission draw model
- Base + commission
- Tiered system
