Key Takeaways
On target earnings (OTE) is base salary plus the variable pay a salesperson earns at exactly 100% of quota; only the base part is guaranteed.
To pay OTE at quota, set the commission rate as target variable pay divided by quota, so $40,000 of target variable on a $500,000 quota needs an 8% rate.
The Bridge Group's 2026 study put median account executive OTE at $200,000 on a 4.6x quota-to-OTE ratio, with only 48% of AEs reaching quota.
Pay mix should follow how much a role controls the sale: a median 68:32 for SDRs and 53:47 for SaaS account executives.
Judge any OTE by the share of reps who reached it last year, the quota-to-OTE ratio, caps, accelerators and how often the plan changes.
On target earnings (OTE) is the total pay a salesperson can expect in a year if they hit 100% of their quota: a fixed base salary plus target variable pay, such as commission or bonus. OTE is a target, not a guarantee, so reps earn less below quota and more above it. This guide explains how OTE is calculated, with formulas and a worked example, how it differs from base salary, typical pay mix by role and how to judge whether an OTE is realistic.
Imagine you sell for an IT firm and you hit your targets for the year. You would want to know, well before year end, what that achievement is worth. Working it out only when the year closes is not practical for you or for the company, because both sides need certainty about potential pay. On-target earnings solve that problem by putting a number on success before the year begins.
What on target earnings means in sales
In practical terms, the answer to "what is on target earnings" is the remuneration package a sales role is designed to pay at full performance. It combines a base salary, which is guaranteed, with a variable component, which depends on results. When a job posting says "$120K OTE", it means a rep who reaches exactly 100% of quota earns $120,000 in total, including both parts.
OTE meaning in sales also carries a promise about fairness: the quota behind it should be one that a solid performer can reach. That is why the number on its own tells you little. Current benchmarks show how OTE, quota and attainment fit together. The Bridge Group's 2026 AE Models, Motions and Metrics study of 158 B2B companies and its 2025 SDR Models and Metrics report of 351 companies found:
$200K
median AE OTE
up from $190K in 2024
4.6x
median quota-to-OTE ratio
for account executives
48%
of AEs at quota
down from 51% in 2024
$80K
median SDR OTE
$55K base and $25K variable
Source: The Bridge Group, 2026 AE and 2025 SDR benchmark reports
Fewer than half of account executives reached quota, which means fewer than half earned their full OTE. Keep that in mind whether you are setting OTE for a team or weighing an offer.
How OTE is calculated: the formulas
Determining OTE takes some research into market pay and your own sales data, but the arithmetic is simple. These five formulas cover everything you need to set an OTE, convert it into a commission rate and check that it is realistic.
| What you need | Formula | Example |
|---|---|---|
| On target earnings | OTE = Base salary + Target variable pay | $60,000 + $40,000 = $100,000 |
| Base salary from OTE and pay mix | Base = OTE × Base share | $100,000 × 60% = $60,000 |
| Target variable pay | Target variable = OTE × Variable share | $100,000 × 40% = $40,000 |
| Commission rate that pays OTE at quota | Rate = Target variable ÷ Quota | $40,000 ÷ $500,000 = 8% |
| Quota-to-OTE ratio | Ratio = Quota ÷ OTE | $500,000 ÷ $100,000 = 5x |
The pay mix is written base to variable, so 60:40 means 60% of OTE is base salary and 40% is variable. The quota-to-OTE ratio is a quick sense check: a ratio far above your market's norm, such as the 4.6x median for AEs above, usually means the quota is hard to reach or the OTE is low for the role. For the different ways variable pay can be structured, see these sales commission structures.
How on target earnings work at different levels of attainment
OTE describes potential earnings, not guaranteed pay. Using the same plan as the formula table, this example shows what the rep actually earns at four levels of performance, with an accelerator of 1.5 times the base rate (12%) on sales above quota.
| Scenario | Sales | Variable pay calculation | Variable pay | Total earnings |
|---|---|---|---|---|
| Falls short (70% of quota) | $350,000 | $350,000 × 8% | $28,000 | $88,000 |
| Hits quota (100%) | $500,000 | $500,000 × 8% | $40,000 | $100,000 (OTE) |
| Exceeds quota (120%) | $600,000 | $40,000 + ($100,000 × 12%) | $52,000 | $112,000 |
| Far exceeds quota (150%) | $750,000 | $40,000 + ($250,000 × 12%) | $70,000 | $130,000 |
The base salary of $60,000 is paid in every scenario. Below quota the rep earns less than OTE, and above quota an uncapped plan with accelerators pays well beyond it. If the plan had a cap at, say, 150% of target variable pay, variable earnings would stop at $60,000 however much the rep sold. For step-by-step calculations with tiers and splits, see how to calculate sales commissions.
On target earnings vs base salary and total compensation
Four pay terms often get mixed up in sales offers. The table separates them, because a rep negotiating an offer and a manager writing a plan both need to know which number is fixed and which depends on results.
| Term | What it includes | Guaranteed? | Example |
|---|---|---|---|
| Base salary | Fixed pay for doing the job | Yes | $60,000 |
| On target earnings (OTE) | Base salary plus variable pay at exactly 100% of quota | No, only the base part | $100,000 |
| Actual earnings | Base salary plus the variable pay really earned | No | $88,000 at 70% of quota, $112,000 at 120% |
| Total compensation | Actual earnings plus benefits, equity, retirement contributions and perks | Partly | $112,000 plus health insurance, 401(k) match and stock |
OTE leaves out benefits and equity, so two offers with the same OTE can be worth very different amounts. This guide to total compensation vs salary explains how to compare the full package.
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Benefits of the on target earnings model
The biggest advantage of OTE is transparency. Reps know what success is worth before the year starts, and leadership can plan with more confidence. The model helps both sides in four ways:
- Attracting and retaining talent: Ambitious, self-motivated sellers look for strong earning potential. A clear, competitive OTE tells them what they can earn and what they need to do to earn it.
- Pay that tracks performance: When more of OTE is variable, a company can offer higher potential pay without fixed-cost strain, because higher earnings come only with higher sales.
- Clarity for reps: A well-defined OTE shows reps exactly which targets drive their income, which keeps effort focused on the results the business needs.
- Simpler financial planning: Finance can forecast sales and commission payouts at different attainment levels, which makes budgeting the cost of sales more accurate.
A strong OTE structure also shapes culture. It draws in competitive, goal-oriented people and rewards the ones who set clear targets and chase them. The trade-off is risk: the more variable the pay, the more a slow quarter hurts, which is why pay mix matters as much as the headline number.
How to set OTE for your sales team in 5 steps
Setting OTE takes five steps, in this order, because each one depends on the last. Step 1 anchors everything to the market, and step 5 is the one most teams skip, so build in time to model the plan before you publish it.
- Benchmark the total pay for the role: Research what competitors pay for the role in your location and industry, using current salary surveys and the experience level you are hiring for. Set OTE close to the market median, then adjust for the difficulty of your sale.
- Choose the pay mix: Decide how much of OTE is base and how much is variable. The more a rep controls the outcome of a deal, the higher the variable share. The table in the next section shows typical splits by role.
- Set the quota: Base quotas on territory potential and past performance, then balance them against your revenue goals and the reps' capacity. There is no fixed formula, but a plan works when most reps can reach quota with solid effort.
- Calculate the commission rate: Divide target variable pay by quota so the plan pays exactly OTE at 100%. Then decide how to reward performance above quota, with accelerators, and whether to cap earnings.
- Model the plan before launch: Run the plan against last year's rep-level results at 50%, 100% and 150% of quota. Check the quota-to-OTE ratio, the share of reps likely to reach OTE and the total cost of sales.
Once these are set, document them in a written plan with crediting, payment timing and clawback rules. The guide to building a sales compensation plan includes a 12-section plan template you can use.
Typical OTE pay mix by sales role
Pay mix should follow how much influence a role has over closing revenue. Account executives come first in the table because most OTE benchmarks are built around them, and the two Bridge Group figures are the only medians; the other splits are common ranges, so treat them as starting points.
| Role | What the role does | Typical pay mix (base:variable) | Variable pay is usually tied to |
|---|---|---|---|
| Account executive (AE) | Owns deals and builds long-term relationships with clients in sectors such as tech, healthcare and financial services | 53:47 median in SaaS (Bridge Group, 2024); 50:50 to 60:40 is common | Closed revenue or bookings |
| Sales development representative (SDR) | Prospects, cold calls and books meetings that start new relationships | 68:32 median (Bridge Group, 2025) | Qualified meetings and pipeline created |
| Field sales representative | Meets clients in person and nurtures relationships outside the office | Often 70:30 for entry-level roles, frequently uncapped | Territory revenue or units sold |
| Account manager | Retains and grows existing customers | Commonly 70:30 or higher base | Renewals, retention and expansion |
| Sales manager | Leads the team, sets goals and coaches reps through the sales cycle | 50:50 to 70:30, depending on industry | Team attainment |
Longer sales cycles and team-sold deals usually call for a higher base, while short, transactional sales can carry more variable pay. For how to set mix and OTE across a whole plan portfolio, see this guide to sales commission and incentive plans.
How to judge whether an OTE is realistic
OTE targets are meant to be realistic and attainable, but the headline figure alone cannot tell you that. If you are a rep weighing an offer, or a manager checking your own plan, check these seven points before you rely on the number.
- Share of reps at OTE: Ask what share of reps reached OTE last year and compare the answer with the 48% of AEs at quota in the Bridge Group's 2026 study. A team where only a small minority hit target is a warning sign.
- Quota-to-OTE ratio: Divide quota by OTE and compare it with peers selling similar deal sizes.
- Caps: Ask whether commission is capped, because a cap limits how far above OTE a top performer can earn.
- Accelerators: Higher rates past 100% show the company wants overperformance and will pay for it.
- Ramp and draws: New reps rarely hit full quota in month one. A ramped quota or a draw against commission protects income while they build pipeline.
- Timing and clawbacks: Ask about payment timing, crediting rules and clawbacks for cancelled deals.
- Plan stability: Ask how often the plan changes, because frequent mid-year changes to quota or rates make OTE hard to rely on.
How to manage OTE effectively
Setting OTE is half the job; managing it well keeps reps motivated and trusting the plan. These four practices matter most, and the first two do the most to prevent disputes.
- Transparency and communication: Explain how OTE is calculated, what targets reps must hit and how performance changes their pay. Share regular progress updates so reps always know where they stand and what they could earn.
- Accurate and timely payouts: Pay commissions and bonuses correctly and on time. Delays and errors demotivate reps and erode trust faster than almost anything else, so automate calculations wherever you can.
- Performance tracking and analytics: Give reps dashboards that show attainment and projected earnings in real time, and use analytics to spot trends, forecast results and adjust the plan with data.
- Regular reviews and feedback: Review OTE at least once a year against market pay and business goals, and give reps a way to flag problems with the plan. Make changes at the start of a period, not in the middle of one.
How Empuls helps you manage on target earnings
OTE only motivates when reps can see it and trust the payout. Empuls includes sales incentive and commission software that turns your OTE, quota and rates into plan rules, calculates every payout from CRM, ERP and HRMS data and shows each rep their progress as deals close.
- Plans that pay OTE at quota: Build commission, target and milestone plans by role, region or department in a no-code builder, with tiers, accelerators and conditional multipliers, and use the estimator and simulation to see payout impact before a plan goes live.
- Real-time earnings for reps: Sales professionals see attainment and earnings on web and mobile, with AI nudges that show how far they are from the next milestone.
- Accurate payouts: Approved incentives flow to payroll through multi-level approvals and an audit trail, with payouts in 50+ currencies.
- Engagement between payouts: Sales gamification with live leaderboards, SPIFs and contests keeps reps pushing toward target.
To estimate what manual commission management costs your team, try the sales incentive ROI calculator. For the wider picture of non-cash rewards around OTE, read the sales incentives guide.
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Frequently asked questions
OTE, or on target earnings, is the total annual pay a salesperson can expect if they meet 100% of their sales quota. It combines a guaranteed base salary with target variable pay, such as commission or bonus. Actual earnings are lower if the rep misses quota and can be higher if they exceed it, especially in uncapped plans.
$120K OTE means a rep who meets quota earns $120,000 in total, including base and commission. For example, a software sales rep with a 60:40 pay mix and a $500,000 quota receives a $72,000 base salary and earns $48,000 in commission at quota, which is a 9.6% commission rate on sales.
No. Only the base salary part of OTE is guaranteed. The variable part depends on hitting targets, so a rep who reaches 70% of quota earns less than OTE. Achievement varies widely: the Bridge Group's 2026 study found only 48% of account executives reached quota, so ask what share of the team hit OTE last year.
OTE is not taxed as a single number; the base salary and the commission are taxed as income when paid. In the US, the IRS treats commissions as supplemental wages, and employers can withhold federal income tax on them at a flat 22% rate, or 37% above $1 million a year. Rules vary by country, so check with a tax professional.
Research market pay for the role, then negotiate the parts that matter most to you. A higher base reduces risk, while a lower quota, accelerators or an uncapped plan raise realistic earnings. Ask what share of reps hit OTE last year, request a ramped quota or draw for your first months and highlight results that prove your value.
Yes. OTE can change with company performance, market pay, territory changes or a new role and responsibilities. Most companies review sales compensation once a year and publish new plans at the start of the fiscal year. Reps should get written notice of any change and a clear explanation of how it affects their earnings.
The most common OTE structures are base salary plus commission, base salary plus bonus, and base salary plus commission plus bonuses such as SPIFFs. Commission-only roles can also quote an OTE, which then equals the commission expected at quota. Each type can be capped or uncapped, and many add accelerators above quota.
In a capped plan, variable pay stops at a set limit, such as 150% of target commission, however much the rep sells. In an uncapped plan, earnings keep rising with sales, often at higher accelerator rates above quota. Uncapped plans motivate top performers more, while caps protect the company from windfall deals it did not plan for.
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