OTE is short for On-Target Earnings, the amount of money you can make if you hit 100% of your quota.
What is the difference between gross salary and OTE?
OTE applies only for roles that have a performance-based incentive component attached to their salary like Sales Executives, BDRs, CSMs, etc.,
For non-performance-based roles, you have a gross salary.
There are three ways this can play out:
- If quota attainment = 100% then Gross salary = OTE
- If quota attainment < 100% then Gross salary < OTE
- If quota attainment > 100% then Gross salary > OTE
Example of OTE:
So, you get a new job offer as a Sales Executive with an OTE of $200,000. The compensation mix between fixed and variable is 60:40%.
We have outlined below what your gross salary might be with the above conditions.
- You get paid $120k in gross salary regardless of your performance. This part is your fixed pay before taxes.
- You get paid the remaining $80k only if you attain your targets. You usually get paid lower or higher than $80k based on your performance.
OTE is not guaranteed. It only indicates the potential of what you could make. Whenever you get a new offer, figure out the compensation mix, and your guaranteed pay is only the fixed part of the OTE. Also, you should check the average sales attainment to be sure you have the chance of hitting your OTE. OTE is useless if the average rep only does 50% of their quota.
The pay mix is usually decided based on your role, experience, and the risks the company associates with you being able to do your targets.
When it comes to SaaS companies, we have put together this quick read on what you can expect the pay mix to be around.
OTE during your ramp time:
The first few months of a sales role is usually called the ramping period, during which the reps learn about the company, the business, the product and the processes. Only after these few months will they fully carry their targets and go after the territory assigned to them.
This period ranges from 3 to 9 months, depending on the industry, role level, and expectations.
Since your ability to do your targets during the ramp period is uncertain, there are two ways your firm provides you with relief:
- A draws plan that lets you make money even though you may not be achieving your numbers. You can read more about draws and the various situations they are used here in our detailed blog.
- A reduced quota compared to your fully ramped quota ensures that you hit smaller milestones consistently before you start carrying the big numbers. With a lesser quota, you should also be able to meet your OTE.
OTE doesn't usually include the overtime but covers everything else the employee is entitled to by the company.