On Target Earnings (OTE) is a compensation model used in sales roles, combining a fixed base salary with variable income based on performance. It serves as a motivational benchmark for sales representatives, aligning various departments around financial objectives and setting realistic expectations for both employers and employees.
To calculate OTE, add the base salary to the potential maximum commission that an employee can earn upon achieving their sales targets. OTE can be structured as either capped, where there is a limit on the commission earnings, or uncapped, which allows for limitless earnings based on performance.
Various factors can influence the calculation and effectiveness of OTE:
On Target Earnings (OTE) and base salary are two distinct components of a salesperson's compensation. While base salary is a fixed income guaranteed regardless of performance, OTE represents the total expected pay, combining base salary with variable income such as commissions earned by meeting performance quotas. OTE serves as a motivational tool, incentivizing high performance and aligning departments around financial objectives.
OTE models can have both pros and cons. On the positive side, they provide a benchmark for sales managers, serve as an effective recruiting tool, and help align departments around revenue and expenses. However, potential downsides include the possibility of inflated OTE numbers leading to unrealistic expectations and the need for employers to commit to the OTE figures presented to candidates.
For sales professionals aiming to exceed their OTE, the following strategies are crucial:
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