On-Target Earnings (OTE) is the cornerstone of every sales compensation plan. It defines the total cash compensation a sales professional can expect when they achieve 100% of their quota. Getting OTE right means balancing competitiveness in the talent market with cost discipline for the business, while creating a pay structure that motivates the right behaviors and rewards the outcomes that matter.
This guide breaks down the key components of OTE structuring, from determining the right total number to splitting it between base and variable, calibrating across roles and geographies, and avoiding the structural mistakes that lead to overspending or talent loss.
Understanding OTE Components
OTE consists of two parts: base salary and target variable compensation. The relationship between these two elements, known as the pay mix, is one of the most important design decisions in sales compensation.
Base Salary
The guaranteed portion of compensation, paid regardless of performance. Base salary provides financial stability and signals the company’s investment in the rep as a professional. It covers living expenses, demonstrates employer commitment, and reduces the anxiety that can lead to desperate selling behavior.
Target Variable (At-Plan Commission)
The commission or bonus earned at exactly 100% quota attainment. Target variable is the incentive component that drives performance. It should be large enough to meaningfully influence behavior but not so large that reps feel financially insecure in a soft quarter.
The OTE Formula
OTE = Base Salary + Target Variable Compensation
A rep with a $100K base and $100K target variable has a $200K OTE with a 50/50 pay mix.
Determining the Right OTE Level
Market Positioning Strategy
Decide where you want your OTE to sit relative to the market. This is a strategic choice, not a mathematical one.
At market (50th percentile): Appropriate for established companies with strong brand recognition, excellent training programs, or other non-cash differentiators. You compete on the total package, not just pay.
Above market (60th-75th percentile): Necessary when competing aggressively for talent, entering new markets, or when the role requires specialized expertise. Common for companies in hyper-growth mode.
Below market (25th-50th percentile): Acceptable only when compensated by significant equity upside (early-stage startups), exceptional career development, or a uniquely attractive brand. Be honest about this trade-off with candidates.
Role-Level Calibration
OTE should vary by role based on the complexity of the sale, the deal size, the length of the sales cycle, and the level of business acumen required.
Typical OTE ranges for B2B SaaS (US market):
| Role | Typical OTE Range |
|---|---|
| Sales Development Rep (SDR) | $70K - $95K |
| SMB Account Executive | $100K - $150K |
| Mid-Market Account Executive | $150K - $220K |
| Enterprise Account Executive | $220K - $350K |
| Strategic / Named Account AE | $300K - $500K+ |
| Sales Manager (Frontline) | $200K - $300K |
| Sales Director / RVP | $280K - $450K |
These ranges are illustrative and vary significantly by geography, industry, and company stage. Always calibrate against current market data for your specific context.
Structuring the Pay Mix
The pay mix determines how much of OTE is guaranteed versus performance-dependent. This ratio sends a powerful signal about the role and the company’s expectations.
Higher Variable (40/60 or 30/70 Split)
A larger variable component is appropriate when the rep has significant control over outcomes, the sales cycle is short, and individual performance variance is high. This structure attracts aggressive, self-motivated sellers who are confident in their ability to earn.
Best for: Transactional sales, high-velocity inside sales, commission-only independent contractor models.
Balanced (50/50 Split)
The most common structure in B2B SaaS. It balances incentive with stability, making it suitable for roles with moderate sales cycles and predictable pipeline.
Best for: Mid-market Account Executives, quota-carrying customer success managers, overlay specialists.
Higher Base (60/40 or 70/30 Split)
A larger base is appropriate for roles where outcomes are influenced by factors outside the rep’s direct control, such as long enterprise sales cycles, team-based selling motions, or complex solution sales.
Best for: Enterprise and strategic AEs, sales engineers compensated on deals, global account managers.
SDR and BDR Pay Mix
Top-of-funnel roles typically carry a 60/40 or 70/30 split (base-heavy) because the output they are measured on (pipeline generated, meetings set) is further removed from revenue and more heavily influenced by market conditions and lead quality.
Geographic Adjustments
OTE should reflect the cost of labor in each geography, not the cost of living. These are related but distinct concepts.
Developing a Geographic Pay Framework
Build pay zones based on labor market data rather than ad hoc adjustments. A common approach uses three to five tiers.
Tier 1 (100% of benchmark): Major tech hubs such as San Francisco, New York, Seattle, and Boston.
Tier 2 (90-95%): Secondary metro areas with strong tech presence such as Austin, Denver, Chicago, and Washington DC.
Tier 3 (80-90%): Mid-size cities and emerging tech markets such as Nashville, Raleigh, Salt Lake City, and Phoenix.
Tier 4 (70-85%): Smaller markets and rural areas.
Apply geographic adjustments to the base salary component. Many organizations keep the target variable component constant across geographies, reasoning that the same quota and selling effort should yield the same variable pay regardless of location.
Common OTE Structuring Mistakes
Mistake 1: Setting OTE Without Quota Context
A $250K OTE sounds competitive until you learn the quota is $3M, which implies a 12x quota-to-OTE ratio. Always evaluate OTE in conjunction with the quota it is paired with. The quota-to-OTE ratio should typically fall between 4x and 6x for SaaS AEs.
Mistake 2: Identical OTE for Different Roles
An enterprise AE with a 9-month sales cycle and a mid-market AE with a 45-day cycle have fundamentally different risk profiles and skill requirements. Their OTE should reflect these differences, even if they carry similar revenue targets.
Mistake 3: Ignoring Internal Equity
When new hires receive higher OTE than tenured reps in the same role due to market inflation, morale erodes quickly. Conduct internal equity reviews annually and adjust tenured rep compensation to eliminate unjustified gaps.
Mistake 4: Conflating OTE with Actual Earnings
OTE is a plan-level target, not a guarantee. Communicate clearly that OTE represents earnings at 100% attainment. Provide historical attainment data so candidates can form realistic expectations. Misrepresenting earning potential during recruiting damages trust and increases early attrition.
Mistake 5: Overlooking Total Compensation
OTE is only the cash component. For technology companies, equity (RSUs, options, or profit interests) can represent a significant portion of total compensation. When benchmarking and communicating pay, include the equity component to present a complete picture.
OTE Review and Adjustment Process
Annual Market Review
Refresh your market data annually and compare each role’s OTE to current benchmarks. Identify roles that have drifted below market and propose adjustments as part of the annual planning cycle.
Promotion and Progression Framework
Define clear criteria for moving from one OTE level to the next. For example, an SDR who consistently exceeds quota for three consecutive quarters and demonstrates qualifying skills may be promoted to an AE role with a corresponding OTE increase. Document these paths so reps understand how their compensation grows with their career.
Mid-Year Adjustments
Reserve mid-year OTE changes for exceptional circumstances: significant market shifts, competitive losses of key talent, or material changes in role scope. Frequent mid-year adjustments undermine plan stability and create an expectation of negotiation.
OTE structuring is both a science and a strategic decision. The analytical foundation, market data, ratio analysis, and financial modeling, provides the framework. But the final decisions about where to position your company, how aggressively to weight variable pay, and how to differentiate across roles require judgment informed by your growth stage, competitive dynamics, and talent philosophy. Build a structured process, revisit it annually, and treat OTE as one component of a comprehensive value proposition that includes career growth, culture, and equity alongside cash compensation.