On-target earnings (OTE) are compensations employees expect to receive from their companies once they meet a specific quota and match the required performance. These are sums that consist of a base salary and sales commissions.
In this article, we’ll unveil the benefits of on-target earnings and uncover how to estimate them.
Benefits of On-Target Earnings
Sales representatives receive their salaries using two options: a basic salary covering sales and on-target earnings, which means you get sales commissions to your primary salary.
Employees always expect a high salary from companies. However, different businesses have requirements, which are usually strict. They require new hires to match their performance, demonstrate professionalism, and meet their projected business goals. Every company needs an on-target strategy to shape a team of professional sales reps and encourage them to bring excellent results. Companies should consider implementing an on-target earnings model since it sets revenue expectations and encourages employees to work better to get good salaries. As a result, an employer reaches its company objectives while an employee gets a high salary.
Sales managers use OTE as a reference point which indicates whether sales reps should bring more effort. It can be the speed of work, the number of sales, or the number of prospects reached.
OTE is widely used as a recruiting tool. Recruiters strive to get the best talents by showing on-target earnings numbers. Moreover, it can help determine whether a candidate can reach such results and is ready to work towards attaining these goals.
On-target earnings enable company departments to align their efforts toward achieving company goals. They can focus on profits and expenses. If employees manage to do it, they receive good commissions.
Now that you know the advantages of OTE, let’s find out how to estimate on-target earnings for your business.
How to calculate on-target earnings?
Since on-target earning for the sales team consists of a base salary and commission from the sold items, the OTE formula is calculated based on these two indicators. For the executive team, you need to figure out the base salary and bonuses these employees get after reaching specific brand objectives. We’ll uncover the calculations below to set OTE for your sales or executive team.
- Identify the base salary. To determine the right salary for your employees, you need to look through the average annual base salary for this position. It will help you choose the appropriate sum of money. When setting the salary, keep in mind that you should provide a salary enough for living. Sometimes sales reps can’t meet expectations despite all their effort.
- Calculate the sales quota you want your sales reps to reach. The next step is determining the sales quota you want for your company. Make sure that it’s attainable for your sales representatives. Your quota should be approximately 6-8 times higher than your on-target earnings. It can be based on the previous experience of your reps, but you still need to challenge them to grow and bring profit to your business.
- Set your brand’s projected objectives. If you need to estimate OTE for your executive team, take care of the bonus system. It depends on the projected business goals. You need to determine them first. For example, you can create a task to redesign a landing page or train new hires. After setting the goals, you need to think of the difficulty level of these tasks and determine the time frame. Once you finish with these points, you’ll be able to identify the right figure for the bonus.
- Add up your base salary and commission. The last step implies adding up a base salary and sales commission to calculate OTE for the sales team. If you want to estimate on-target earnings for the executive team, you should add base salary and bonus amount. Say a sales representative in the New Company receives $28,000 as an annual base salary. This person has a sales commission of 1.2% with a target of $100,000 per month. If the sales rep succeeds in hitting the target, this person will receive an additional $1,200 per month. After calculating, we can figure out that sales reps at New Company get $14,400 of commission annually. To estimate the OTE, we should add the base salary and commission per year. OTE = $28,000 + $14,400 = $42400.
Congrats, now you know what on-target earnings are and why they are essential. Hope that our guide will allow you to calculate these figures for your company.
Last Updated: 22.03.2023
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