Try Prowi's free OTE calculator and check if your salespeople follow industry standards. Check out your OTE, on-target-earnings ratio below.
OTE stands for On Target Earnings and represents the total compensation a salesperson can expect to earn when they hit their sales targets. OTE typically consists of a base salary combined with variable commission or bonus.
A well-designed OTE makes it easier to attract the right employees, motivate the sales team, and ensure your budgets align with performance expectations.
With Prowi's OTE calculator, you can figure out in seconds how base salary and variable commission combine to create a realistic OTE.
Instead of manual Excel spreadsheets, you get a simple tool where you enter:
The result is a clear picture of what compensation looks like when targets are met – and how incentives are structured.
A well-designed OTE setup enables three things:
Prowi is more than a calculator. Our platform automates the entire process from sales to payroll:
This way, you can use the OTE calculator as a first step and then connect it to a fully automated commission solution.
Our OTE tool is available directly on the page. Enter your numbers and see how your compensation model looks in practice.
After testing the calculator, you can book a demo of Prowi to see how OTE, commission, and bonus become an integrated part of your daily operations.
Calculating OTE requires a structured approach. Here we review the key elements you need to master to make an accurate OTE calculation.
Start by defining the fixed base salary. This is the amount the employee is guaranteed regardless of performance. The base salary should reflect the market value for the role, the employee's experience, and the company's compensation policy.
Variable pay is the portion of compensation tied to performance. This can be commission based on sales, bonus for hitting specific KPIs, or a combination of both.
The ratio between fixed and variable pay is often called "pay mix" and varies significantly depending on role and industry. Typical distributions include:
With all elements in place, you can now calculate OTE. Let's look at a concrete example:
An Account Executive has the following compensation structure:
OTE = $75,000 + $50,000 = $125,000
It's important to note that OTE represents earnings at exactly 100% target achievement. Many companies offer accelerators that increase commission for over-performance, meaning actual earnings can exceed OTE.
A well-designed OTE structure contains several key elements that together create a motivating and fair compensation model.
The quota is the sales target the employee must reach to earn full variable pay. A good quota is ambitious but achievable – ideally, 60-70% of the sales team should be able to hit their quota. If fewer reach the target, the quota is probably too high. If almost everyone hits it, it may be too low.
The commission rate defines how much the employee earns per dollar in sales. This can be a flat percentage or a graduated scale that increases the rate at higher performance levels.
Accelerators increase the commission rate when the employee exceeds quota – for example, the rate might rise from 10% to 15% for sales above 100% of target. Decelerators reduce the rate below a certain performance level and protect the company from paying high commissions on low performance.
Some companies set a ceiling (cap) on the maximum commission an employee can earn. Others have a floor that guarantees a minimum payout. Both elements have advantages and disadvantages that should be carefully considered.
To illustrate how an OTE calculator works in practice, we'll review three different scenarios with varying performance levels.
Employee: Sales Development Representative
Employee: Account Executive
Employee: Senior Account Executive
As scenario 3 shows, accelerators can significantly increase earnings for top performers.
When companies design OTE structures, there are several pitfalls to avoid.
If quotas are consistently unachievable, OTE becomes meaningless as a motivational factor. Employees lose trust in the compensation system, and the company risks high turnover.
Complex commission structures with many variables and exceptions create confusion and frustration. Keep the OTE calculator as simple as possible so employees can easily understand and calculate their own earnings.
The OTE structure should drive the behavior the company wants. If commission is based solely on revenue, it can lead to discounting and low profitability. Consider including multiple KPIs such as customer retention, margin, or customer satisfaction.
OTE that falls significantly below market level makes it difficult to attract and retain talent. Regular benchmarking against competitors and the industry in general is essential.
OTE structures vary significantly depending on role, responsibility, and industry. Here are indicative examples for different sales roles.
SDRs focus on lead generation and qualification. Since they don't close deals directly, their variable component is typically smaller.
AEs are responsible for closing deals and therefore have a larger variable component.
Enterprise sellers work with large, complex deals and typically have the highest OTE.
CSMs focus on retention and upselling to existing customers.
Proper communication of OTE is crucial for both recruiting and employee satisfaction.
Be transparent about the OTE structure in job postings. State both the OTE amount and the split between fixed and variable pay. Avoid overstating earning potential – this only leads to disappointment and early departure.
Review the OTE structure in detail with candidates. Explain quota setting, the commission model, and any accelerators. Be honest about how many on the team typically hit their targets.
Document all elements of the OTE structure in the employment contract. Include base salary, variable component, calculation method, payout frequency, and any conditions.
Keep employees informed about their performance relative to quota. Regular updates – ideally in real-time via a commission system – ensure there are no surprises at payday.
A dedicated OTE calculator makes it easy for both management and employees to understand and plan compensation.
Smaller companies often start with spreadsheets for OTE calculation. This works with few employees but quickly becomes unwieldy and error-prone as you grow.
Modern commission software automates OTE calculation and gives employees real-time insight into their earnings. The system typically integrates with CRM and ERP to pull sales data automatically and ensure accurate calculations.
Prowi is an example of commission software that makes it easy to set up and manage OTE structures. With automatic calculation, real-time dashboards, and full integration with popular business systems, both management and employees get full visibility into compensation.
The compensation landscape is constantly evolving, and OTE structures are adapting to new business methods and employee expectations.
More companies are experimenting with hybrid OTE models that combine individual and team performance. This promotes collaboration while rewarding individual effort.
OTE is increasingly supplemented with non-financial benefits such as flexible working hours, training, and career development. Younger generations in particular value work-life balance highly.
Advanced analytics make it possible to set more accurate and fair quotas based on market potential, territory, and historical performance. This increases the likelihood that employees perceive their targets as achievable and fair.
Modern commission systems give employees instant insight into their earnings. This transparency increases motivation and reduces disputes about commission calculation.
OTE is much more than a number in a job posting – it's a strategic tool for attracting, motivating, and retaining talent. A well-designed OTE structure with a clear OTE calculator creates alignment between company goals and employee incentives.
To succeed with OTE, you should:
With the right approach, OTE becomes a powerful driver for growth and employee engagement. Start by mapping your current compensation structure, identify areas for improvement, and implement an OTE calculator that gives all parties visibility and motivation.
Contact Prowi to learn more about how modern commission software can help your company design, calculate, and manage effective OTE structures.