Guide to understanding on-target earnings (OTE)
As a jobseeker, you must understand the particulars of compensation plans and packages. One such important term that you might come across is OTE. OTE stands for on-target earnings, it is a salary model many companies follow to motivate their team to perform better.
On-target earnings are prevalent in sales, marketing, and technology sectors. It is your expected total pay, which includes your base salary and variable income. Knowing how companies apply on-target earnings can help you maximise your salary potential and set realistic income expectations.
This article explains what on-target earnings include, explores the different types of OTE, discusses why OTE is important in your job search process, provides you with examples, and teaches you how to calculate your OTE. Here's what the article will cover:
- What is on-target earnings?
- Benefits of OTE
- How do you calculate OTE?
- OTE is not guaranteed
- Tips for achieving your OTE
- On-target earnings examples
- Conclusion
- FAQs
What is on-target earnings?
OTE, short for On-Target Earnings, signifies the maximum salary attainable when your pay mix comprises a base salary combined with bonuses and on-target commissions. It reflects your total compensation when you stay on target or exceed your performance goals.
As you know, the base salary remains constant regardless of performance. However, the variable component in on-target earnings helps keep employees motivated to achieve and exceed their daily or monthly targets.
Types of OTE salary
Here are the different types of OTE salary you can earn:
- Capped: Having capped OTE limits the total earnings you can receive, even if you exceed the company's targets.
- Uncapped: When a company offers uncapped OTE, there's no ceiling to the total amount you can receive. You stand to earn more if you perform well and exceed targets.
- OTE commissions: Companies typically determine OTE commissions on how you perform, such as achieving or surpassing sales quotas.
Roles that usually include OTE salary
Here are some typical roles that can earn OTE:
- Sales: OTE and sales compensation are widely discussed concepts within sales organizations. It is particularly popular among sales roles such as sales leaders, the sales manager, field sales rep, sales development representative, and other members of the sales team who frequently receive commissions based on sales targets.
- Technology: Roles such as solution architect or pre-sales in the technology sector can have OTE as part of their salary structure. You may receive this based on your business development efforts.
- Marketing: High-level marketing positions, especially in the technology sector, like vice president, president, or C-suite, can have significant OTE components. You may receive this variable component based on your contribution towards business growth and market reach.
Payment
OTE payments may vary from company to company. Many firms pay a yearly commission, but others may use monthly cycles. You can inquire about your prospective workplace's OTE targets and salary schedule to manage your financial expectations effectively.
Benefits of OTE
An established and efficient OTE compensation plan benefits employees in the following ways:
- Rewards employees for hitting quotas: OTE commission can motivate you to strive for and exceed your performance targets. OTE payments reward you for your hard work and dedication.
- Increases employee engagement and motivation: Knowing that a company appreciates your efforts makes you more motivated and eager to participate in the sales process and focus on achieving goals. An effective compensation package aligns your success with company growth, creating a mutually beneficial relationship.
- Allows jobseekers to make informed career decisions: As a jobseeker you may look for OTE potential when applying for jobs. Understanding these figures helps you compare roles and evaluate each job offer you receive.
Employers benefit from an efficient OTE compensation structure in the following ways:
Attracts and retains the best employees: Companies offering competitive OTE packages attract more potential employees and retain the best staff. High-performing employees typically prefer companies that impact their financial success.
Allows for easier sales commission forecasting: When companies use an OTE system, their leadership and accounting teams can accurately forecast sales commissions. OTE salary systems also help companies manage long-term planning and sustainability budgeting.
How do you calculate OTE?
Here's the formula for calculating OTE:
OTE = employee's base salary + variable components (commissions at 100% quota)
- Base salary: Your base salary is the fixed amount you regularly receive, monthly or annually. This doesn't vary whether you meet or exceed your targets.
- Variable components: These include commissions, bonuses, and other performance-based incentives. You earn these salary additions when you achieve specific targets or exceed the predefined monthly quota or annual sales quota for your role.
Suppose your monthly base salary is S$3,000, and you earn an additional S$500 in commissions and bonuses. Then, your monthly On-Target Earnings (OTE) would be S$3,500. The resulting equation would be:
S$3,500 (OTE) = S$3,000 (base salary) + S$500 (commissions at 100% quota).
OTE is not guaranteed
OTE is the potential for extra earnings on your fixed base salary. You only receive it when you meet or exceed the employer's performance targets, so OTE is not guaranteed. You'll still receive your base salary if you fail to meet your sales quota. This pay structure adds some control to your pay, motivating you to achieve your targets.
Tips for achieving your OTE
Assess the efforts required to reach your OTE and establish these as your goals. When transitioning to an OTE pay structure for the first time, you may need help in achieving these set goals and targets. So, here are some tips:
Set micro goals
Don't let the goals overwhelm you. Break them down into smaller, achievable milestones. Changing your perspective makes your overall objective more manageable. Achievable targets help you monitor your progress and keep you motivated. If you feel your goals are challenging, you can make the necessary changes.
Organise tasks
Efficiently organise your tasks and prioritise activities that directly contribute to meeting quotas. Don't create a backlog of daily tasks, as this will distract you from achieving your goals. Create a to-do list at the start of each day to track your activities. Check that you've ticked everything off your list before you finish work for the day.
Understand your quota
Clearly understand your targets. There are different types of quotas. The traditional sales quota requires you to sell a preset amount of a product or service monthly, quarterly, or annually. If you're in a tech role, this might translate to how many units or products you can sell within a specific period.
The activity quota requires you to perform an activity, such as reaching a set number of calls or contacts daily, giving demos, or sending follow-up emails. The team-based quota motivates all team members to achieve a set sales amount to receive an incentive.
Ask for referrals
Many sales reps forget about an account once they hand the client over to the account manager. They then move on to the next account. It is worth having frequent check-ins with the clients to track project progress. This also helps get realistic feedback while engaging them on an ongoing basis. If you receive poor feedback, try to find a remedy. If the client offers a positive response, ask them to recommend your business to their friends, as a satisfied client can provide endless referrals.
Keep track of your goals
Keeping track of your progress helps you to stay focused on your objectives. You can create a handwritten or virtual list and then cross off a goal when you achieve it. This allows you to determine if you're on track to getting your OTE and what else you need to do to get there.
Improve your productivity
Give yourself a higher chance of meeting your quota by improving your productivity at work. Try these tips:
Avoid multitasking
Although many people multitask skillfully, focusing on one task or activity makes you more productive. Transitioning between many tasks uses more of your time. Multitasking may result in finishing some tasks haphazardly or compromising the quality of work. For instance, when you need to make calls and send follow-up emails, complete the jobs one at a time.
Take regular breaks
Most workplaces have a regular break schedule. In these workplaces, employees can take short breaks between every few hours of work in addition to their lunch breaks. Some people skip these breaks, thinking they can finish more work and close more sales. Missing breaks can affect your overall productivity, resulting in burnout or fatigue. Short breaks allow you to clear your mind, recharge, and prepare.
Build a better to-do list
Being productive doesn't mean you should schedule more tasks in a day than anybody else. Prioritise your tasks from the most important to tasks that have a lower priority. Choose a few tasks daily that you want to progress and start from there.
Minimise distractions
There are two kinds of workplace-related distractions – self-imposed and environmentally imposed. Self-imposed distractions are those you can control, such as notifications you receive that you can turn off. You have no control over environmentally imposed distractions, such as a colleague dropping by your workstation. Set up an autoresponder if you can't turn off email notifications and switch to a "do not disturb" mode on your phone and instant message platform.
Refine your workstation
Organise your workspace by arranging paperwork and decluttering your desk. Keep things that you often need where you can reach them. Place items you rarely use in your drawer. Keep your workstation clean and clutter-free.
On-target earning examples
Here are a few examples to help you better understand the concept of OTE:
Inside sales representative
Inside sales representatives identify new opportunities by following up on existing leads, making outbound calls, or creating email campaigns. An inside sales representative generally has fixed sales targets that should be met or exceeded to get OTEs. Their base salaries (pre-tax) range between S$27,000 to S$124,000 per year. Their commissions can be up to S$217,000.
Account manager
Account managers are primarily responsible for maintaining strong relationships with clients and cross-selling or up-selling products to improve sales. Their base salaries (pre-tax) range between S$11,000 and S$104,000. Their commissions often depend on their ability to sell new products to existing clients. They may earn up to S$79,000 in the form of commissions.
Sales manager
A sales manager is in charge of hiring and training sales reps. They usually work on guiding the team to meet a company's sales goals. Their targets may vary depending on team sales budgets or team sales achievements. Their base salaries (pre-tax) range between S$24,000 and S$104,000 per year. Their commissions can be up to S$238,000 per year.
Conclusion
Understanding OTE is vital for professionals in performance-driven roles. While OTE has an element of unpredictability, it presents significant opportunities for increased income through excellent performance. Setting achievable goals, staying organised, and improving work productivity can maximise your chances of achieving your OTE salary. Learn what OTE and commission systems companies use so that you can make informed choices and thrive in your chosen career.
FAQs
Here are some FAQs related to OTEs:
- Is OTE on top of salary?
Your OTE commission rate is not part of your base salary. You receive OTE payments if you meet your sales quota or achieve a set level of performance. When applying for jobs, ask your interviewer about the company's OTE commission model to make sure that the key performance indicators (KPIs) are realistic and achievable.
- Is OTE guaranteed?
OTE isn't a guaranteed payment. To earn it, you need to meet performance targets. When applying for a position with OTE, inquire about employees' average performance quotas to determine if you can meet the company's KPIs.
- Is OTE the same as commission?
The calculation for OTE is your base salary plus the total commission you earn by meeting targets. You earn a commission if the company uses an OTE model.
- Are on-target earnings realistic?
Yes, but choose companies with a workable OTE model – one where targets and quotas are achievable. Go through the job description carefully to decide if you want to apply. You may also talk to current and past employees to understand if the numbers are realistic.
- What does S$200k OTE mean?
S$200k OTE is the total pay you might expect to earn per year if you meet targets and KPIs. This figure is a pay mix of your base salary and your commissions from hitting your targets.
- What's the difference between OTE and a bonus?
OTE includes your base pay and the commissions you make by meeting targets. You receive bonuses at the company's discretion. For example, you might receive a bonus for loyalty or if the business is growing. Bonuses may not be directly related to your performance.
- How can I negotiate my OTE?
Before the hiring process, review the job descriptions of different companies for the role you're applying for to help you understand the OTE range. During your interview, you can talk about your accomplishments by quantifying them. This is to emphasise the impact of your work in previous workplaces. You can then negotiate your annual salary and OTE based on your financial needs.
