In sales, compensation plans often hinge on a number called OTE, or “on-target earnings.” OTE represents the total amount that a rep can expect to earn if they hit 100% of their quota, combining their base salary with annual commissions or bonuses.

OTE helps set clear expectations for performance and pay. For sales reps, it’s a benchmark. For employers, it’s a tool for motivating teams and projecting costs.

However, OTE is always an indicator of potential earnings, rather than guaranteed income. When these deals are poorly structured, or when compensation plans are unclear, reps may have a hard time meeting their goals or maxing out their plan.

In this article, we’ll break down how OTE works in sales, why companies use it, how to calculate it, and how to make it work better for your team.

What is OTE in sales?

OTE stands for on-target earnings and represents the total compensation a salesperson can expect to earn if they meet 100% of their quota. These compensation plans combine base salary with variable pay (commissions, bonuses, etc.) and tie a significant portion of earnings to overall performance.

For example, if a rep has an annual base salary of $70,000 and is eligible to earn $30,000 in commissions when they hit their quota, their OTE would be $100,000.

OTE is a widely used benchmark in sales hiring and compensation planning. These numbers and their breakdowns can help candidates evaluate a role’s earnings potential while giving employers a framework to align compensation with performance expectations.

However, it’s always important to remember that OTE represents potential earnings, not guaranteed income. If a rep underperforms or if quota expectations are unrealistic, sales representatives may earn far less than the advertised OTE.

Why OTE matters

Understanding OTE is essential for both sales reps and employers.

• For sales reps, OTE offers a clear picture of potential earnings in a potential role and what performance is required to achieve maximum earnings. Because this compensation structure is tied to quota attainment, both the final payout and the metrics required to reach it are important factors that reps must consider.
• For employers, OTE helps to align compensation with business objectives. Brands can use it to set clear expectations, drive performance, and maintain consistency across roles and teams. Well-designed OTE plans can motivate reps to perform while helping leadership forecast compensation expenses with greater accuracy.

A well-documented and transparent OTE structure sets the expectations, rules, and guardrails for everyone involved, which is why it’s a popular model in performance-based roles.

At the same time, it’s very easy for companies to set strong incentives with unrealistic goals. When sales targets are unattainable, it effectively puts maximum earnings potential out of reach for many reps. Long term, this will lead to friction, burnout, and turnover as reps leave for more competitive roles.

How OTE works

On-target earnings are usually split into two components: the employee’s base salary and variable compensation.

The exact split depends on the role and the industry, but common pay mixes include 50/50, 60/40, or 70/30, with the first number representing the base salary and the second representing performance-based earnings.

OTE compensation is usually mentioned in a job description, and it’s discussed openly with hiring managers as part of the hiring process. In the event of a job offer, the entire compensation plan should be available for review before new hires sign their offer letter.

Quota and performance targets

The variable portion of the OTE model is directly tied to performance. Reps must meet predefined sales quotas in order to max out their earnings for the year (a “fully ramped OTE”).

However, sales compensation plans can vary greatly. Some are based on overall revenue, while others may focus on various KPIs and metrics like the number of deals closed or total pipeline generated. The more of the sales quota the rep achieves, the closer they get to reaching their full, on-track earnings.

While performance may only matter in the context of yearly performance, keep in mind that benchmarks may be further divided into quarterly or monthly quotas. In this scenario, a specific commission percentage is assigned to a pre-set period, and any potential earnings for that period must be captured within that timeframe. Such approaches can be used to limit potential earnings, as well as to reward consistent performance over a longer interval.

In most cases, sales representatives will need to evaluate OTE plans on a case-by-case basis. Plans, commission structures, and compensation schedules can vary widely between organizations, teams, and roles. It’s common for brands to offer a different OTE calculation for various roles (sales, customer success, business development, etc.) with different performance targets based on position.

To meet these quotas, reps need to be efficient with their time and how they manage deals. Platforms like PandaDoc for document management or CRMs like Salesforce and HubSpot can help to streamline proposal generation, track user engagement, and expedite sales cycles, making it easier for reps to hit their numbers.

Examples of compensation models

Not all OTE-structured deals are the same. Although many sales teams offer a simple commission model, some layer in more sophisticated structures to incentivize specific behaviors, reward top performers, or manage risk.

Here are a few common approaches and stipulations seen in OTE plans:

• Flat commission plans allow reps to earn a fixed percentage of each sale, such as a 10% commission on every deal. While it’s an approach that is easy to understand and implement, the straightforward nature of these plans may not drive higher performance.
• Tiered commission rates encourage reps to sell more by raising their commission as revenue is earned. For example, a rep might earn a 5% commission on the first $100,000 in revenue, 7% on the next $100,000, and 10% on everything after that. This can be implemented for each deal or tied to overall yearly earnings.
• Accelerators boost commission rates once reps surpass their quota. A rep earning an 8% commission might earn 12% on revenue once they exceed 100% of their quota. Accelerators are common in companies looking to reward high-performing employees.
• Decelerators reduce commission rates if reps fall short of certain benchmarks. Often, these incentives are used during ramp periods or when the quality of deals is a concern.
• Clawbacks happen when deals fall through or deals are contingent upon post-sale benchmarks. For example, if a commission is contingent upon a customer using a SaaS service for 90 days, a company might award the commission when the deal closes but claw it back if the customer churns before the 90-day period is up.
• Draws against a commission happen when reps receive a set amount of upfront income (the “draw”) that is later subtracted from earned commissions. This can help with income stability, especially for newer reps who may see lower base pay and commissions at the entry level

Regardless of how the deal is structured, having accurate documentation is key.

Brands using PandaDoc can build customizable, role-specific compensation plan templates that scale with the team. When plans and incentive structures change, updates can be rolled out quickly and consistently across the organization, with full visibility into who has seen and signed each version.

How to calculate OTE

Calculating on-target earnings is a relatively straightforward procedure. The basic formula is as follows:

OTE = Base Salary + On-Target Commission (OTC)

For example, if a rep has a base salary of $70,000 and earns a 10% commission on a $500,000 annual quota, their on-target commissions would be $50,000.

Breaking that down using the formula above, their OTE would be as follows:

$70,000 (base) + $50,000 (OTC) = $120,000 OTE.

This formula assumes that the rep hits $100,000 of their quota. If they fall short, their variable pay and overall earnings will be lower.

Other factors to consider
While the math for the example above is simple, the reality of hitting OTE is far more complex and depends on a variety of factors that reps may or may not be able to control.

Some companies inflate OTE or bill their commission structure as “unlimited income potential” in order to attract candidates. Unfortunately, if quotas are unrealistic, reps can fall well short of expectations and burn out quickly trying to hit their goals. Understanding how attainable OTE will require looking at past performance benchmarks, win rates, and average deal sizes—all of which aren’t usually available to candidates before they sign a job offer.

The structure of the commission plan also matters. Flat-rate commissions are simple, but more complex models with extra incentives or penalties (like clawback clauses) require careful tracking and clear documentation in order to avoid confusion. Compensation plans also need to factor for ramp time, especially for new hires who may need several months to reach full productivity.

Brands aiming to keep a level playing field between new hires and veterans might consider creating a sales playbook or leveraging platforms like PandaDoc to streamline document workflows and approval processes. By giving reps a better operational toolkit, sales organizations can improve performance by giving reps everything they need to close deals in record time.

Real-world examples of OTE

On-target earnings can vary greatly depending on role, experience level, company size, and industry.

Below are two common examples that illustrate how OTE works in practice and how the right tools can help reps at every level hit their sales goals.

Mid-level account executive (OTE $150k)
A mid-to-senior level account executive (AE) at a SaaS company might be offered an OTE of $150,000 on a 50/50 split ($75k base salary, and $75k in on-target sales commissions). In this role, compensation may be tied to closed-won revenue against an annual quota. Let’s assume the target quota is $750,000.

In order to hit that number, AEs often manage complex deal cycles, build multi-faceted relationships with stakeholders, and negotiate high-value contracts. Efficiency is key, and time wasted on administrative work like formatting proposals or waiting on approvals can directly impact the rep’s ability to hit a quota.

To eliminate those roadblocks, many teams arm their AEs with a variety of automation tools. PandaDoc helps with proposal generation. CRMs can keep customer details in order. Slack and similar communication tools allow for in-house collaboration with top talent from other departments.

All of this serves to shorten longer sales cycles and give reps more time to cultivate additional deals with other prospects, which is critical for reps who want to max out their OTE salary with top sales performance.

Entry-level sales development representative (OTE $75k)
An SDR just starting out might be offered a $75,000 OTE with a $50,000 base salary and $25,000 in commission based on meetings booked or qualified pipeline generated.

While the higher base salary provides some security, variable earnings can vary significantly month to month, especially in high-volume outreach roles. Success here depends on speed and consistency. SDRs need to send collateral quickly, follow up on interest fast, and hand off warm leads to AEs with minimal friction. Spending too much time waiting, updating documents, or searching for the right templates can draw down performance and overall earnings.

In this position, successful SDRs find ways to optimize their workflows to more effectively qualify leads and connect them with the appropriate resources. Building effective sales collateral (decks, one-pagers, follow-up proposals, etc.), and shaving time off the sales process helps these reps max out their OTE while continuing to offer a high level of service and support to prospective customers.

Tailoring OTE to other roles

Most organizations adapt their OTE structure to fit the nature of the role. AEs, SDRs, sales engineers, business development representatives (BDRs), and customer success managers may all have different performance metrics and OTE breakdowns.

Other sales roles are also viable candidates for OTE plans, as are sales manager positions. In every case, clarity and efficiency matter.

A well-structured comp plan only works if reps can access it, understand it, and execute against it. That’s why many sales teams use platforms like PandaDoc not just to manage compensation plans, but to support the entire sales process.

Benefits of OTE

When structured and communicated clearly, on-target earnings offer a number of benefits for both sales reps and the organizations that employ them.

Motivation and performance

OTE plans are designed to reward outcomes by tying a portion of earnings directly to measurable results. In doing so, companies create clear incentives for reps to stay focused, competitive, and productive.

This structure gives reps a goal that’s not just theoretical. It’s tied directly to their earnings!

But incentives alone aren’t a guarantee of success. For reps to actually achieve their targets, they’ll need a well-supported sales environment. Administrative tasks need to happen quickly and efficiently so that reps spend less time chasing internal tasks and more time engaging with prospects.

Done correctly, these operational efficiencies play a major role in helping reps achieve their full earning potential.

Predictability for finance and sales ops

OTE gives sales leaders and finance teams a framework to project compensation expenses with greater accuracy. Because earnings are tied to quota attainment, companies can model comp scenarios, plan headcount, and set revenue expectations in a scalable way.

For sales professionals, the benefit is more personal. They get a clear understanding of how much they can earn and what level of performance is required in order to get there. This clarity supports financial planning and reduces the ambiguity that often comes with commission-heavy roles.

Having structured, accessible compensation plans, along with the right tools to track performance against quotas, makes it easier for both leadership and reps to stay aligned.

Transparency in hiring and team management

Clear OTE plans reduce guesswork during the hiring process.

Candidates aren’t just told what they could earn; they’re shown precisely how earnings are structured and what it takes to reach them. This transparency helps to establish expectations early and creates more productive conversations around compensation from day one.

With PandaDoc, this is made easier with templating tools and pre-approved snippets loaded into the content library. Using these tools, hiring managers can quickly and easily generate up-to-date and accurate compensation plans based on a given role and furnish them to the potential hire. As part of the hiring process, new employees can agree to the proposed plans by digitally signing them, and that documentation can be added to employee records.

Having these plans ready to go also reduces internal friction after hiring is complete. When compensation plans are documented, acknowledged, and easy to access, there is less overall confusion about what success looks like and how performance is measured. That clarity is essential for coaching, managing expectations, and maintaining fairness across the team.

Drawbacks of OTE

Even though OTE offers a number of strategic benefits, it also comes with a handful of challenges that need to be properly managed.

If plans aren’t carefully structured and communicated, they can create confusion and frustration or have unintended consequences for both companies and employees.

Misleading OTE figures

One of the most common issues with OTE is inflating the numbers to make roles appear more lucrative than they really are. Some companies advertise “uncapped” or “six-figure” earnings while failing to mention that quotas are historically unattainable.

This can lead to mismatched expectations, frustrated reps, low morale, and high turnover. If only a small percentage of the team is actually hitting quota, OTE becomes more of a marketing tool than a meaningful target. Shared resources like sales playbooks and templates can help to offset that knowledge gap, but those resources won’t offset unrealistic numbers.

To avoid this pitfall, companies need to ground their OTE figures in realistic performance data and ensure that compensation plans are clearly communicated and easy to understand prior to candidates accepting an offer. If this isn’t handled properly, new hires will quickly learn that their initial salary expectations are unrealistic and may leave or underperform while knowing those targets are out of reach.

Pressure to perform

Tying a significant portion of income to quota can be highly motivating, but it can also add an extreme amount of stress to a given role. Particularly in highly volatile markets and early-stage companies, shifting goals and targets can add ramping pressure to get results.

If base salaries are too low, or if variable pay is overly emphasized, reps may feel constant pressure to close deals at any cost. Long term, this leads to burnout, high churn, and behavior that misaligns with the company’s culture or reputation.

A healthy pay mix, reasonable quotas, and transparent communication are key to maintaining performance without sacrificing employee morale and good standing.

Complexity in tracking

As comp plans become more sophisticated, it becomes much harder for reps to track progress and see where they can improve.

When tiered rates, accelerators, clawback provisions, and other stipulations are added, both reps and managers may struggle to accurately track performance and calculate payouts. While platforms like PandaDoc offer reporting tools to track sales performance, reps still need to be able to understand how the rates are calculated.

Without standardized documentation and clear processes, misunderstandings and disputes can arise. This becomes especially problematic as teams grow and plans evolve across multiple roles, territories, or product lines. The added complexity means that reps have fewer peer-to-peer resources that they can lean on to understand their own plans, because OTEs for other roles are structured in a different way.

Organizations that centralize compensation documentation and streamline approval flows are better equipped to maintain clarity, minimize disputes, and adapt their plans over time.

How to implement OTE in your org

Rolling out a successful OTE plan requires more than just setting a number. To be effective, the plan needs to be aligned with your business goals, clearly communicated to your team, and flexible enough to evolve as roles and markets change.

Here’s a step by step guide to getting it right:

• Step 1: Set clear quotas. Your OTE plan is only as good as the quota that supports it. Targets need to be based on real-world data, including historical performance, territory potential, average deal size, and sales cycle length. Avoid the temptation to stretch goals to fit financial models that your team simply won’t be able to achieve.
• Step 2: Determine a fair pay mix. While a 50/50 pay mix is common for account executives and sales roles, other roles like customer support may call for a different balance based on their responsibilities and influence on revenue. In highly volatile markets, it may make sense to create a “safer” pay mix by placing more earnings within the base salary, where stable categories with predictable outcomes may prefer a more aggressive OTE structure.
• Step 3: Communicate transparently. Regardless of the plan, reps should know exactly how they’re paid, how commissions are calculated, and what performance is expected to reach full OTE. Documentation, universal templates for comp plans, and trackable reporting all play a role here. If a rep has questions about their plan, they should be able to find answers quickly and without relying on verbal explanations or outdated spreadsheets.
• Step 4: Review regularly. As markets change and roles evolve, OTE will need to be adjusted at regular intervals. This includes reviewing attainment trends, gathering feedback from the sales team, and updating documentation accordingly. Plans that remain unchanged can quickly become misaligned with the reality of the marketplace, making their goals unrealistic. Set up a review process so that OTE plans are regularly considered and changes can be made to keep goals clear and attainable.

When properly implemented, OTE plans can drive alignment, motivate performance, and give teams a clear roadmap for success. However, that only happens when expectations are realistic, pay structures are fair, and communication is consistent.

As teams grow, the complexity of managing compensation plans grows with it. Building systems with shared templates, centralized documentation, and clear approval workflows will help to ensure that a brand’s OTE strategy remains scalable and easy to manage over time.

Need a better way to manage and share compensation plans? PandaDoc can help

Building a strong OTE structure is only half the battle. You’ll also need to make sure that those plan details are clear, consistent, and accessible across your entire team.

With PandaDoc, you can create customizable compensation plan templates, streamline approvals, and deliver plans that are easy for reps to understand. Using built-in digital signatures, reps can sign documents to acknowledge that they agree to the terms. Quotas can also be updated regularly as market landscapes evolve.

You’ll spend less time chasing documents, and your reps will always have access to your deal structure.

Want to see PandaDoc in action? Book a free demo with a product specialist for a personalized walkthrough.

Frequently asked questions

• Does OTE include base salary?

  Yes. OTE (on-target earnings) is the total amount a rep can expect to earn if they hit 100% of their quota. It includes both the base salary and any variable compensation, such as commissions or bonuses.

  Even though base pay isn’t tied to performance, it’s still included in the standard OTE calculation.

• How is OTE related to pay mix?

  Pay mix refers to how OTE is divided between base and variable compensation. For example, a 60/40 pay mix means that 60% of the reps OTE comes from their base salary and 40% is tied to commissions.

  More senior or quota-carrying roles may have a more aggressive mix (e.g., 50/50), while support or hybrid roles often lean more heavily on base pay.

• OTE vs OTC: What’s the difference?

  While the acronyms are similar, OTE and OTC mean very different things:

  • OTE (on-target earnings) is the total expected compensation if a rep hits their quota.

  • OTC (on-target commission) refers only to the commission or variable portion of that total — not the base pay.

  In other words, OTC is part of OTE, and follows the standard OTE calculation:

  OTE = base salary + OTC.

• What is the OTE-to-quota ratio?

  OTE-to-quota compares a rep’s on-target earnings to their annual quota. 

  For example, if a rep has a $100,000 OTE and a $1,000,000 quota, the ratio is 10%. From a company perspective, the million in profits costs $100,000 to earn (plus other operating expenses).

  This ratio is often used by leadership to evaluate the cost of sales relative to revenue goals and to ensure that incentive structures are financially viable.

• What happens if a rep exceeds their quota?

  It depends on the company. In many comp plans, exceeding quota unlocks accelerators. These are higher-commission rates on revenue beyond 100% attainment, and they’re a common way to reward top performers.

  However, not all plans include benefits for exceeding quota. In some cases, reps will continue to earn at the same rate once their quotas have been met with no additional incentives or rewards for excess sales.

• Is OTE the same in every company or industry?

  Not at all.

  OTE varies based on industry, company size, role, and stage of growth. Even different roles within the same organization can have varying OTE structures based on risk, market volatility, and a role’s relevance to revenue generation.

  A $150k OTE might be standard for a mid-level account executive at a SaaS company, but those numbers would be considered high for an entry-level SDR or low for an enterprise seller in a high-ticket space. 

  Because of these variables, OTE always needs to be evaluated in context and weighed against other factors, including quotas, pay mix, and how realistic attainment will be.

Disclaimer

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