OTE
What is OTE?
OTE (On-Target Earnings) is the total annual compensation a sales professional can expect to earn when they achieve 100% of their assigned quota, combining base salary with variable compensation such as commissions, bonuses, and incentives. OTE represents the realistic earnings potential for performing at expected levels, serving as both a recruiting benchmark and a framework for aligning sales compensation with revenue goals.
In B2B SaaS and GTM organizations, OTE structures are fundamental to sales team design, talent acquisition, and revenue planning. The OTE model creates clear expectations for both employers and sales professionals: companies define performance standards and compensation frameworks, while sellers understand their earning potential and the behaviors required to achieve it. This transparency helps attract qualified candidates, motivate performance, and ensure that compensation costs align with revenue generation.
OTE is not a guarantee—it's a target. Sales professionals earn their full OTE only by meeting quota, which typically means closing a specific dollar amount of new business, expansion revenue, or other measurable objectives within a defined period (usually quarterly or annually). Those who exceed quota earn above-OTE through accelerators and bonuses, while underperformance results in below-OTE earnings. According to SaaS Capital research, the median OTE for SaaS Account Executives ranges from $140K-$180K depending on deal size and market segment, with base/variable splits typically falling between 50/50 and 70/30.
Understanding OTE structures is essential for sales leaders designing compensation plans, RevOps teams forecasting costs, and finance teams modeling profitability. Well-designed OTE packages balance competitiveness in talent markets with sustainable unit economics, motivate the right selling behaviors, and scale appropriately as companies grow from startup to enterprise.
Key Takeaways
Total Compensation at Target Performance: OTE combines base salary and variable pay (commissions/bonuses) that a sales rep earns when achieving 100% of quota, not the maximum or minimum possible earnings
Base/Variable Split Varies by Role: Inside sales roles typically have 60/40-70/30 splits favoring base salary, while field sales and enterprise AEs often use 50/50 splits reflecting longer sales cycles and higher deal values
Not a Guarantee: OTE represents achievable earnings at quota performance—actual compensation varies based on individual results, with top performers earning 120-200%+ of OTE through accelerators
Recruitment and Retention Tool: Competitive OTE packages are essential for attracting sales talent, with market rates varying significantly by geography, industry, and deal complexity
Alignment with Business Economics: Effective OTE structures ensure sales costs remain sustainable, typically targeting 8-12% of revenue for CAC efficiency while motivating desired behaviors
How It Works
OTE structures operate through a systematic framework that defines sales compensation, quota assignment, commission mechanics, and payout timing to align individual performance with company revenue goals.
The foundation is the base/variable split, which determines how total OTE divides between guaranteed salary and performance-based pay. For example, an Account Executive with $150K OTE and a 50/50 split earns $75K base salary plus $75K in variable compensation when hitting quota. This split reflects role characteristics: SDRs/BDRs typically use 60/40-70/30 splits because their metrics (meetings booked, opportunities created) are more controllable, while enterprise sellers use 50/50 splits because their results depend on longer sales cycles and external factors beyond their immediate control.
Quota assignment establishes the performance threshold for earning full OTE. A rep with $150K OTE and $1M annual quota must close $1M in new ARR to earn their variable compensation. Quotas should be achievable—best-in-class organizations set quotas so 60-80% of reps hit 80-100% of target, ensuring the OTE promise is realistic while still stretching performance. Quotas tie to the company's revenue forecast, with the sum of all individual quotas equaling or exceeding the revenue plan.
Commission mechanics determine how variable pay is calculated and when it accelerates. Basic structures pay commission rates on every dollar closed (e.g., 7.5% commission on $1M quota generates $75K variable pay). More sophisticated plans include accelerators that increase commission rates once reps exceed quota—perhaps 10% on revenue from 100-120% of quota and 15% above 120%—creating upside for top performers. Decelerators may reduce rates for revenue below quota thresholds, though these risk demotivating struggling reps.
Payment timing affects cash flow and motivation. Sales organizations typically pay commissions monthly or quarterly based on closed-won business, though some companies use monthly draws against annual quota to smooth income. Timing decisions balance cash flow considerations with motivational impact—more frequent payments provide faster feedback loops but increase administrative complexity.
OTE as a cost model integrates with revenue planning and unit economics. RevOps and finance teams calculate total sales compensation costs by multiplying OTE by headcount, then adjusting for expected attainment rates (e.g., if average attainment is 85%, actual compensation costs will be ~92% of total OTE). This modeling ensures CAC targets remain achievable and compensation scales sustainably with growth.
Modern OTE structures also incorporate role-specific metrics. While AEs focus on closed revenue, SDRs earn variable pay for qualified meetings or SQLs created, Customer Success Managers earn on net retention or expansion revenue, and sales leaders earn on team performance. Each structure aligns OTE with the specific outcomes that role controls.
Key Features
Two-Part Compensation Structure: Guaranteed base salary providing income stability combined with variable pay tied directly to measurable performance outcomes
Quota-Based Performance Threshold: Clear revenue or activity targets that determine when reps earn full OTE, creating transparency and accountability
Accelerators and Attainment Tiers: Commission rate increases or bonus multipliers that reward quota overachievement, often paying 1.5-2x for top performers
Role-Specific Configurations: Different OTE structures for SDRs, AEs, Customer Success, and leadership reflecting each role's impact and sales cycle involvement
Market-Calibrated Ranges: OTE levels benchmarked against industry standards, geography, and company stage to ensure competitive positioning in talent markets
Use Cases
Account Executive Compensation Planning
A B2B SaaS company hiring mid-market Account Executives structures OTE at $160K with a 50/50 split ($80K base, $80K variable) and assigns $1.2M annual quota. Commission rate is set at 6.67% of closed revenue ($1.2M × 6.67% = $80K variable at 100% quota). The plan includes accelerators: 8% commission for revenue from 100-120% of quota, and 10% for revenue above 120%. A rep closing $1.5M earns $80K base + $96K variable = $176K total (110% of OTE), while a rep at 80% quota earns $80K base + $64K variable = $144K (90% of OTE).
Sales Development Rep Metrics-Based OTE
An SDR team uses $70K OTE with 70/30 split ($49K base, $21K variable) based on qualified opportunity creation rather than closed revenue. Each SDR has a quota of 100 qualified opportunities annually, earning $210 per qualified opp that reaches SQL status. This structure pays on controllable metrics the SDR directly influences, avoids penalizing SDRs for poor AE close rates, and creates clear line-of-sight from daily activities to compensation. Monthly payouts smooth income and provide fast feedback on performance.
Customer Success Expansion OTE
A Customer Success team managing existing accounts uses $120K OTE with 80/20 split ($96K base, $24K variable) tied to net retention and expansion targets. Each CSM manages a book of business with targets for maintaining 95%+ gross retention and achieving 15% expansion revenue. Variable pay is split equally between retention (maintain renewal rates) and expansion (upsell/cross-sell revenue). This structure balances the relationship-focused nature of CS work (justifying higher base) with accountability for revenue outcomes, aligning customer success with company growth objectives.
Implementation Example
SaaS Sales Compensation Model Framework
Here's a comprehensive OTE structure for a mid-market B2B SaaS company:
OTE Structure by Role
Role | OTE | Base | Variable | Split | Annual Quota | Primary Metric |
|---|---|---|---|---|---|---|
SDR | $65K | $45.5K | $19.5K | 70/30 | 80 SQLs | Qualified opportunities created |
Inside Sales AE | $130K | $78K | $52K | 60/40 | $700K ARR | New bookings closed |
Mid-Market AE | $160K | $80K | $80K | 50/50 | $1.2M ARR | New bookings closed |
Enterprise AE | $200K | $100K | $100K | 50/50 | $1.8M ARR | New bookings closed |
CSM | $110K | $88K | $22K | 80/20 | 110% NRR | Net retention + expansion |
Sales Manager | $180K | $126K | $54K | 70/30 | Team quota | Team performance |
Commission Rate Calculation Example (Mid-Market AE)
Monthly Payment Schedule
Month | Quota | Revenue Closed | Commission Earned | Paid |
|---|---|---|---|---|
January | $100K | $125K | $8,337 | February 15 |
February | $100K | $80K | $5,336 | March 15 |
March | $100K | $140K | $9,338 | April 15 |
Q1 Total | $300K | $345K | $23,011 | - |
Q1 Accelerator | - | +$45K over | +$720 | April 15 bonus |
Team Quota Coverage Model
This implementation shows how OTE structures translate into practical compensation plans with clear calculations, attainment scenarios, and business modeling that ensures sustainability.
Related Terms
Sales Qualified Lead: Prospect that meets criteria for sales engagement, often the metric that SDR variable compensation is based on
Annual Recurring Revenue: The primary quota metric for most SaaS AE roles, representing normalized annual contract value
Quota: The specific performance target (revenue, meetings, opportunities) that determines OTE achievement
Customer Acquisition Cost: Metric that includes sales compensation and must remain sustainable relative to customer lifetime value
Revenue Operations: Function responsible for designing compensation plans, quota setting, and ensuring OTE structures support revenue goals
Sales Development: Role typically using activity or opportunity-based OTE rather than closed revenue
Bookings: The total contract value signed, often the basis for commission calculations in OTE structures
Pipeline & Forecasting: Process of predicting team performance to model actual compensation costs against OTE pools
Frequently Asked Questions
What is OTE in sales?
Quick Answer: OTE (On-Target Earnings) is the total annual compensation a sales rep earns when achieving 100% of their quota, combining guaranteed base salary with variable pay like commissions and bonuses.
OTE represents realistic earning potential for expected performance, not maximum or minimum earnings. For example, an AE with $150K OTE and 50/50 split earns $75K base salary regardless of performance, plus $75K in variable compensation when hitting quota. Top performers exceeding quota earn above OTE through accelerators (often 120-200% of OTE), while those missing quota earn below OTE. The OTE framework provides transparency for both recruiting and performance management, helping candidates understand earning potential and sales reps know exactly what results are required to hit their compensation targets.
What's a typical OTE for a SaaS Account Executive?
Quick Answer: SaaS Account Executive OTE typically ranges from $120K-$200K depending on deal size and market segment, with SMB-focused roles at the lower end and enterprise sellers at the higher end.
According to industry benchmarks from Pavilion and SaaStr, SMB Account Executives average $100K-$140K OTE, mid-market AEs range from $140K-$180K OTE, and enterprise AEs earn $180K-$250K+ OTE. Geography significantly impacts these ranges—San Francisco and New York markets typically pay 20-30% premiums over secondary markets. Company stage also matters: early-stage startups often offer higher OTE to compensate for risk and equity packages, while established public companies may offer more conservative OTE with stronger base salaries. The base/variable split for AEs typically falls between 50/50 and 60/40 depending on sales cycle length and deal complexity.
How do you calculate OTE?
Quick Answer: Calculate OTE by adding base salary to the total variable compensation (commissions, bonuses) a rep earns at 100% quota attainment: OTE = Base Salary + (Quota × Commission Rate).
Start with the base salary component, then determine the commission rate needed to reach target variable pay. For example, an AE with $80K base and $1.2M quota needing $80K variable compensation requires a 6.67% commission rate ($1.2M × 6.67% = $80K). The total OTE is $160K ($80K + $80K). For roles with monthly or quarterly bonuses rather than revenue commissions, add those bonus amounts when earned at target performance. Some organizations include benefits or equity in "total compensation" figures, but standard OTE definitions focus solely on cash compensation (base + variable).
What's the difference between base and OTE?
Base salary is the guaranteed portion of compensation paid regardless of performance, while OTE includes both base and the variable pay earned at quota achievement. An AE with $80K base and $160K OTE has $80K variable compensation potential. Base provides income stability and covers minimum living costs, while variable pay creates performance incentives. Higher base/variable ratios (like 70/30) suit roles with longer sales cycles, less control over outcomes, or relationship-focused positions. Lower ratios (50/50) suit transactional sales with shorter cycles where reps have more direct control over results. The base should be livable even at zero variable earnings, while total OTE should be competitive with market rates for the role.
How does OTE affect CAC and unit economics?
OTE directly impacts Customer Acquisition Cost, which must remain sustainable relative to customer lifetime value. If AEs earn $160K OTE and close $1.2M ARR each, the sales compensation component of CAC is $160K / $1.2M = 13.3% of first-year revenue. Best-practice SaaS companies target total CAC at 20-30% of first-year contract value, or CAC payback within 12-18 months. OTE structures must balance competitive compensation that attracts talent with sustainable unit economics. If OTE is too high relative to quota (low productivity), CAC balloons and profitability suffers. If OTE is too low relative to market, companies can't hire or retain top performers, limiting growth. RevOps teams model these relationships continuously to ensure compensation scales sustainably.
Conclusion
OTE structures form the foundation of sales team economics in B2B SaaS and GTM organizations, creating clear frameworks that align individual compensation with company revenue goals while attracting and retaining top sales talent. By combining guaranteed base salaries with performance-based variable pay, OTE models balance income stability with motivation, providing transparency about earning potential and the specific results required to achieve it.
For sales leaders, well-designed OTE packages are essential recruitment and retention tools that communicate expectations and reward desired behaviors. RevOps teams rely on OTE modeling to forecast compensation costs, ensure sustainable unit economics, and design quota structures that drive revenue goals. Finance teams use OTE frameworks to maintain predictable cost structures that scale appropriately as the business grows from early-stage startup to mature enterprise.
As sales motions evolve—with product-led growth, customer success becoming revenue-generating, and increasingly complex buying committees—OTE structures will continue adapting to reflect new roles and metrics. Organizations that thoughtfully design compensation frameworks balancing market competitiveness, internal equity, and business sustainability will build high-performing sales organizations capable of predictable growth. Explore related concepts like quota and revenue operations to deepen your understanding of sales compensation strategy.
Last Updated: January 18, 2026
