On-Target Earnings (OTE)

What is OTE in sales and how do you calculate it? This article explains everything you need to know about OTE and what it means for your financial future. Here is the table of contents: 

• What is OTE in sales? 
• What does OTE stand for in sales?
• How do you calculate OTE for sales?
• What is a good OTE salary for a vp of sales?

What is OTE in sales? What does OTE stand for?

OTE is an acronym for on-target earnings. It's a metric that shows how much you will earn in a year by achieving your sales quota plan.

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How do you calculate OTE?

The OTE is typically calculated using the following method. You add a salesperson’s salary to their total commission earned if they were to achieve their full quota.

For example, an average Account Executive’s OTE at a SaaS company may look as follows: 

• $50K base salary
• $500K annual quota * 10% commission rate = $50K variable compensation
• $50K base salary + $50K variable commission = $100K OTE

An average Sales Manager’s OTE at a SaaS company may look as follows: 

• $100K base salary
• 10 reps * $500K annual rep quota = $5 million team quota
• $5 million team quota * 80% quota attainment = $4 million Sales Manager quota 
• $4 million * 2.5% commission rate = $100K variable commission 
• $100K base salary + $100K variable commission = $200K OTE

What is a good OTE salary for a VP of Sales?

A good OTE salary for a VP of Sales varies greatly from company to company based on industry, size of company and geography. 

An early stage, Series A company will often pay a lower base salary up front to conserve cash, but offer a higher commission rate and more equity for an early sales leader. Versus a later-stage company that has already achieved product-market fit and go-to-market fit, they often have the means to pay higher base salaries, but offer much lower percentages of equity. 

It’s not uncommon for a VP of Sales at a Series A, B or C company to make a $175K base salary with a $175K variable commission for a total OTE of $300K. 

That’s roughly the average. I’ve heard of VPs of Sales at Series C companies earning $250K base salaries with a $250K variable commission for a total OTE of $500K. I’ve also heard of some making much less than the average. 

A good OTE salary for one person may not feel good to someone else. You have to decide for yourself what is good or not.