While many ecommerce businesses run without dedicated salespeople, there are scenarios where having a sales team makes sense.
In high-end retail, retail associates spend focused time with each client, helping them find the perfect diamond bracelet or matching gold cufflinks. In B2B ecommerce, sales reps might help companies like hotel chains select signature scents for their luxury premises or source ornate bedside lamps for their guest rooms.
In both cases, these employees aren’t just processing orders—they’re building relationships and driving purchases. For sales teams like these, on-target earnings (OTE), which combines base salary with performance-based commission, are clear incentives to drive results. Read on to learn how this compensation model could work for your business to boost sales and retain great staff.
What is OTE?
On-target earnings (OTE) comprise the total amount you can expect to pay a salesperson in a year when they hit all their targets.
These targets could include monthly sales quotas, like bringing in $25,000 in new business each month, or specific performance metrics like closing 15 deals per quarter. Some retail and ecommerce businesses implement OTE, especially in settings where sales leaders actively drive revenue.
OTE structures often combine a base salary with a variable commission. This provides a more predictable income floor alongside the potential for higher earnings based on performance, unlike purely commission-based models.
How to calculate OTE
Once you know your base pay and commission structure, working out potential OTE earnings is straightforward.
Unlike a straight salary or commission-only structure, OTE combines a guaranteed base pay with performance-based earnings, typically through commissions or bonuses. OTE generally doesn’t include things like one-time bonuses, overtime pay, or benefits packages—it’s strictly the combo of base salary plus the commission you’d earn at hitting 100% of your targets.
Here’s an OTE calculation for an account executive who sells office furniture to coworking spaces.
The role has these key numbers:
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Base salary: $60,000 per year
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Monthly quota: $50,000 in sales
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Sales commissions: 10% of sales
To calculate their OTE, we take their annual base salary and add what they’d earn in commission if they hit 100% of quota:
OTE = Annual base salary + Annual commission at 100% quota
Here’s how their actual earnings might look in different scenarios:
Scenario 1: Meeting quota (100% of monthly target)
Monthly sales: $50,000
Monthly commission: $50,000 × 0.1 = $5,000
Annual commission: $5,000 × 12 = $60,000
Total earnings: $60,000 base + $60,000 commission = $120,000
Scenario 2: Below quota (70% of monthly target)
Monthly sales: $50,000 × 0.7 = $35,000
Monthly commission: $35,000 × 0.1 = $3,500
Annual commission: $3,500 × 12 = $42,000
Total earnings: $60,000 base + $42,000 commission = $102,000
Sales professionals earn commission on every sale they make, even if they don’t hit their full quota—OTE simply represents what they’d earn if they hit 100% of your targets. Some companies also offer additional incentives or different commission rates for sales above quota to keep top performers motivated.
Benefits of OTE structure
You can pay sales teams in various ways—straight salary, commission-only, or pure profit sharing (where employees receive a cut of the company’s profits). OTE offers a balance between guaranteed income and performance-based incentives. Here’s what characterizes the OTE stand compensation model:
Creates direct incentives
When a sales team works on pure base salary, they might lack the motivation to go the extra mile. After all, they’ll earn the same whether they make two sales or 10.
While many retail associates will still try their best, there’s no financial reward for spending extra time with customers or increasingorder value. By contrast, suppose there’s an electronics store associate who knows that reaching their sales targets affects their OTE salary. Someone in this scenario is more likely to suggest adding an extended warranty to that laptop purchase than someone who gets paid the same no matter what.
For sales development representatives, this direct link between performance and compensation creates clear motivation to help customers find the right solutions while growing sales. When you push your team to go above and beyond average rep earnings, you help ensure higher returns in the long run.
While short-term gains are possible through increased motivation, the sustained, significantly higher returns are typically realized over longer periods due to the development of stronger client relationships, larger deal sizes, and the establishment of a high-performance culture.
Attracts and keeps top performers
Top sales representatives are on the lookout for roles where their skills can translate into higher earnings. A position advertising a fully ramped OTE of $100,000 catches more attention than one offering a $70,000 fixed salary. The best salespeople know their worth and want to work somewhere offering a predictable path to high earnings.
These high performers tend to stick around longer when they understand exactly what performance level they need to maintain to earn their target compensation. When sales reps consistently hit their targets and achieve their full OTE, they’re more likely to stay with your company, saving you the time and expense of constant retail recruiting and training.
Simplifies compensation planning
A straight annual base salary for every employee makes business budgeting simple and predictable, but it doesn’t incentivize sales performance. On the flip side, pure commission structures, especially uncapped ones, can create wild swings in your payroll. One month you might pay out far less than budgeted, leaving resources unused, while the next month an unexpected sales spike could blow your budget.
Having a defined pay mix creates more predictable compensation costs since you know your fixed salary obligations and can plan for maximum commission payouts based on each person’s OTE. This structure helps finance teams allocate resources more effectively. They can budget for the highest possible compensation scenario while still maintaining control over total payroll costs.
Challenges of OTE structure
While on-target earnings can be a powerful motivator, implementing them incorrectly can backfire. Some companies set unrealistic quotas, promising hefty commissions on revenue generated that sound great on paper but prove nearly impossible to achieve.
For example, a retail store might set an OTE of $100,000 based on selling $1 million in luxury goods annually. But if their highest-performing sales associate has never exceeded $700,000 in yearly sales, the target is clearly out of reach. This kind of misalignment in the salary structure can demotivate staff and increase turnover.
When salespeople realize they can’t hit their targets (no matter how hard they work), they’ll likely start looking elsewhere. The solution? Find the sweet spot where targets stretch your team to perform their best while remaining achievable based on historical performance data. You can achieve that by analyzing individual and team performance, benchmarking against realistic industry averages, and considering external market factors.
What is OTE FAQ
What is a good OTE?
A good OTE compensation varies by industry, role, location, and company size. When setting OTE, look at what your successful sales staff or business development representatives currently earn and what comparable roles offer in your market—the goal is to be competitive enough to attract talent while ensuring targets remain achievable.
How do I calculate my OTE?
Your OTE sales compensation is simple to calculate: Take your base salary and add what you’d earn in commission when hitting all your targets. For example, if you have a $70,000 base salary and would earn $30,000 by hitting your sales goals, your OTE is $100,000.
Should I ask about OTE in a job interview?
Yes. When interviewing for a sales job, ask detailed questions about the compensation structure. This might include what percentage of the team is currently hitting their targets and how long it typically takes new hires to ramp up to full quota. This helps you understand if the advertised OTE for the sales rep role is realistic or overly optimistic.
