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On-Target Earnings (OTE): What Is OTE In Sales?
What is OTE in sales? – If you want to work in a sales position, you must ask the recruiter about the On-Target Earnings (OTE) for the role. Here, your earnings depend upon how much you achieve your target. If you achieve 100% of your target, you will get a certain amount. This amount is called OTE. If you achieve less than your optimum target, you earn proportionately less than your OTE. Finding out your OTE lets you understand your earning potential.
In this article, we will learn about on-target earnings or OTE in sales. Here, you will learn the benefits of OTE. Then, we will discuss the importance of OTE. Finally, we will give you some ways with the help of which you can find out your OTE in a sales role. Hence, to learn more about OTE, read on through to the end of the article.
On-Target Earnings: What Is OTE In Sales?
According to Indeed.com,
“On-target earnings, or OTE, refers to the compensation that a sales representative can expect to earn if they achieve their performance goals. OTE includes a sales employee’s base salary and any additional commissions. It omits compensation that employees receive for situations like one-time bonuses, overtime compensation, or benefits. OTE helps sales representatives estimate their potential commissions for a position.”
Creating a strong OTE model helps businesses to build a high-performance sales team. This is the total compensation a sales representative expects to receive if their performances match the expectations of the role. The total amount that the sales rep gets is the sum of the base salary of the position as well as any commission associated with the role.
From the perspective of a business organization, OTE is the net income that the company expects its sales employees to earn once they achieve their sales target. OTE basically includes the base salary plus the performance-based commissions of the sales representative. Hence, in many cases, companies do not guarantee certain OTE calculations. However, for most employees in the sales team, OTE is mainly an attainable figure.
What Are The Benefits Of Using OTE?
By learning the on-target earnings of a sales position, you will be able to determine the way the organization sets its revenue expectations. The OTE helps the sales reps of the company to push harder so that they can achieve the goals that are harder to achieve.
According to HubSpot.com,
“Outside of providing a general idea of earning potential for their reps, on-target earnings provide a benchmark for sales managers. The best managers thoroughly guide reps toward hitting their OTE marks. These managers use OTE as a reference point to let their reps know if and when they need to increase their level of effort to achieve their numbers.”
The following are some of the major benefits:
1. It helps to forecast sales commissions: The accounting teams and the management of the organization will be better able to forecast the sales commissions accurately. After the company budgets for the OTE sales of each employee, it tries to accommodate the financial demand of each employee.
2. It is easy to estimate earning potential: Once an employee understands a particular sales position’s OTE, he gets a realistic expectation of the earning potential. It also helps the employee to understand the expectations of the company.
3. Managers can determine a commission rate: Once the company defines a realistic OTE figure, the sales managers of the company can determine a commission rate (in percentage). This helps to determine whether the rate is appropriate for the role or not.
Importance Of OTE In Sales
An article on HubSpot states –
“On-target earning figures are central to any sales hiring process. Unlike traditional salaried positions, sales earnings fluctuate based on several factors. On-target earnings are used as a goalpost. Prospective candidates will know what to expect from the positions they’re applying for and, in turn, whether those roles are worth their commitment.”
For recruiters, OTE is also a very effective tool. A good manager ensures that the OTE figure that the company presents to a prospective candidate is attractive and achievable at the same time.
However, in many cases, leaders artificially inflate the OTE numbers while sharing with candidates. This helps them attract candidates. However, if you are looking to apply for a sales rep position, be careful not to fall into this trap. It might lead to unrealistic expectations.
Nevertheless, OTE is also a great way with the help of which the company to align different departments around revenue and expenses. All the departments, like company leadership, accounting, human resources, and sales, need to work together to set realistic OTE objectives for the sales team.
How To Find Out OTE In Sales?
When companies decide on potential earnings on target for a specific sales position, they first set the parameters. However, you can also calculate OTE on a candidate-to-candidate basis. OTE mostly consists of the base salary of the employee along with the commissions that the employee gets for closing sales.
If you want to find the OTE for a given sales position, ask the hiring manager for the same. Ask the manager how the OTE applies to the company. This will give you an idea of whether the company views OTE as a conservative goal or a complementary bonus to your earnings.
Make sure you review the On-Target Earnings performance of the existing sales team. This will help you plan the company’s success. You can also ask the hiring manager how many reps are above and below the median OTE of the company. Do not forget to ask how new hires of the company perform regarding the OTE.
Summing Up
Hope this article was helpful for you in getting an understanding of “what is OTE in sales.” You can see from this article that OTE is based on a variety of factors. It includes the needs of the organization, the experience of the sales rep, and the location from which the company is operating.
Do you have more information to add regarding OTE? Consider sharing with us in the comments section below.
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