What is OTE (On Target Earnings) and why does your company need to understand it to scale?
If you lead a sales team, you've probably heard of OTE — On Target Earnings. But there's a huge gap between "hearing about" it and structuring your team's compensation based on this concept, separating teams that deliver results from teams that merely complete tasks.
OTE (Overall Performance) isn't just a number at the end of the month. It's the backbone of a compensation model that aligns the salesperson's interests with the company's objectives. When well-designed, it transforms team behavior, directs efforts toward what truly matters, and—most importantly—makes your best talent want to stay.
What is OTE?
OTE (On Target Earnings) is the total expected compensation of a sales professional when they achieve 100% of their target. In simpler terms: it's how much they earn if they hit the agreed-upon quota.
Contrary to what many believe, OTE is NOT the same thing as a fixed salary. It is composed of two parts:
- Fixed salary (base): The guaranteed amount every month, regardless of the outcome.
- Commission / variable (incentive): the portion that depends on performance against targets.
For example: an SDR has an OTE of R$6.000/month, with R$3.000 fixed and R$3.000 variable if they hit 100% of their target. If they hit 80%, they receive part of the variable. If they hit 120%, they receive more.
Simple on paper. Where most people go wrong is in the structural design—and that's where the difference becomes apparent.
The difference between OTE and fixed salary.
Many companies hire salespeople paying only a fixed salary with a "promise of commission." That's not OTE (Online Sales Team). It's gambling.
In a well-structured OTE model, the professional knows exactly how much they can earn, under what conditions, and how each of their actions impacts their own finances. This completely changes the game.
- Predictability: The salesperson knows the maximum and minimum compensation range.
- Alignment: The variable is tied to metrics that truly matter (revenue, margin, LTV).
- Targeted motivation: Effort goes where the money is.
- Retention: Good salespeople stay when the structure is clear and fair.
Companies that treat commissions as "discretionary bonuses" (I give them if I want to) reap the opposite: demotivated salespeople, confusing goals, and high turnover.
How to structure an OTE that works
Creating an OTE (Operational Training) plan isn't about defining "salary + commission" in the contract. It's about designing a system that balances three variables:
1. Fixed vs. Variable Ratio
There is no universal rule, but there is a market standard that works:
- SDR / BDR (prospecting): 70% fixed / 30% variable — high security, moderate incentive.
- Account Executive (closing): 50% fixed / 50% variable — balance.
- Enterprise / Large Accounts: 40% fixed / 60% variable — higher risk, higher reward.
- Sales Executives (Head / VP): 30% fixed / 70% variable — pure result.
The greater the professional's ability to influence the outcome, the larger the variable portion should be.
2. Correct metrics for the variable
The classic mistake is linking the variable to metrics that the seller doesn't control. Examples:
- ❌ “Commission based on net margin after operating costs” — the seller does not control operating costs.
- ✅ “Commission on contracted revenue (ACV)” — the salesperson controls the deal they close.
- ✅ “Commission per qualified meeting held” — the SDR tracks how many meetings it schedules.
- ✅ “Renewal bonus above 90%” — CS monitors account health.
3. Accelerators and brakes
A good OTE plan includes:
- Accelerators: If the salesperson hits 110% of the target, the commission on the excess is higher (e.g., 1.5x).
- Brakes (clawback): If the customer cancels within the first 3 months, the commission is refunded.
- Gates (minimum): If the target is below 50%, no variable pay is paid — this avoids the "reached 10% and earned full commission" scenario.
Why OTE is strategic (and not just "HR")
Many managers treat sales compensation as a human resources issue. This is a costly mistake.
OTE is a strategic lever because:
- It directs behavior: Do you want the team to sell more annual contracts? Put the variable cost over ACV. Do you want them to focus on margin? Put the variable cost over margin.
- Controls sales costs: With a well-designed OTE (Operating Time Equivalent), the cost of sales is a percentage of revenue. Growth does not necessarily mean a proportional increase in fixed costs.
- It helps to scale predictably: When the sales machine is calibrated with a well-structured OTE (Online Sales Team), hiring more salespeople translates into more revenue—not more expenses.
- Attracts better talent: Experienced salespeople know how to read an OTE (On-the-Transfer) plan. They choose companies where they can earn well by hitting targets—not where commission is a "mystery every month."
The most common mistakes when implementing OTE.
- Unrealistic goal: OTE (Operational Compensation for Time Worked) calculated with an unattainable target becomes a "disguised salary." Nobody makes an effort.
- A variable with neither floor nor ceiling: It's risky for both sides. Without a minimum wage, the salesperson can go months without receiving payment. Without a maximum wage, the company could go bankrupt if a salesperson closes a huge deal.
- Changing the rules mid-game: Nothing destroys trust faster than changing the commission plan after the salesperson has already put in the effort.
- Failure to communicate clearly: If the seller can't calculate their earnings on their own, the plan is bad.
- Single metric for different roles: Paying SDRs for closing deals and AEs for prospecting simultaneously creates confusion and conflict.
How can the Kaizen Agency help?
At Kaizen, we structure marketing and sales operations with a focus on predictability. This includes designing compensation plans that make sense for your business, aligning marketing and sales metrics, and creating processes that turn goals into revenue.
It's not about "increasing the team's salary." It's about paying for the right results, in the right amount, and building a sales machine that scales without exploding costs.
Conclusion
OTE is not a benefit. It's not a kindness from HR. It's a management tool that, when applied correctly, becomes the most powerful lever a sales manager has to increase team results.
If your sales team isn't delivering what it should, the problem might not be the people—it could be the plan you designed for them.
Do you want to structure an OTE plan that actually works? Talk to Kaizen Agency.
