Change the pay plan and you change the sales curve. In a three-year, large-scale natural field experiment at a pharmaceutical firm—14,000 monthly observations across 458 territories—switching from a quota-based bonus to straight commissions produced a significant lift in sales, with the biggest gains among lower-performing reps. That experimental evidence is a powerful reminder: the way you structure OTE is not a paperwork exercise; it’s one of the highest-leverage choices HR and sales leaders make. This guide shows how to structure OTE for sales reps using research-backed principles, practical formulas, and field-proven implementation steps.
Understanding On-Target Earnings (OTE)
OTE is the sum of a rep’s base salary and the target variable pay you expect them to earn when they hit defined goals. In most sales organizations, variable compensation averages roughly 40% of total sales pay. It can reach 100% depending on role and industry. A BCG practitioner analysis documents this range. For SaaS benchmarks in 2025, market data show SDR or BDR roles commonly at 65K to 110K OTE with a 70 or 30 split. Account Executives sit at 120K to 250K with 60 or 40. Enterprise AEs run 180K to 400K with 50 or 50. Sales managers land at 160K to 350K with 65 or 35. These ranges come from a current industry guide by Apollo.io.
Anchor your OTE design to the behavior you want. The pharmaceutical field experiment found commissions drove continuous selling and reduced end period timing games. Bonus plans encouraged more attention to non-incentivized tasks after reps hit the quota. In plain terms, commissions maximize throughput. Bonuses support multitasking. You need both, so align mechanics with strategy when you decide how to structure OTE for sales reps.
Two frameworks will sharpen your choices. First, a product life cycle lens argues that pay mix should evolve. Use higher fixed pay in the introduction stage to support market education. Use higher variable in growth and maturity to drive share. Use higher fixed again in decline to maintain relationships and margins. Second, a role-specific design approach recommends classic quota or commission plans for hunters and higher base with team and qualitative components for solution architects and customer care. If you must cover a complex, team based go to market, start with these two lenses.
Do not ignore revenue quality. BCG finds fewer than 10% of SIPs include price based metrics, despite evidence that price realization and margin guardrails prevent discount driven erosion. Their guidance is crisp. A metric needs to be at least 20% of the variable pay opportunity to shape behavior in a meaningful way. Use that single number as an anchor when you decide how to structure OTE for sales reps and protect profitability.
Calculating OTE for Sales Roles
The calculation is straightforward. The rigor sits in the inputs. If you are mapping how to structure OTE for sales reps, use this sequence.
- Set the base salary. Use market benchmarks by role, level, and region. For a growth stage AE, a 60 or 40 pay mix within a 150K to 200K OTE band is common in SaaS. Adjust for ramp time, territory potential, and cost of labor markets.
- Define target variable pay and quota. Target variable flows from the pay mix. Example. A 180K OTE with a 60 or 40 split implies 108K base and 72K target variable. For quota, use a data driven process grounded in historical attainment distributions, territory capacity, and product life cycle effects. Triangulate top down targets with bottom up territory models. Sanity check that 60 to 70% of reps can attain at least 80 to 100% of quota. If the business is in high growth mode, bias to commission heavy plans to reduce timing games and increase sustained effort, as the field experiment in pharma demonstrates.
- Choose payout mechanics. Decide on commission rates, bonuses, or a hybrid. Include accelerators. For example, use a higher commission rate above 110% of quota to reward overperformance. Add decelerators to discourage unprofitable deals. If you introduce a price realization metric, weight it at or above 20% of the variable opportunity to ensure impact, per BCG.
- Calculate OTE. The formula is simple. OTE equals the base salary plus the target variable pay. If target variable includes multiple metrics, make sure the sum equals the target variable amount. Example breakdown: - Base: 110,000 dollars - Target Variable: 90,000 dollars, composed of: - 60% bookings commission (54,000 at 100% quota) - 25% new logo mix bonus (22,500 at target) - 15% price realization (13,500 at target) In this setup, price realization is 15% of the variable. That sits below BCG’s suggested 20% threshold. You would likely raise it or combine it with a margin metric to meet the influence bar.
Translate the math into earnings line of sight. Show reps how each dollar booked pays out. Show how discounts reduce payout. Show how accelerators stack. This clarity is essential when you explain how to structure OTE for sales reps in a way that reliably changes day to day behavior.
Designing an Effective OTE Structure
Start with the pay mix. The product life cycle framework suggests higher fixed pay in introduction phases, higher variable in growth, a balanced mix at maturity, and higher fixed again in decline. As practical guideposts, many teams use roughly 80 or 20 base or variable in introduction, 60 or 40 in growth, 50 or 50 at maturity, and a return to higher base in decline. This is not theory for theory’s sake. In early markets reps spend more time educating than closing. In growth and maturity stages the work shifts to closing and expanding. The pharma field study indicates commissions shine in that moment. If your executive team is debating how to structure OTE for sales reps on a new product line, lean toward higher fixed pay plus milestone bonuses for market building activities. Then transition to a commission driven plan as pipeline predictability improves.
Set realistic and motivating targets with analytics. McKinsey emphasizes moving away from last year plus a percentage and toward quota setting grounded in internal and external data. That guidance matters because quota based bonuses invite timing manipulation. Commissions reduce the end of period spikes and troughs observed in the pharma experiment. Where bonuses are essential, for example to ensure non sales tasks are not neglected, place them alongside continuous commission components to balance outcomes.
Plan for ramp up. Offer a time bound guaranteed draw or stepwise quotas for new hires. For long sales cycles, adopt staged incentives. Pay milestones for progressing to qualified evaluation and verbal commitment. Pay a disproportionately large amount at closed won. This structure, reflected in McKinsey’s building blocks, keeps motivation high without requiring reps to wait months to see income. It is a practical answer to how to structure OTE for sales reps in enterprise sales.
Evolve roles and metrics over time. As teams specialize, give hunters, farmers, and presales distinct OTE constructs. Introduce price based measures when margin pressure grows. Make sure they carry at least 20% of the variable pay to move the needle. BCG also notes that variable averages about 40% of total comp across sales. Use that as a guardrail when you revisit pay mix each year. If you need clarity on how to structure OTE for sales reps in mature and competitive B2B, add price realization or margin bands and provide enablement such as deal desks and pricing tools so reps can win without unnecessary discounting.
Communicating and Implementing OTE
Transparency and accuracy build trust. A biomedical testing company that overhauled its compensation infrastructure shows this well. The firm redesigned its Xactly stack to integrate CRM data, instituted daily audits, and tied deals to payouts in a single source of truth. The program delivered a 99.9% payout accuracy and a 13% year over year increase in overall accuracy. Leadership ratings of the compensation function rose 60%. The enterprise case study details the results. If you are wrestling with how to structure OTE for sales reps and earn buy in, start by guaranteeing that what you pay is exactly what you promised, on time, every time.
Scalability matters as you grow. SalesLoft’s experience shows why. Facing rapid headcount expansion, they moved from spreadsheets to an automated Incentive Compensation Management platform. They integrated Salesforce data feeds and surfaced real time dashboards. Payroll cycles became smooth and error free, and trust rebounded, according to an implementation case study. The lesson for anyone figuring out how to structure OTE for sales reps is simple. A great plan still fails without reliable systems, reporting, and self serve visibility.
Build self sufficiency and governance. Abbott used a 5 Cs framework (Collect, Credit, Calculate, Compensate, Communicate) to tune its SPM program. They automated nightly pipeline calculations and validated data before load. The changes saved roughly 120,000 dollars per year, with added monthly savings in validation and reporting. The program enabled their team to run a world class operation independently, as described in an operations case study. Apply a similar lens. Set clear rules of engagement for team selling. Formalize credit splits. Make dispute resolution fast and fair. When reps ask how to structure OTE for sales reps in cross functional deals, your governance, not only your math, creates confidence.
Communicate like an operator, not a lawyer. Publish a plain English plan doc with examples, edge cases, and a one page earnings cheat sheet. Run enablement sessions before go live and again after the first payout. If you sell omnichannel, credit rep influence on digital purchases by tracking customer reported influence or by linking webinar attendance to online transactions. McKinsey highlights this modern tactic. These practical steps answer the cultural side of how to structure OTE for sales reps. They ensure everyone understands the rules and sees a direct link between behavior and reward.
Advanced Strategies for Optimizing OTE
Use analytics to tune, not to guess. Map distributions of attainment and payout to find sandbagging thresholds, underweighted metrics, and overgenerous accelerators. When you add a new behavior, such as price discipline, give it a minimum 20% share of the variable pool to clear BCG’s influence bar. Support it with pricing tools and training. Run cohort analyses from time to time. Check whether changes increased productive effort, reduced timing spikes, or suppressed necessary non selling work. The multitasking trade off observed in the pharma experiment is a real risk if you overweight raw output.
In long cycle and team based sales, mix mechanics. Combine milestone bonuses with continuous commission. Use split incentives to reward BDRs, AEs, and solutions engineers without creating channel conflict. McKinsey’s role specific design guidance is useful here. If leadership asks how to structure OTE for sales reps in complex deals, propose a standard crediting matrix. Set preapproved ranges for split percentages. Empower a governance committee to resolve exceptions within 72 hours.
Blend financial and nonfinancial levers. Offer public recognition for top price realization. Run quarterly no discount hero awards. Tie fast lanes for promotions to consistent quota achievement to reinforce the OTE without inflating costs. Career linked OTE bands, for example moving from 60 or 40 to 50 or 50 with higher OTE at the enterprise tier, signal advancement paths. This is a pragmatic answer to how to structure OTE for sales reps to drive retention. Show reps the next rung and the earnings that come with it.
Align OTE with business priorities, then test and learn. If your goal is profitable growth, anchor a margin or price metric at 20 to 30% of variable and cap accelerators on deeply discounted deals. If your priority is new markets, overweight new logo mix and stage based payouts. Run pilots by region for a quarter. Compare against a control group. Roll out the winner. This is the most reliable method for deciding how to structure OTE for sales reps without betting the entire year on a single, untested design.
The central pattern across these strategies is discipline. Define the behavior. Weight it meaningfully. Enable it with tools. Measure the outcome. Keep plans simple enough to fit on one page and robust enough to withstand edge cases.
Your north star is consistency. The best OTE plans meet three tests. They reflect strategy. They pay accurately and fast. Every rep understands them on day one.
At its core, the research says there is no one best plan. There is only the best fit plan. Commissions excel at driving throughput and reducing timing games. Bonus elements encourage broader multitasking once thresholds are hit. Role and life cycle matter. Metrics must be heavy enough to matter. A 20% share of the variable pool is a reliable floor. Your systems must make the plan real in the field. If you hold to those principles, you will know exactly how to structure OTE for sales reps to match your strategy and market.
Frequently Asked Questions
How to calculate OTE for sales?
Add base salary to target variable pay at 100% performance. Set base using market data and role seniority. Set target variable using pay mix and quota. For example, with a 160K OTE at 60 or 40, base is 96K and target variable is 64K. Make sure each incentive metric has enough weight to change behavior. BCG recommends 20% as a minimum for any single priority. This framework gives you a clean way to explain how to structure OTE for sales reps with clear line of sight to earnings.
What is the OTE compensation structure?
It is a pay model that combines fixed salary and variable incentives tied to defined outcomes. In many sales organizations, variable averages around 40% of total comp, although role and industry vary. A blended commission plus bonus model balances the productivity of commissions with the multitasking benefits of bonuses shown in the pharma field study. This blend sits at the center of how to structure OTE for sales reps without sacrificing critical non selling work.
What is a 70 or 30 split OTE?
It means 70% base salary and 30% target variable. Roles with lighter direct selling or earlier product stages often skew higher on base, for example 80 or 20 at launch. Quota carrying AEs in growth businesses may use 60 or 40 or 50 or 50. Choose the split by role and product life cycle. This is a practical guide for how to structure OTE for sales reps across diverse teams.
How do I communicate the OTE structure to my sales team?
Publish a plain English plan with examples. Run enablement sessions. Give every rep a real time dashboard. Borrow the 5 Cs lens, Collect, Credit, Calculate, Compensate, Communicate, to keep the process transparent and accurate. Implement dispute governance with fast SLAs. This clarity covers the cultural side of how to structure OTE for sales reps so the plan earns trust from day one.
