How to Determine On-Target Earnings with Commissions

by | Aug 24, 2021

When salespeople know how much money they could potentially earn, they’re more motivated to get those sales. This is where on-target earnings compensation models excel. Implementing on-target earnings or OTE provides your sales team and any other commission-earning employees with an end goal to work toward.

Why Implement OTE?

Giving employees a solid understanding of how and what they can earn acts as a bit of a carrot on a stick. In a way, they can visualize that ultimate goal. As long as they know exactly what they need to do in order to reach that carrot, they’ll keep moving forward.

Setting on-target earnings often acts as a motivator to keep salespeople moving toward goals.

This method works not only for commissioned sales employees but also for those with the opportunity to earn bonuses. Depending on the structure of your company, it could apply to your entire staff. The more employees you have reaching on-target earnings, the more revenue you’ll earn, in theory.

Steps To Implementing OTE

In order to develop and implement an effective OTE commission plan, sales organizations first determine a few key elements.

  • Determine Ratio of Salary to Incentive Pay: Typically on-target earnings compensation structures combine both base salary with incentives. The percentage of earnings that come from either base pay or commissions and bonuses may vary with the employee. But being able to set rules for what determines salary and variable pay will help build out a comprehensive plan for your entire organization.
  • Research Competitive Wages: In order to attract and maintain talent, on-target earnings need to compete in the market. So do some research and come up with a goal that will be attractive to an individual based on industry and geographical location. Other factors, such as seniority and experience, may also play into this figure.
  • Consider Overall Sales Goals and Quotas: Good commission plans serve the bottom line for the entire company in addition to incentivizing individuals. As you build out quotas for salespeople, line them up with the organization’s overall sales goals. Make sure that when salespeople meet their quotas, the organization benefits too.
  • Establish Commission Rates: Map out how commissions are rewarded based on products and sales. Set up a plan that puts employees within reasonable reach of their targets. As an example, a salesperson knows that if they sell a set number of different products, they’ll reach their on-target earnings.
  • Include Bonuses and Other Incentives: For employees earning other types of incentives, also consider how they can reach their targets. Outline what an employee can earn and how they can get there. For instance, to earn a $1,000 bonus during a quarter, an employee needs to increase traffic to a website by a certain percentage.

Best Practices for OTE

  • Create Resources to Clearly Communicate the Plan: No matter what commission or on-target earning plan you implement, it needs to be clearly communicated. Create resources that your team can easily access to understand how much they can earn and how.
  • Alert Employees to Any Changes Well Ahead of Time: Whether implementing a new plan or adjusting the rules, make sure your entire team knows ahead of time. Providing at least a month’s notice will allow employees to plan ahead for earnings adjustments.
  • Make Yourself Available for Questions: Make sure yourself — or someone else who can help — is on top of questions and concerns. Having an organized way to handle disputes, like the dispute management feature Core Commissions offers, gives employees an outlet for concerns. It also helps minimize frustrations over pay that can turn into team-wide morale issues if left unchecked.

Once you’ve determined how your plan will be implemented, we can help automate the entire process. Contact us for more info or book a free demo with us and we’ll give you all the details. We look forward to simplifying your OTE commission plan — or whatever commission plan works for your team.

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