According to Salesforce's State of Sales Report, 67% of salespeople don't hit their quota by year's end. It's not because salespeople are bad at their jobs. It's because quotas are often set incorrectly, and OTE structures create demotivation rather than motivation. When nearly 90% of B2B salespeople struggle with burnout, it's time to reconsider how we design sales compensation.
This guide covers everything you need to know about OTE and quota setting: from calculation methods and industry benchmarks to the psychology that determines whether your compensation plan motivates or demotivates your sales team. We also look at the special considerations that apply to European companies.
OTE stands for "On-Target Earnings" and represents the total expected compensation when a salesperson hits 100% of their quota. It's not a guarantee, but a target.
OTE is calculated as: Annual base salary plus variable pay at 100% quota achievement. If an Account Executive has a base salary of $70,000 and a variable component of $70,000 at full quota achievement, OTE is $140,000.
OTE includes base salary, commission, and bonuses tied to sales performance. It does not include signing bonuses, overtime pay, company car, pension contributions, or other benefits. OTE is specifically tied to sales performance.
The critical distinction is that OTE is a target, not a promise. According to Sales Talent research, if only 33% of salespeople actually hit their quota, that means 67% earn less than their OTE. This creates a fundamental tension in sales compensation that we'll return to.
The ratio between fixed and variable pay is called "pay mix" and varies significantly by role, industry, and geography.
SDR and BDR roles typically have a pay mix of 60/40 to 70/30, where fixed salary makes up the majority. These roles have less direct influence on revenue, and the lower variable component reflects this.
Account Executives often have a 50/50 pay mix. They have direct influence on closing deals, and the higher variable component motivates prioritizing closing.
Customer Success Managers typically sit at 70/30 or 80/20. Their focus is on retention and upsell, not new business, and the lower variable element reflects the more advisory role.
Sales Managers and VP of Sales often sit at 60/40 to 70/30. They influence results through their teams, not directly through individual deals.
In Europe, there's generally an expectation of higher base salary than in the US. The European culture with focus on work-life balance and strong social safety nets means employees often prefer greater security in the form of fixed salary. Consider adjusting pay mix toward higher base salary compared to American benchmarks.
One of the most critical decisions in sales compensation is the ratio between quota and OTE. The industry standard is 4x to 6x, with a median of 4.2x.
If a salesperson's OTE is $140,000, the quota should be between $560,000 and $840,000. This ensures that the company pays approximately 20-25% of revenue in compensation to the salesperson.
A ratio of 4-6x balances several factors. It ensures compensation is sustainable for the company. It gives salespeople a realistic target to work toward. And it creates room for accelerators and overperformance bonuses.
SaaS companies with high margins can operate with lower quota-to-OTE ratios because each deal is more profitable. Companies with lower margins need higher ratios to ensure profitability. Enterprise sales with long sales cycles may have different ratios than transactional sales.
Setting realistic quotas is an art based on data, not guesswork. Here's a systematic approach:
Analyze past performance: deal sizes, sales cycles, conversion rates, and previous quota attainment. What did your team actually hit last year? If only 30% hit quota, the quotas were too ambitious.
Not all territories are equal. A salesperson responsible for a major metropolitan area can't have the same quota as one responsible for a rural region. Adjust quotas based on market size, competition, and growth potential.
New salespeople don't reach full productivity from day one. A typical ramp period is 3-6 months. Adjust quotas for new salespeople down during the ramp period, otherwise you're setting them up to fail.
Salespeople who have input into their quotas have greater buy-in and feel greater accountability. This doesn't mean salespeople set their own quotas, but that their perspective is part of the process.
An annual quota of $600,000 can feel overwhelming. Break it down to quarterly targets of $150,000, monthly targets of $50,000, and weekly activity goals. Smaller milestones are easier to relate to and create more frequent success experiences.
Compensation design isn't just about numbers. It's about human psychology and motivation.
Clear connection between effort and reward is fundamental. When salespeople can see how their actions directly affect their earnings, they're motivated to do more of what works.
Achievable goals that stretch capacity create "flow" - the state where challenge and ability match. Quotas that are too easy create boredom. Quotas that are too hard create anxiety.
Accelerators and multipliers for overperformance reward those who go beyond expectations. When the reward for exceeding quota is significantly higher than for hitting it, top performers are motivated for extra effort.
Unrealistic quotas create what researchers call a "perpetual state of disappointment." When salespeople constantly miss their targets, they start internalizing failure: "I'm not good enough."
The "back to zero" syndrome hits many salespeople hard. Every month or quarter, their progress resets, and they start over. It can feel like rolling a stone up a hill, only to see it roll down again.
Low variable pay ratio provides almost no motivation. If variable pay only makes up 10% of total compensation, the incentive for extra effort is minimal. Why work hard for an extra $5,000 when the base salary pays the bills anyway?
According to Gartner research, 90% of B2B salespeople are affected by burnout. Research from Sales Health Alliance shows 43% of salespeople struggle with mental health. Unrealistic quotas are a significant contributor to this crisis. Pressure creates a psychological spiral where one bad call becomes "I'm a failure."
Avoid these pitfalls to design a compensation plan that actually works:
Advertising high OTE attracts talent but creates resentment when targets prove unattainable. If your average quota attainment is 70%, you should communicate this honestly. An OTE of $140,000 where most earn $100,000 is misleading.
If it takes more than one minute to explain how commission is calculated, the plan is too complex. Salespeople need to intuitively understand what drives their earnings. Complexity creates confusion and distrust.
Hitting quota is good. Exceeding it should be significantly better. Without accelerators, top performers have no incentive to continue after 100%. They may even start "sandbagging" deals for the next period.
When all salespeople have the same quota regardless of territory, an inverted bell curve emerges: Salespeople in rich territories are overcompensated, while salespeople in difficult territories are undercompensated. It's neither fair nor effective.
If the company prioritizes ARR growth but the compensation plan rewards one-time sales, there's misalignment. Individual targets must aggregate up to the company's overall goals.
According to EY research, 80% of spreadsheets contain errors. Manual commission calculation creates distrust, disputes, and administrative burdens. Automation isn't luxury, it's necessary.
Sometimes circumstances change and quotas need adjustment. But it must be done right.
Economic downturns or market shifts affecting all salespeople. Loss of significant customers outside the salesperson's control. Changes in company strategic priorities. If an adjustment only benefits one salesperson, it's probably not justified.
Change quotas rather than plan structure when possible. It's easier to communicate and understand. Communicate changes to the entire affected team simultaneously. No one should hear it from a colleague first.
Explain the business rationale - the "why" behind it. Salespeople accept changes better when they understand the background. Consider switching from annual to quarterly quotas in uncertain times. Shorter periods provide more flexibility.
Constant adjustments erode trust. If the plan changes every month, salespeople learn to distrust the system. Reserve adjustments for genuinely exceptional circumstances.
Quotas aren't just a compensation tool. They're the foundation for the company's revenue forecasting.
When you sum all salespeople's quotas, you get the company's total sales target. If this number doesn't match what the board expects, there's a problem. Quotas must be designed top-down (from company goals) and bottom-up (from territory potential) and meet in the middle.
If quotas are unrealistic, the entire revenue plan is built on shaky ground. The CFO budgets based on expected quota attainment. If historical attainment is 60% but quotas are set as if it were 100%, forecasts will consistently miss.
Modern platforms integrate quota planning, forecasting, and compensation. When these systems talk to each other, leadership gets a clear picture of what's realistic to expect and what it will cost in compensation.
Benchmarks vary significantly by role, industry, and geography. Here are some guidelines:
Base salary typically $45,000-65,000. Variable component $15,000-30,000. OTE of $60,000-95,000. Pay mix of 70/30 to 60/40.
Base salary typically $65,000-90,000. Variable component $45,000-90,000. OTE of $110,000-180,000. Pay mix of 50/50 to 60/40.
Base salary typically $90,000-120,000. Variable component $30,000-60,000. OTE of $120,000-180,000. Pay mix of 65/35 to 70/30.
Base salary typically $130,000-180,000. Variable component $60,000-120,000. OTE of $190,000-300,000. Pay mix varies widely by company.
These figures are indicative and vary significantly by industry, company size, and specific roles. SaaS companies generally pay higher than traditional industries. Larger companies pay more than startups, but startups can offer equity.
How you communicate OTE to candidates and employees significantly impacts trust and retention.
Include OTE clearly, but specify base salary and variable component separately. Explain what "on-target" actually means. Be honest about historical quota attainment. If 60% of salespeople hit quota, say so.
Review the compensation plan in detail. Ensure the candidate understands what's required to earn OTE. Share examples of how commission is calculated in practice. Answer questions honestly about what previous salespeople have earned.
Give salespeople real-time visibility into their progress toward quota and expected commission. No one should be surprised by their paycheck. Transparency builds trust and reduces disputes.
The EU Pay Transparency Directive places new requirements on pay transparency. Companies must prepare to document and explain pay differences. OTE structures must be objectively justifiable.
If you're considering redesigning your compensation plan, here's your checklist:
What was quota attainment last year? If it was low, quotas are probably too high, or the plan isn't motivating correctly.
What is the overall revenue target? Quotas must aggregate up to this number with a realistic attainment rate.
Match pay mix to the role. Higher variable for closers, lower for supporting roles.
4-6x is the standard. Adjust based on margins and business model.
Reward for exceeding quota should be significant. Consider 1.5x or 2x commission above 100%.
Ensure all salespeople understand the plan. If they can't explain it, it's too complex.
Provide real-time visibility into performance and expected compensation. Automation is key.
Book a demo with Prowi and experience how automated commission calculation can help you design, communicate, and administer OTE and quotas that actually motivate your sales team. We help companies create compensation plans that drive performance without burning out salespeople.