What it means
When hiring for customer-facing or sales positions, companies often quote OTE to give candidates a clear picture of their total potential pay. This figure assumes the employee achieves exactly 100 percent of their assigned quota or goals.
It helps businesses budget for staff costs while tying a significant portion of employee compensation directly to business results. In practice, OTE is split into two main components: a fixed base salary that provides financial security, and a variable incentive that fluctuates based on performance.
For example, a role might offer a base salary of forty thousand pounds, with an additional forty thousand pounds available if sales targets are fully met, resulting in an OTE of eighty thousand pounds. For non-finance managers, understanding OTE is vital when building department budgets and designing incentive structures.
If targets are set unrealistically high, employees will consistently miss their variable pay, leading to frustration and high staff turnover. Conversely, if targets are too easy, the company may overpay for mediocre performance.
When managing teams with OTE structures, leaders must regularly review quota attainments to ensure the compensation model remains fair and motivating. It also helps with cash flow planning, as higher sales volumes naturally trigger higher commission payouts, which need to be accounted for in monthly forecasts.
In practice
Real-world examples.
Example
A startup hires a business development manager with a base salary of thirty thousand pounds and fifty thousand pounds in commission, creating an OTE of eighty thousand pounds.
Example
An established manufacturing SME offers its regional account managers a base of forty-five thousand pounds and twenty thousand pounds in bonuses, totaling a sixty-five thousand pound OTE.
Example
A digital agency recruits a senior client partner with a sixty thousand pound base salary and forty thousand pounds in performance bonuses, setting their OTE at one hundred thousand pounds.
Think of it
“OTE is like driving a taxi where you get a guaranteed daily basic wage, plus extra cash for every fare you complete. Your total expected earnings depend on how many trips you make.
Formula
Calculation
OTE = Base Salary + Target Variable Pay
Example: If a role has a base salary of thirty-five thousand pounds and the target commission is twenty-five thousand pounds, the calculation is:
OTE = 35,000 + 25,000 = 60,000 pounds.Case study
Seen in the real world.
At Apex Software, the management team wanted to expand their customer base by hiring two new sales executives. They advertised the roles with an OTE of seventy-five thousand pounds, split evenly as a thirty-seven thousand five hundred pound base salary and thirty-seven thousand five hundred pounds in performance commission.
During the first year, one executive struggled to learn the product and only achieved fifty percent of their sales target. As a result, they earned their base salary plus half of their commission, bringing their total earnings to fifty-six thousand two hundred and fifty pounds.
The second executive exceeded expectations, reaching one hundred and twenty percent of their quota. Because the commission plan included accelerators for over-performance, their total earnings surpassed the initial OTE, reaching eighty-two thousand five hundred pounds.
This structure protected Apex Software during a slow ramp-up period by keeping fixed costs manageable, while also rewarding high performance appropriately. The finance team tracked these payouts closely against incoming revenue to ensure the commission structure remained profitable for the company.
Watch out
Common mistakes.
- Treating OTE as a guaranteed salary rather than a conditional target.
- Setting sales quotas so high that achieving the OTE is practically impossible.
- Failing to account for commission payouts in short-term cash flow forecasts.
Questions
People also ask.
Is OTE guaranteed?
No. Only the base salary portion is guaranteed. The variable portion depends entirely on meeting or exceeding performance targets.
What happens if an employee exceeds their target?
Many companies offer commission accelerators, meaning employees can earn even more than their stated OTE if they surpass one hundred percent of their goal.
Why do companies use OTE instead of just listing the base salary?
It helps attract ambitious candidates who want to boost their earnings through strong performance, and it aligns employee costs directly with revenue generation.
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