Know the Figures

Sales Commission Plan & OTE Cost

What a rep is paid at any attainment, and what that pay costs per unit of sales.

Replaces: Commission planning software and compensation consultants

How to use it

Enter the rep’s on-target earnings, how much of it is base salary, the quota and the plan rules, then set an attainment. The result is what the rep is paid, what that pay costs as a share of the bookings it brought in, and a payout curve showing both across a range of attainment.

Where the number comes from

  • Target variable pay is OTE minus base salary — what commission pays at exactly 100% of quota.
  • The base commission rate is target variable pay divided by quota, so hitting quota pays exactly the target.
  • Below the threshold no commission is paid. Once attainment reaches it, commission is paid at the base rate from the first booking up to quota.
  • Bookings above quota pay the base rate times the accelerator.
  • If there is a cap, commission stops at that multiple of target variable pay.
  • Cost of sales is total pay — base plus commission — divided by bookings. The effective commission rate is commission alone divided by bookings.

What goes wrong

The part most calculators leave out.

  • Clawbacks are not modelled. Most plans reclaim commission when a customer cancels or does not pay, so pay here can overstate what the rep keeps and understate the true cost of a bad deal.
  • Multi-year and annual-prepaid deals are often credited differently — first-year value only, or a reduced rate on later years. Feeding total contract value in as bookings overstates commission.
  • A ramping rep on a reduced quota, or with a guaranteed draw, is paid on different terms from the plan here, and their cost of sales in the first months is far higher.
  • Timing is ignored. Commission is often paid when the customer pays, not when the deal closes, so the cash cost falls in a later period than the bookings.
  • The threshold here is a cliff: one booking either side of it moves pay by the whole commission earned so far. Real plans sometimes use a reduced rate below the threshold instead, and the written plan is the contract that decides what is owed.

A rep at 110% of quota

A rep has 160,000 of on-target earnings, half of it base salary, against an 800,000 quota. Target variable pay is 80,000, so the base commission rate is 10%. At 110% attainment the rep books 880,000: the first 800,000 pays 80,000, and the 80,000 above quota pays at the 1.5× accelerator, adding 12,000. Commission is 92,000 and total pay is 172,000 — 107.5% of OTE. That pay is 19.5% of bookings, a little below the 20% it costs at quota, because the base salary is spread across more sales.

Questions

What is OTE?
On-target earnings: base salary plus the commission a rep earns at exactly 100% of quota. It is the headline pay figure in a sales offer, but actual pay depends on attainment and can land well above or below it.
How is the commission rate set from OTE and quota?
Divide target variable pay by quota. A rep with 80,000 of variable pay against an 800,000 quota earns 10% on bookings, so hitting quota pays exactly the target. Raising the quota without changing OTE cuts the rate.
What does an accelerator do to cost of sales?
It raises the rate paid on bookings above quota. Base salary is fixed, so above quota the cost of sales usually still falls; a steep accelerator can make it rise again, which is when a plan pays more for each extra sale than it did for the ones before.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.

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