How Do You Know If A Company Is Being Honest About OTE (On Target Earnings)?
A common question that I ask on a daily basis is, “Why are you looking to leave your job?”. Too often, the response I receive is as repetitive as a broken record. I regularly hear “I was told I’d make $100,000 and I’m making $65,000 plus nobody on the team is above 80% of quota.”
What I find interesting here is to see this situation from both the side of the candidate and the company. Typically, the candidates who raise this concern go into their next interview saying, “I need a bigger base salary to hedge my risk of being lied to about the commissions again.” The response from the company is usually along the lines of, “He or she must not be confident in their ability if they need a high base salary.”
OTE (On Target Earnings) Discussion
My ability to understand the perspective of each side informs my recommendation, which is for both parties to have a transparent discussion in regard to what current salespeople are making, and not what the OTE is. For those of you reading this that are not familiar with OTE (on target earnings), it’s simply the amount that the salesperson should make if they’re 100% on quota.
The benefit of this conversation, is that both sides will ultimately feel a lot more comfortable. The company is able to confidently say that, “I know our base salary is a little lower, but out of our last 10 salespeople in this role, 7 made $100,000+, 2 made $90,0000-$100,000, and 1 made below $90,000.” This understanding sets the foundation for a fair and informed negotiation.
In many cases, I’ve noticed that the OTE is not grounded in any true historical data, and is essentially a made up number. In these cases it is usually what the company wants the salesperson to sell, and not what is necessarily realistic.
Many years ago, I was in discussions with a company. When I spoke with them, they told me, “The OTE is $250,000.” Having piqued my interest, I responded with an important question, “On average, what did the six salespeople on your team make within their first year?” Unsurprisingly the answer was $170,000.
My immediate question was, “Why is the OTE $250,000 if most salespeople are making $170,000?” The representative at the company replied, “Well we have long sales cycles so some of that business won’t get closed until the second year.” We discussed this in more detail, but I recommended that if $170,000 is a more realistic value when considering what salespeople will close in their first year, then that is what the OTE should be.
Another company that I spoke with told me that their quota was $500,000. I naturally asked how realistic it is to close that amount in the first year. Their response was, “That’s what I need them to close to grow my business the way I want to grow it.” I got the sense that it was near impossible to close that much business by that response.
As a candidate, if you’re interviewing for a sales position, try viewing things from the company’s perspective. You might have been burned in the past, but please understand that there are honest companies out there that want to reward your hard work with higher commissions and a lower base salary.
If you happen to be a company that is in the process of hiring, please realize that some salespeople want a higher base salary because they’ve been burned so many times. These individuals need to know that they’re not walking into another bad situation with low commissions.
As I mentioned above, my recommendation is always to talk in terms of what people have made in their first, second, and third year. If you haven’t had salespeople in the role before, then be extremely conservative. I can assure you that you’ll have much happier employees if you underpromise and overdeliver versus overpromising and underdelivering.