Target earnings refer to the total compensation expectations for sales professionals, including base salary and commission payments based on sales quotas. The commission portion is often a significant part of the total earnings, and employers set quotas for salespeople to achieve.
Target earnings is a term used in the business world to describe compensation expectations for sales professionals who have a variable component to their income. This occurs because sellers typically receive both a base salary and commission payments for all sales made. As a result, target or OTE earnings represent the sum total of both of these amounts. The commission portion of the OTA is based on sales quotas, which may or may not be met, set by the sellers’ employers.
Many professions are paid on an hourly basis, receiving a certain amount of money for each hour of work that is delivered. In some cases, professional workers receive an annual salary based on the requirements of the jobs they are required to perform. Instead, salespeople are hired for their ability to make sales. As a result, commissions are often paid, a portion of the overall amount they sell. Adding the base salary to the commission and other extraneous income results in target earnings.
For example, imagine a job posting for a salesperson shows that the expected earnings for the job are $200,000 US Dollars (USD). The base salary for this job is only $50,000 USD. This means that the remainder of the OTA, which is $150,000 USD, comes from commission payments to sellers. In some cases, the additional amount such as available stock options may also be factored into the amount.
Of course, when someone is calculating the commission portion of target revenue, there’s no way to know if a salesperson will actually sell enough to make that money. Employers must base the amount on sales quotas, which are certain levels of sales that salespeople are expected to achieve in certain periods of time. Sellers can sell more than their shares and go beyond the expected OTE. They may even go below that, which will negatively affect the OTA and, perhaps, jeopardize their work.
For example, imagine a sales job with a particular company promises a 10% commission on all sales. The salesperson who is hired should reach a quota of $100,000 USD sold each year. Taking 10 percent of $100,000 USD gives a total of $10,000 USD. That amount is the expected commission, which can then be added to the base salary and any other expected income to produce the expected earnings for that particular job.
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