Setting sales budgets, earnings targets and incentives

Setting On-Target Earnings (OTE) for sales teams requires a strategic approach that aligns compensation with revenue growth while remaining competitive.?

OTE includes base salary and variable commissions, structured to incentivise high performance and customer retention. Here is a step by step approach to set size your sales team and set sales targets for optimal performance.

Step 1: determine the appropriate OTE Multiples

The first step is to understand the OTE multiple that applies to your industry and product use case. Set this too high and your team won't achieve quota very often, leading to a demotivated sales team and pressure on the company's cash flow. Set this too low and your revenue team will be uncompetitive: customer acquisition costs v long term revenue will be too high.

Standard industry multiples fall within:

• 4–6x Quota: Common for SMB-focused reps with lower deal values and faster sales cycles.
• 5–8x Quota: Standard for mid-market reps, balancing volume and contract value.
• 8–12x Quota: Used for enterprise sales, where deals take longer but have higher contract values.

For example, if an enterprise SaaS rep has an OTE of $200,000, their quota might range from $1.6M to $2.4M in annual contract value (ACV).

To attract top talent while maintaining unit economics, SaaS companies often structure variable pay as 50/50 (base/commission) or 60/40.?

Sales reps should achieve quota 50–60% of the time to ensure earnings remain motivational yet sustainable.

Step 2: working out sales targets and on target earnings

Once you have your competitive OTE set, this generalised formula allows a CFO to derive the sales target for any commission rate and any on target earnings multiple that applies to your sector:

Where

B : Base Salary

CR : Commission Rate (in decimal form; e.g., 8% is 0.08)

ST : Sales Target (the amount of sales the rep must achieve)

T: The desired OTE multiple?

Step 3: sizing the sales team

Creating the optimal sales team size is an exercise of dividing the total company sales target by each sales rep’s ST to ensure you have sufficient capacity in market to achieve your goals. At this stage you might back test the CAC:LTV ratio (being the total cost of your sales team including commissions at OTE, in proportion to the sales bookings and customer lifetime value that applies to your company and sector).