How to Set AE OTE the Right Way - Use a Ratio of Quota to OTE
A practical guide to get the top talent by giving them a fair OTE and Quota to set them up for success
“We figured $200K OTE sounded about right. And I think their quota should be $1.6M. And we want to grow $5M this year so we’re going to hire 3 AEs”
The problem? Their ACV was $50K, which meant each AE would need to close nearly 32 new customers in year one - when they were only getting 30 new inbound opportunities each month, with no additional SDR support.
Those AEs never had a shot and 2 of them were gone within 6 months.
What is OTE?
OTE stands for On-Target Earnings - the total annual compensation an AE makes if they hit 100% of quota. It’s made up of two parts:
Base Salary (guaranteed)
Variable Compensation (sales commission at quota)
In SaaS, the norm is a 50/50 split. For example, an AE with a $200K OTE would typically earn $100K in base and $100K in variable commission. This balance gives reps stability while still making half their earnings performance-driven .
Quota Is Typically 4–6× of OTE
The most important ratio in SaaS comp design is quota-to-OTE. The industry benchmark is 4-6×, with 5× often considered “steady state”. I personally think 4x is a good number, especially if you haven’t gotten GTM Fit yet.
Why this matters:
Cost of Sale: If quota is ~5× OTE, then your sales expense equals ~20% of new ARR. That leaves room for gross margins, marketing costs, and customer success while still hitting efficient CAC payback targets.
Rep Motivation: At 4–6×, top reps see a clear path to earning six-figure commissions if they hit quota, which keeps them motivated and competitive.
Sustainability: Ratios below 3× mean you’re “buying revenue” at too high a cost- burning cash. Ratios above 6× make it nearly impossible for reps to succeed, leading to attrition.
This ratio is less about “what feels fair” and more about ensuring your GTM model is financially viable. It aligns individual earnings with company unit economics.
When Might the Ratio Fall Outside of this?
It’s pretty rare but there are some occasions where you might want to go outside of it.
Land & Expand motion: Early deals may have lower ASPs so the goal is just to land customers in year 1. Start quotas lower and move to 4-6x once expansions kick in.
No GTM Fit yet: Not enough data → AE carries more risk, so quotas may be lower until motion is proven.
New market/product: Similar dynamic - don’t push all risk onto the AE when you’re testing something new.
Which Comes First: Quota or OTE?
You can really start with either one and then use the ratio to determine the other. What I typically like to do is first decide what type of AE you need, and then start with OTE.
For example:
If you have smaller ACVs and more transactional sales, you could hire an SMB AE with an OTE of $125K-$175K.
If you’re selling more mid-market, that OTE might be closer to $200K.
And if it’s an enterprise motion with high deal sizes, you might start with an AE at $300K OTE.
These are very general guidelines. I always recommend using compensation benchmarking applications to validate specific ranges for your role and geography (e.g., Pave, Carta, Option Impact).
How to Set AE OTE the Right Way
Leverage Data to Figure out Quota: Model ACV × win rate × # deals. That’s your baseline.
Golden Ratio: Stay in the 4–6× range; <4× means you’re buying revenue, >6× risks underpaying.
50/50 Split: Don’t overcomplicate—stick with the market norm unless cycle length demands otherwise.
Market Check: Align with stage benchmarks; don’t try to reinvent the wheel.
Don’t Underpay: A+ reps demand A+ comp. If you can’t afford it, keep founder-led sales a bit longer.
Getting AE compensation right isn’t about what feels “fair.” It’s about building a system that aligns incentives, attracts top talent, and protects your unit economics.