Fractional Executives: The Cost-Effective Solution for Small Businesses in Need of Expertise
Fractional executives are experienced professionals who work part-time or on a project basis, providing expertise and guidance to help businesses achieve their goals. Often, small businesses need more resources and expertise, making it difficult for them to achieve growth and success. While hiring a full-time executive may not be feasible due to the costs involved, fractional executives can provide a cost-effective solution to this problem.
A fractional executive differs from a consultant, but the difference may confuse some. Typically, a consultant will provide advice and guidance, but they are separate from your company. A fractional executive works alongside your team, helps in company operations, and is responsible for the outcomes of those operations. They are an extension of your existing leadership team. In most instances, a fractional executive provides all of the responsibilities to your company as a full-time executive.
Cost-effective Expertise
One of the most significant benefits of using fractional executives is cost savings compared to a full-time employee with a similar amount of experience. Hiring a full-time executive can be expensive. Fractional executives work on a part-time or project basis, meaning companies can save money by only paying for the services they need. Additionally, businesses can avoid the costs of recruiting, hiring, and training a full-time executive.
As explained in the FRACTIONALS UNITED BLOG, it is essential to explore the cost of an FTE (full-time employee) compensation plan compared to fractional monthly retainers. The data is eye-opening!
According to data gathered (March 2023) by Salary.com, the median (50th percentile) core compensation (salary+benefits*) for the following C-Suite leaders is as follows:
- Chief Financial Officer (CFO)- $558,999 ($46,583/mo) + 22% bonus
- Chief Operating Officer (COO)- $622,672 ($51,889/mo) + 23% bonus
- Chief Marketing Officer (CMO)- $464,651 ($38,720/mo) + 25% bonus
- Chief Revenue Officer (CRO)- $408,619 ($34,051/mo) + 12% bonus
- Chief Technology Officer (CTO)- $387,001 ($32,250/mo) + 15% bonus
- Chief Human Resources Officer (CHRO)- $449,340 ($37,445/mo) + 25% bonus
- Chief Talent Officer (CTAO)- $337,197 ($28,099/mo) + 20% bonus
Bonus comp and equity cash totals were excluded from this comparison since both are variable compensation, only sometimes guaranteed. The average percentage offered was noted instead.
The average monthly retainer for fractional executives starts at around $5,000 and goes upwards to $15,000 per month. Retainers vary depending on the experience, scope of work, and level of hourly commitment per month (i.e., 25%, 50%, or 75% commitment to the team/company). The retainer may be higher if the professional has more years of experience, is in high demand, or if the organization is in a large metropolitan area.
If we assume that any given fractional executive discipline is $10,000 per month, then:
- Fractional CFO – 21% of an FTE
- Fractional COO – 19% of an FTE
- Fractional CMO – 26% of an FTE
- Fractional CRO – 29% of an FTE
- Fractional CTO – 31% of an FTE
- Fractional CHRO – 27% of an FTE
- Fractional CTAO – 26% of an FTE