S2 I EP.15 How Much Should You Charge as a Fractional CMO? - Simon Dell I CEO of CEMOH

Simon Dell (00:01)

Welcome to the CMO marketing podcast. My name is Simon Dell. As you can see, I am here all on my own today ⁓ because I'm gonna talk about something that ⁓ is important to all of those wanting to become a fractional CMO and also quite important to those people who are thinking of employing a fractional CMO. So, ⁓

Hopefully, what I talk about today is going to be useful to people. firstly, if you don't know who I am, I am the CEO of CMO.com, C-M-O-H.com. We're Australia's largest fractional marketing network. Predominantly, we look after ⁓ placing fractional CMOs with businesses that need guidance, strategy, support, those kind of things.

You can find out more about us at simo.com, can find me on LinkedIn, Simon Dell, I think I'm quite easy to find, so come and look me up. And today I'm going to talk about pricing, which is a hugely sensitive and discussed topic within our community and within the people that we work with. And often the same with the clients because...

One of the first questions they always ask is how much is this going to cost? How much do these people charge? Now I'm going to talk in broad numbers and broad terms today. There is a tool on our website, which you can find in the footer at the bottom, which will allow you to get some live data in terms of what people are charging, what people are earning and things like that. So you can go and have a look at that. But the conversation I'm going to have today is about

structuring how you charge and what you charge when it comes to clients. this is pretty much gonna be from the side of the consultant themselves. So we're gonna have a little bit of an introduction to start with and then I'm gonna talk about four different frameworks. And each one of those frameworks is

will give you some guidance about how to charge. You can pick one of those frameworks or you can pick a hybrid of those frameworks. So hopefully this will help you and this will give you an answer. I'm only gonna try and wrap it on for about 20 minutes. if you...

If you if you get bored of this you can skip forward some of it but um Hopefully you've got 20 minutes to spare because I think this is a super important part of Your business and setting up your business. It is by far the hardest thing I think The fractional CMOs do right at the start and so many people get it wrong. Um, It's one of those things that I think you need to take some time with at the start but I also think it's one of those things that

It is an evolution throughout your career as a fractional CMO. What you charge on day one isn't necessarily what you charge two years down the line. I remember when I very first started an agency, we would literally take any job that came through the door irrespective of their budget. If they had $300, we'd take that. Now years later, as we got bigger and better and we had a better reputation, you know, we would just about

be happy to take $3,000 if someone came in and offered that money. So this is the sort of thing that evolves over time. What I find is that most people are, most fractional CMOs are probably undercharging. There are certainly fractional CMOs that are overcharging in terms of their skill set and their experience. And I think undercharging comes largely from the idea of imposter syndrome. ⁓

A lot of people are like, well, can I do this? Am I going to be any good at this? I'm new to this. Maybe this client is in an industry that I'm not familiar with. So maybe I ought to do this cheaper and things like that. So I think there's a challenge there that there is imposter syndrome, which causes people to undercharge. Or sometimes people just over copy the market blindly.

So they sit there and go, well, that guy's charging 1500 bucks a day. So therefore I should charge 1500 bucks a day. It doesn't work like that. And that shouldn't be the basis of how you decide what you charge. Yes, absolutely. One of the frameworks that we'll talk about is the market rate. But I think it's, it's still worth taking other things into consideration.

when you talk about how much you charge. So we're gonna talk about ⁓ those frameworks today. And then right at the end, we're gonna talk about how to package that. So.

Bear with me through that. As I say, it should be about 20 minutes and we'll get through this and hopefully this will be useful to you. So framework number one is what we call the market rate anchor. there's first of all, a reality check of what a full-time CMO in Australia earns. Now that is actually a broad spectrum. Everything I quote today, I'm gonna quote without superannuation.

For those of you that are not in Australia, Google what superannuation is. It's a full savings by the government ⁓ for your retirement. So it's not a pension, it's something else. But I'm gonna quote these without superannuation. So first of all, the market rate anchor says, we need to look at the full-time, what a full-time CMO in Australia earns. Now, that's difficult because it is a broad range.

It could be $180,000, it could be $280,000. It also is very dependent on the city that you're in. A full-time CMO in Brisbane earns less than a full-time CMO in Sydney. So you have to take those things into consideration. What you also have to take into consideration, fractional work carries a premium ⁓ because essentially you're bringing that seniority into the business without them having a permanent overhead in place. So you also have to think about that.

If you start with your, sorry about that, if you start with your base price and then think about there's a premium in that. So you've also then got to think about the market rate for what is already out there for senior fractional CMOs. And again, that's a broad range. Could be $1,200 a day, could be $2,500 a day.

What I would say is that sometimes you might see a fractional CMO that does one day a month and charges two and a half grand. You might see someone that does four days a month and charges 1200 bucks. Sometimes rate diminishes based on frequency of engagement. So there's all those kinds of things. Now it's quite easy to, it's quite easy to go and sort of check these things and find out what those market rates are. Obviously, as I said, we have our calculator on CMO.com.

There are other platforms that you can use, Expert 360, LinkedIn job ads, all sorts of areas that you can go and find this information. But the key point for framework number one, the market rate anchor is that the market rate is your floor and not your ceiling. That should be the starting point. If someone's gonna go out there and hire someone else instead of you, you don't want to be the floor. You this to be your starting point.

and not your top point. that make sense? So market rate is not your your floor, not your ceiling. So framework number one, market rate anchor. The second one is framework number two, the salary reverse engineer. And this is generally the one that I think is probably the best option for most people. Okay. So first of all, you need to pick your target income. So let's say you want to work from home.

you know, maybe go out and see a client a couple of times a week and you want a target in the annual income of let's say $200,000 a year plus again, plus superannuation.

The first thing to understand with that is that you're generally not billing 52 weeks of the year. Realistically, and the way that we always do our calculations is based on 44 weeks of the year. Now that's because you want four weeks holiday. There are ⁓ all sorts of public holidays and things that you throw in there, sick days, days off, whatever it is.

⁓ So if you're not billing 52 weeks of the year, you're realistically billing 44 weeks of the year. And maybe you're working across three or four clients at a time. So you work backwards from those numbers, two and a half, sorry, 200,000 K divide that by 46, divide that by the days of the week that you're available and that gives you a day rate. Now, again, maybe you bump that up a little bit for tax for super for no sick leave, no holiday pay gaps between clients.

Generally, I would say you're probably wanting to put a little buffer in there of maybe 20 % to 30%. Okay, so you work back from that you're going to add 20 to 30%. I mean, you can do that before you start the calculations, but you know, work back from work back from there and then perhaps add that on there. My key point with framework number two is the salary reverse engineer is that most people forget to price in the non billable time. And there is non billable time.

business development, admin, and especially downtime between gigs. So if you do a six month contract and it ends and you don't get another contract for two months, you have to factor that into what you're charging. You have to give yourself the ⁓ cushion of that money being available in the time that you don't have a gig.

Okay, so that's framework number two, the salary reverse engineer. Framework number three is value based pricing. So this is where we suddenly go, you know what, let's stop thinking about time and let's start thinking about outcomes. And again, I like this one. ⁓ So, know, there's often, they don't have this particular pick one of these frameworks, you can pick ⁓ a hybrid of these frameworks, or you can pick a different framework for each client, doesn't really matter.

So framework three is value-based pricing. Stop thinking about time, start thinking about outcomes. What's the client's problem that they have that is worth solving? So if you as a CMO, fractional CMO, help a $5 million business grow to $8 million, that has enormous value for that business. So therefore you can price yourself based on the scope of impact and not the hours that you're going to work. Okay?

I'll repeat that price yourself based on the scope of impact and not the hours worked. Now what this means with value based pricing is you need a lot more information right at the start to be able to work this out. But if you can, you can really work out what your return on investment is for somebody employing you. Now, the three numbers approach is something that I think is super important here. Now you may have heard that that sort of three numbers approach in

in other in other management speak and all those kind of things. What's the cost of them not employing you? What's the revenue upside of employing you? And then what is the fair share for your expertise? Okay, again, I'll repeat those. What is the cost of them not fixing this? What is the revenue upside for them if you start work with them?

And therefore, what's the fair share of that for your expertise? Now, let's look at that $5 million business that's grown to $8 million business. So that's a $3 million upside. So that's the upside. Okay. If they didn't do anything, the business might stay at 5 million. So the cost of not fixing this is $3 million. The revenue upside is $3 million. What's your fair share for that expertise?

What you need to understand there is of that $3 million, potentially how much of that was natural growth? How much of that is gross profit or net profit? How much of that is costs? How much of that is expenses? So if for example, you said, of that $3 million, half a million dollars of that is ⁓ profit, is pure profit to the company.

So you've grown their business, let's say in a year from five million to eight million, and you've put half a million dollars of pure profit on the bottom line, you could turn around and go, well, what if I charged them $50,000 for my expertise? 10 % of that comes to me.

Now, obviously to do all that, you need all these numbers, you need an understanding and you need to be supremely confident that you are gonna take it from five million to eight million dollars. But that's the benefit of value-based pricing is if you can get those numbers and if you can get them right, you can actually gain a lot more business for yourself and you can gain a lot more money for yourself because you've priced it based on what you're delivering as a benefit to the client. So.

The key point for value-based pricing is this is especially where experienced fractional CMOs separate themselves from the rest of the herd. But you do absolutely need, you need three things to be able to do this properly. Number one, you need confidence. Okay, so I doubt you're very much gonna go on value-based pricing with your first gig, right? So let's keep this one up your sleeve for maybe later on. You need confidence.

you also need the track record to be able to pull this off. If you've never done value based pricing and pitched yourself as saying I'm to take 10 % of all the profit. Yeah, you may not you know, you may not be taken seriously by the client. The third thing you know you need is all the data. There's no point in having a conversation about value based pricing if you don't understand the numbers that the client is dealing with. Okay, so that's framework number three value based pricing. Framework four.

the competitive positioning framework. This is a little different because this is based on finding out where you sit in the market against your competitors. So the key for this is understanding a little bit about what everybody else is charging. So let's say you walk into the market, you find out how much 10 other fractional CMOs are charging. Where do you fit into that framework? Do you want to be the budget one?

Now the budget one has its benefits. It's easier to convert clients. You might get more reoccurring work, but the premium ones are harder, but they're more profitable. They might be harder to convert, but they deliver you more revenue. So you've got this idea of again, everywhere that we operate in the world today, you've got a budget.

⁓ Mid-market and a premium and each one of those has different client profiles as to you know What they spend and what industries they're in and all those kind of things premium pricing signals Expertise and it filters out Bad fit clients. So that's a good thing But again, it's harder to convert them

So you might sit there and go, okay, well, I'm going to go for the budget option. Now you're going to get maybe some extra, you know, shitty clients, but it's going to be easier to convert. know, your cash cashflow is going to be healthier. Potentially. You're not going to have as much downtime as perhaps you were if you're working with the premium ones. And again, with the budget ones, I always feel that, you know, if you're turning around and saying, Hey, I'm going to do eight hours a day and this is going to be my price.

You know, you can sit there and negotiate with them, go, all right, well, I'm going to keep the price, but maybe I'm actually only going to do seven hours or six hours and things like that. So there is a danger that if you're looking at the budget ones, you feel that you're in this Harvey, I call it the Harvey Norman syndrome, where you're constantly discounting. ⁓ And you find yourself in the wrong tier, you find yourself targeting the wrong clients. I don't think that's necessarily a bad thing, potentially, from when you start off.

⁓ because what you want to do when you start off is get cash flow, is get cash coming in, paying your bills, paying your mortgage, you you take on any client. It's great to have those principles that you want to deal with higher, you know, higher value clients. But at the end of the day, sometimes it's important to get cash flow in. So the key point for the competitive positioning framework is that your price is part of your brand positioning.

Cheap fractional CMOs rarely attract serious business. That's fine. But cheap fractional CMOs might be able to turn around a lot of smaller business and do it quickly. So again, there's pros and cons of this positioning. I would argue eventually you want to get yourself into the premium space and we have fractional CMOs that their initial engagement is $20,000, $30,000. So if the client doesn't want to pay that.

you know, they don't work for them. So those are the four frameworks, market rate anchor, salary reverse engineer, value based pricing or competitive positioning framework. Now, to sort of round that up, I'm going to talk about pricing structures because there's five different ways that you can price. Number one, hourly. That is the lowest friction to start because you can just sit there and say, hey, how about I come and do 10 hours work for you? I'm going to charge this price.

⁓ It's very easy for a client to say yes to that. They get a taste of how you work, et cetera, et Obviously there's pros in that. The pros is that it's very, it's much, much easier to convert those hourly ones. It's get somebody in the door, start working for them, show them what you can do, build from there.

Okay, so easier to get through the door easier to sell yourself. The downside is it devalues the strategy work and your strategic work and and creates this watching the clock dynamic that nobody likes. You know, clients will be saying to you, hey, you only did

You only did nine of those 10 hours that you said, because I was timing you. So use hourly sparingly, use hourly at the beginning of an engagement, use it if it's just a one-off ad hoc advisory job. Hey, I'll give you three hours of my time and it's gonna cost you, you know, 700 bucks, something like that, all right? Day rate is easier to scope.

⁓ It's clean, it works well for project based engagements. The key thing with day rate is the concept of a day is entirely up to you. A day could be eight hours, a day could be six hours. ⁓ A day could be five hours and then an hour traveling at either end. So you can define a day how you like, but the client feels like a day is, I'm gonna get them for this whole day. So day rate is the...

is a good option. ⁓ As I said, it works well for all sorts of engagement, project-based engagements, ongoing engagements. Some clients go, hey, especially with fractional CFOs, often you get a fractional CFO, he comes into the office, he or she comes into the office one day a week, sorry, one day a week or one day a month, ⁓ and they do everything they need to do within that day.

That's where the client then goes, I know I've got them for that day. I make myself available to meet with them, to discuss things with them. ⁓ And then it just keeps going on and on and on. It ticks over month to month to month. They do one day, maybe some additional work outside the office. So hourly is one option, day rate is the other option. Monthly retainer is the gold standard for fractional work. It's predictable income for you. It's committed access for the client. ⁓

and it's usually based upon a set number of days per month. So it's kind of like an amalgamation of day rate monthly retainer. So monthly retainer might go, hey, I'm gonna charge you $6,000 a month. As part of that, I'm gonna spend two days in the office.

⁓ or two half days in the office or four half days in the office, whatever it is. But I'm also gonna do all these things. And the other things that you talk about are value-based things. They're not time-based things. So you've got this kind of monthly retainer where you're giving them some committed time. And then you've got the monthly retainer where you're giving them some committed outcomes and actions. And those outcomes and actions...

Some month might be really high, it might take you a long time. Some months that might be less. Okay. So I think monthly retainer is the gold standard for fractional work. The way we operate is to say, Hey, look, we'll get it, we get a deposit from our clients to cover the first month. And then you do the work and then we invoice them and then you get paid. So monthly retainer, I think is where you will want to go to the fourth one is project based or fixed fee. It's good for defined deliverables, you know, doing a strategy and all

a launch plan, something like that. The challenge with project bases, it's not ongoing. You kind of almost have to sell yourself again at the end of the project for maybe ongoing work or for a second project or something like that. You have to kind of keep selling yourself over and over again, which can be a bit sort of tiresome and time consuming. Also the challenge with project bases, unless you scope it extremely tightly, you get scope bleed.

all over the place, right? So you don't want to be sitting there going, well, I, is what I said I was going to do within the original project brief. Now they're asking me to do all this. I didn't have any mechanism for turning around to them and saying, hey, your scopes expanded. All of a sudden you find you're doing yourself extra work and making no extra money. Right? So project based is great sometimes fixed fee is great sometimes, but just be super, super cautious.

for scope bleed and also just be aware that you have to keep setting yourself over and over again. Then there's the hybrid, ⁓ which is sort of amalgamation of all of those things. Retainer bass plus a day rate for overflow. ⁓

So you might sit there and go, hey, I'm $5,000 a month. These are the days that I will commit to. Here's all the KPIs. But if you want extra time off me, an extra day is worth this, an extra day is, you know, maybe an extra 10 hours is worth this. That allows them to sort of increase the time they spend with you if they need it. And that kind of is a nice little bonus for you, rewards the client for their commitment to you, but also protects you from scope creep.

So you to go around and say, well, this was outside of what we originally agreed, but hey, here's another 10 hours. I'll do that within those 10 hours. My recommendation always is to push to retainer, a monthly retainer, ⁓ always do something like, hey, let's do a three month trial for monthly retainer ⁓ and then have the monthly retainer. have, what we have is that it just keeps going on month after month.

and it's a 30 day cancellation. So you just say to them, hey, look, the retainer will keep going until you give 30 days notice that you no longer want to continue doing that. It is your job and this is something that we'll talk about in another ⁓ podcast because we're going to get Sandra in to talk about that. Is that kind of constantly renewing and making sure that the client is happy with you? Ideally, what you want to do is go in there for a three month contract and you end up being there for two years.

Now that's what we want, that's why that's the basis of our business model at simo.com. So I hope that's kind of, ⁓ I hope that's helped. As I said, ⁓ go back through if you need to look at it again, the four frameworks, the market rate anchor, the salary reverse engineer, value based pricing and the competitive positioning framework, and then look at the pricing structures, hourly, day rate, monthly retainer, project based or hybrid.

⁓ Hopefully that gives you some idea about how you need to position yourself. But my closing thoughts with this is that pricing yourself is a skill that you develop. It's not you plucking a number out of the air on day one and going, that's how much I'm gonna charge. That's not how it works. It's an ongoing skill and the... ⁓

Better you become at that skill, the more confidence you get and the higher you can eventually start pricing yourself. Start low. And I know that seems counterintuitive to a lot of people and probably counterintuitive to a lot of advice that you might hear, but start low, get the clients in. Worst comes to the worst. You turn around and they have great success with you for six months and you say, hey, look, I'm gonna put my price up.

If they don't want to stay with you, they didn't see value in what you're doing. And then you go out and find yourself somebody else. So.

It's a skill, it's an ongoing skill that you develop. Revisit your rates every six to 12 months. And that means individually for clients. It doesn't necessarily mean that you've got the same rate for every client, but just revisit the rates every six to 12 months for a particular client. Put that in your contract. Put that in your original proposal to say to the client, I will review my mat rates every six months, even to the point where you turn around to them and say, every 12 months, my rate will go up by ⁓ CPI or... ⁓

you know, whatever it is, you almost build that into the original proposal to say, you know, I'm going to tell you now that it's going to increase because that really does soften the blow later on down the line. The third closing thought is that the right client won't balk at the right price.

If they see value in you, if you've pitched yourself well, if they like you, if you have good experience, if you can prove to them that you can help them out, they won't give a shit about the price. It'll be take my money. Okay. If there's any ifs or buts, if they're umming and ah-ing, if they're not sure or they're delaying making a decision,

then there's two things that are happening there. Number one, you weren't talking to the right person, which is a frequent problem that we see. The second thing is you didn't present your value well enough. So if you said I'm $2,000 a day, and they're umming and ah-ing at that, you haven't presented why you're $2,000 a day. Now, that's pretty much it from me. Hopefully that's

useful to you out there. That was 28 minutes. So that's a little bit eight minutes over than what I thought it would be. ⁓ But look, I think that's 30. I think that's 30 minutes. And there they go. That's my phone going as well. People need to talk to me. But that's 30 minutes I think that are useful that you should think about whether you're starting off in your journey as a fractional CMO or whether you're actually well into that journey. ⁓ Hopefully you found that useful. If you have Simon at CMO.com, send me an email.

let me know or add me on LinkedIn and yeah I would love some feedback so please please feel free to ⁓ please feel free to let me know.