In our recent workshop, we tackled a topic that's both complex and crucial for fractional executives: pricing strategies.

• How do you set your rates?

• Do you opt for value-based pricing, or do you stick to hourly rates?

• Should you incorporate equity into your pricing structure?

These questions and more were at the forefront of our discussion, and the insights shared by the members of the community were varied and invaluable.

The Complexity of Pricing and Range of Models

Let’s face it, talking about pricing can sometimes feel a bit touchy. 

It's not just about numbers; it’s about value, perception, and negotiation. 

It was refreshing to see the members of the community be so open about their fee structure, how they communicate their value and the challenges they face.

One of the highlights of our discussion was the variety of pricing models used by fractional executives. Broadly speaking, there were three distinct strategies that are being used:

• Flat hourly rate based on hours worked.

• Package and retainer models, largely based around time commitment.

• Productised services.

These models are also not  being used exclusively. Most of the fractionals in our community are deploying two or more of these strategies as part of their product mix.

For example, Jason Woodley, Fractional COO and founder of Motive jumped in to share his product mix and how he takes a consultative approach to the sales process with his prospective clients.

Being a veteran in the digital agency space, Jason understands that his clients value clarity when it comes to what they are getting by working with Jason and having a non-variable monthly rate so that they can bake it into their budget easily.

This meant that packing his services into three unique offerings was the best way to communicate his value to his clients. Each package relates back to our three main strategies mentioned above. Let’s take a look:

Advisor Package

“I have an advisor package, which is strictly advisory only. Clients know upfront what they are getting, and the price is non-negotiable.”

This model is Jason’s lowest monthly cost and most closely resembles the hourly rate strategy as the offering is for a set amount of meetings per month for advisory calls.

Engagement Package

For an initial period of more intensive work with a new client, Jason has his engagement package. This model closely resembles a productised service as there is a commitment to a set of deliverables that is delivered in a specified timeframe.

“I have an engagement price for a three-month deep dive into the company’s P&L, identifying what's working and what's not. This can either continue at the same level or transition to an advisory role,” he explained.

This model allows for a thorough initial assessment so that Jason and his clients can understand the value that he can bring with future engagements.

Fractional COO Package

For roles that require deeper integration, Jason has a Fractional COO offering. This package is closely aligned with the retainer model we mentioned earlier.

“This is akin to being an employee, deeply involved in the company’s operations,” he noted.

This model is perfect for clients needing substantial, ongoing involvement from a seasoned executive that has over 20 years experience in the industry.

So, as we can see, baking all three pricing strategies into your product mix can add a lot of value to your potential clients and help you build trust during the sales process as you’re able to advise on the right solution for them.

Other Interesting Pricing Discussions

During the workshop, some interesting questions were raised around pricing and positioning that divided the group. A few notable discussions were:

How do we Determine Fair Market Value?

Establishing fair market value is critical but not always straightforward. Jenica Oliver, a Fractional CMO and founder of Blueprint Marketing shared her approach:

“I looked at ranges for my level of experience to confidently set my rates. It’s not just about hours worked but the value provided.” 

Determining fair market value is not just about comparing rates; it’s about understanding your worth and the value you bring to the table.

“I looked at my total compensation, including benefits and other factors, to come up with a rate that replaced my income and reflected my value.”

This holistic approach ensures that you’re not underselling yourself and that your pricing aligns with industry standards and your personal financial goals.

Should we Incorporate Equity into our Pricing Model?

Incorporating equity into your pricing can be a game-changer, but it’s not without its challenges. Different approaches were discussed:

Profit Sharing

Some members have discussed using a profit-sharing model for some clients. This can help align compensation with the client's success and provides a strong incentive for both parties.

Profit sharing is particularly valuable in industries where a sale or exit is less likely, such as digital agencies. In these cases, companies often focus on improving profitability rather than preparing for acquisition. By tying compensation to profitability, both the fractional executive and the client have a shared goal of financial health and sustainability.

This model ensures that the executive's efforts directly contribute to measurable outcomes, fostering a collaborative and mutually beneficial relationship.

Equity Stakes

Ben Scott, a Fractional CFO working with startups in San Francisco, sometimes incorporates equity for startups into his agreements.

“I charge a quarterly stipend and ask for equity. If they prefer no equity, I increase the cash component” he shared.

This model allows him to participate in the potential upside of a company’s growth while still ensuring a steady income.

Ben’s approach of combining a quarterly stipend with equity stakes provides a balanced mix of steady income and potential long-term rewards.

He stated, “Equity is really dependent on whether you can see a line of sight to it being worth something. You have to be prepared to take the loss to zero.”

This mindset allows for calculated risks while maintaining a stable financial foundation.

Tracking Time for Ourselves, Not Our Clients

Tracking time isn’t just about billing—it’s about self-assessment and ensuring we deliver value.

By meticulously tracking our hours, we gain insights into whether we’re over-delivering or under-delivering, allowing us to adjust our efforts and pricing accordingly.

If we find ourselves consistently putting in more time than anticipated, it might signal the need to revisit our rates or scope. Conversely, if we’re under-delivering, it’s a prompt to enhance our contributions to meet client expectations.

Using simple tools like Toggle or Harvest helps collect this data, providing insights into where our time goes and ensuring transparency. But the real benefit is in using this data to refine our services, set fair prices, and maintain a balanced workload.

By closely monitoring our time, we ensure every hour spent is justified and aligned with the value we promise our clients, leading to better satisfaction on both sides.

Balancing “Standby” Value and Opportunity Cost

One of the key takeaways from our workshop was the value of being on standby for clients. Harriet Formby, Fractional CFO and founder of  Below The Line Finance noted,

“The reassurance of having someone on call is valuable. It’s about the confidence you give them, not just the hours worked.”

This highlights that just being available can be as important as the actual hours you put in. For example, if a client reaches out twice a month for urgent advice, your availability provides them immense peace of mind.

On the flip side, as Jenica pointed out,

“Every hour comes with an opportunity cost. By saying yes to something, you’re saying no to something else.”

So, if you’re always on call for one client, make sure it doesn’t stop you from taking on other, potentially more lucrative opportunities. Balancing these factors helps you maintain fair pricing and deliver consistent value, ensuring your time is used effectively and profitably.

Wrapping Up

Our latest community session provided key insights into pricing strategies for fractional executives. Here’s a quick recap:

• We discussed different pricing models like advisor, engagement, and fractional executive prices.

• The importance of determining fair market value and considering opportunity costs was highlighted.

• We explored the benefits of profit-sharing in industries like digital agencies and incorporating equity in startups.

• Accurate time tracking helps ensure value delivery and fair pricing.

• Balancing the value of being on call with opportunity costs is crucial for maintaining effective and profitable engagements.

Remember, successful pricing is about understanding your worth and clearly communicating the value you bring to clients. Whether you stick to a simple hourly rate, package your services or venture into productisation - make sure your rates reflect your expertise and the unique benefits you offer.

Don’t let pricing challenges hold you back. Join the Infraction community at infraction.io to gain actionable insights, share experiences, and perfect your pricing strategy. Let’s grow your business together!