A Growing Spectrum of Fractional CMO Service Providers Ensures a Range of Fee Levels

More CEOs are hiring fractional executives to bring expertise to their management teams, but are they really affordable? And how should a CEO evaluate their value and the quality of work they deliver? These are really good questions! After all, there’s a wide range of skills, seniority and experience from marketing consultants, agencies and firms that call themselves fractional or outsourced CMOs. So, as you’d expect, there’s a wide range of price points from these sources. But to get started, let’s put these into a few oversimplified categories:

• “Single Shingle” Marketing Consultants
• “Loose Confederations” of Brokered Marketing Consultants
• “Professionals” who are Part of a Firm
  • Senior management from a marketing or advertising agency
  • Partners from an “Executives-as-a-Service” firm (such as Chief Outsiders)
  • Partners from a large consultancy (such as McKinsey & Co, Bain)

Pick an Outsourced CMO that Aligns with Your Requirements and Budget

Since there are a range of choices in picking someone who can act as your company’s marketing executive, the trick is to align your needs, opportunities, risks and budget to the potential resource. Here are the key questions to ask yourself:

1. How important is this role? Do you need some tactical assistance or true C-level leadership to fill a gap in your leadership team? (see “What Does a Fractional CMO Actually Do?”)
2. What’s at stake? Are you making important, but minor adjustments to your go-to-market capabilities or seeking major growth, improvements and impact?
3. How quickly do you need results? Will be looking for results to trickle in over time, or do you need big things to happen, soon?

Evaluate the Cost Relative to the Impact You Need

So again, what needs to happen as a result of this hire? An incremental improvement in your marketing performance, or a sea-change shift in your growth trajectory? One direction might lead you to trying a few options to get the most cost-effective fit, the other may be so strategic that you’d invest some percent of the future value of increased revenues, margins and profits in order to reach a new capacity for growth. It’s important to generally pick one of these directions before proceeding to evaluate cost. 

Okay…So What Can You Expect to Pay?

Here are some rough figures across the spectrum of potential fractional CMOs for evaluation and planning purposes:

• “Single Shingle” Marketing Consultants
  • Typically, paid hourly, between $100-$200/hr (some as high as $450 and up)
    • Pros: Easy to find quick general help
    • Cons: Potential impact limited to scope of individual’s experience
• “Loose Confederations” of Brokered Marketing Consultants
  • Very similar to single shingles, but without the very high-end, so $150 - $250/hr
    • Pros: More options to choose from
    • Cons: Since most anyone can participate, difficult to gauge quality and potential impact
• “Professionals” who are Part of an Agency or Management Consulting Firm
  • Senior management from a marketing or advertising agency – can be quite expensive, and hidden within other agency fees from lower cost agency people, but can easily range from $300 to $600
    • Pros: Marketing communications resources ready to be deployed
    • Cons: Their mission is to deploy agency resources to build communications assets and campaigns, so can be in a conflict to advise what’s best for a client company
  • Partners from an “Executives-as-a-Service” firm (such as Chief Outsiders) – typically these firms don’t charge by the hour, but by retainer (from $1,500 to over $30,000/mo.), but to equate to hourly evaluation, think between $300 - $500/hr.)
    • Pros: You get an “executive” not a consultant
    • Cons: Typically, they don’t charge by the hour
  • Partners from a large consultancy (such as McKinsey & Co, Bain) – the range here is quite large and sources vary on their reporting of actual fees. Having said that it’s not uncommon to pay $400/hr. for an MBA grad that’s staffing on an assignment, and over $1,500/hr for a partner-level management consultant who might play the fractional CMO role.
    • Pros: Top branded management consultants bring maximum credibility to your board
    • Cons: Expense and complexity – analysis and solutions often over-the-top for mid-sized companies

Evaluate Affordability by Forecasting Your Return

In all actuality, if you’re evaluating the notion of a fractional CMO, you’re likely comparing the cost to a full-time hire. In these scenarios, the full-time hire is probably a more junior marketing director or manager. You may find your fractional CMO option is about the same cost as a marketing director. So, why would one buy fractional? The answer of course is because of the strategic value to your business. You’re not trying to acquire the least expensive option, but the most effective option. Here’s a simplified example of how you might evaluate your choice:

Your Revenues Today: $10M/yr

Gross Margins: 30% ($3M/yr)

Growth Rate: 10%/yr ($1M more next year, or $300k more gross margin $)

Growth Target: 20%/yr ($2M more next year, or $600k add’l gross margin $)

Fractional CMO Investment: $200k (150% ROI based on $300k incremental margin $)

Increased Enterprise Value: May add multiples to valuation; e.g., 7x to 10x, $7M to $10M, ROI 1,000%

While it’s true that your fractional CMO may require additional budget for marketing programs or even organizational development, in many cases your fractional CMO’s first impact will be shutting down all the spending that isn’t delivering a return. In addition, it’s important to remember that a fractional CMO’s job is to get in, and get out, so your expense for the role is not on-going, yet the benefit of the strategic impact is likely to last into the future, delivering even more benefit after your fractional CMO engagement has concluded. 

Remember, Get the Strategic Value You Need

“Marketing” is a term with a broad set of definitions. One way to think about your marketing needs is to think of the communications and promotional side of marketing as little “m” marketing. And the strategic side of marketing (markets, competitive positioning, channels, products, pricing, etc.) as Big “M” Marketing.

In conclusion, you have options. Don’t overspend on your requirements, but don’t underinvest when you have much at stake. My partner and I published our first book largely on this subject, The Growth Gears. You can read the first chapter for free here. Let me know what you think, and how we might help you.