Client Onboarding Guide #3
Nothing kills a promising fractional relationship faster than misaligned expectations around money and terms. Get the commercial stuff wrong, and even the most talented leader won't be able to deliver results.
The good news? Fractional pricing isn't as mysterious as it seems. There are established patterns, market rates, and proven structures that benefit both sides. The key is understanding what you're actually paying for and structuring agreements that set everyone up for success.
Understanding fractional pricing fundamentals
You're not buying time, you're buying outcomes
The biggest mistake founders make is thinking fractionally in hourly terms. "This person costs $200/hour, so 20 hours per week is $4,000 per week – that's expensive!"
This misses the point entirely. You're not paying for time, you're paying for:
- Compressed expertise: What might take your team months to figure out, an experienced fractional leader delivers in weeks
- Avoided mistakes: The costly missteps they prevent often exceed their entire fee
- Accelerated results: Getting to market faster, closing deals quicker, building systems that scale
- Network access: Connections and relationships that would take years to build
A fractional CMO who helps you avoid a $50K marketing agency mistake while improving conversion rates by 30% has paid for themselves many times over, regardless of their hourly rate.
Fractional rates reflect full-time equivalent value
Most experienced fractional leaders can command $250K+ base salaries in full-time roles. When you factor in superannuation, leave entitlements, bonuses, equity, and the overhead of managing a full-time employee, the true cost approaches $400-500K annually.
Fractional leaders typically charge rates that, if extended to full-time, would equal or exceed what they'd earn as employees. But you're only paying for the fraction you need.
Example calculation:
- Full-time equivalent: $400K+ total compensation ($250K base + super + benefits + equity + bonuses)
- Fractional rate: $1,750/day x 2 days/week = $3,500/week
- Your annual cost: $182K vs. $400K+ for full-time
- Your savings: 54.5%+ while getting senior-level expertise
Market rates by function and experience
These ranges reflect the Australian market as of 2025. Rates vary based on experience, specialisation, and demand.
Senior Fractional Executives (10+ years experience)
C-Level (CEO, COO, CTO, CMO, CFO):
- $1,500 - $2,000 per day
- Monthly retainers: $12K - $20K for 2-3 days/week
- Annual equivalent: $156K - $260K (compared to $400K+ full-time)
VP/Head Level (Head of Sales, Head of Growth, Head of Product):
- $1,200 - $1,700 per day
- Monthly retainers: $10K - $15K for 2-3 days/week
- Annual equivalent: $130K - $195K (compared to $300K+ full-time)
Director Level (Director of Marketing, Director of Operations):
- $800 - $1,200 per day
- Monthly retainers: $7K - $11K for 2-3 days/week
- Annual equivalent: $91K - $143K (compared to $200K+ full-time)
Factors that drive premium pricing
- Specialised expertise: Deep domain knowledge (fintech, healthcare, enterprise sales) commands higher rates
- Track record: Proven results at similar stage/size companies justify premium pricing
- Network value: Access to investors, customers, partners, and talent adds significant value
- Urgency: Time-sensitive projects or immediate availability needs increase rates
- Complexity: Turnaround situations, regulatory environments, or technical challenges warrant higher fees
Retainer vs. Day Rates: Which Structure Works Best?
Monthly retainers (strongly recommended)
Most successful fractional engagements use monthly retainers rather than day-by-day billing. This is the gold standard for professional fractional relationships.
Benefits for you:
- Predictable monthly costs for budgeting
- Fractional leader is incentivised to be efficient
- No transactional billing for strategy calls or quick questions
- Leader thinks strategically, not about billable time
Benefits for them:
- Predictable income for business planning
- Can focus on outcomes rather than time tracking
- Freedom to work when they're most productive
Typical retainer structure:
- Fixed monthly fee for agreed scope and days per week
- Includes all meetings, communication, and deliverables
- Day-rate overage for work beyond the agreed scope
- Monthly billing in advance
When day rates make sense
- Project-based work: Clear deliverables with defined endpoints
- Trial engagements: Testing fit before committing to a retainer
- Variable scope: Workload fluctuates significantly month to month
- Advisory roles: Occasional strategic input rather than ongoing execution
Why we don't recommend hourly billing
Hourly billing creates the wrong incentives for strategic work. We're not running call centres – we're building businesses. Senior leaders should focus on outcomes and impact, not time tracking.
Problems with hourly billing:
- Creates an incentive to work inefficiently
- Generates constant billing discussions
- Prevents strategic thinking
- Makes budgeting difficult
- Reduces trust and partnership feel
Bottom line: Start with retainers for ongoing work, use day rates for projects, and avoid hourly billing entirely.
Structuring the commercial terms
Essential terms to define
Scope of work:
- Specific deliverables and responsibilities
- What's included vs. additional work
- Decision-making authority and boundaries
Time commitment:
- Days per week/month (with reasonable ranges)
- Core availability hours
- Response time expectations
- Meeting requirements
Payment terms:
- Monthly retainer amount
- Payment schedule (typically 30 days in advance)
- Overage rates for additional work
- Expense policy for tools, travel, etc.
Engagement logistics:
- Contract duration (typically 3-12 months)
- Renewal terms and notice periods
- Early termination clauses
- IP ownership and confidentiality
Sample commercial structure
Base retainer: $8,000/month for 2.5 days per week over 6 months
Included:
- Weekly 90-minute strategy sessions
- All agreed deliverables and ongoing work
- Email/Slack communication during business hours
- Monthly progress reporting
Additional work: $400/hour for scope beyond agreed responsibilities
Payment: Monthly in advance, 30-day payment terms
Tools: Company provides access to necessary software/systems
Termination: 14-day notice from either party after the first month
Negotiation strategies that work
Start with value, not price
Frame discussions around outcomes and impact rather than cost.
- Instead of: "Your rate seems high for part-time work."
- Try: "Help me understand how this investment will impact our growth trajectory."
Offer clear scope in exchange for competitive rates
Fractional leaders prefer well-defined engagements over ambiguous ones.
- Value exchange: "We'll provide clear objectives, regular feedback, and efficient meetings in exchange for your best rate."
Consider performance incentives
Align incentives around the outcomes you care about most.
Performance bonus structure:
- Base retainer: $7,000/month
- Performance bonus: $2,000 for hitting agreed milestones
- Equity consideration: Small equity grant for exceptional results
Bundle longer commitments for better rates
Most fractional leaders offer discounts for longer engagements.
- 6-month commitment: Standard rate
- 12-month commitment: 10-15% discount
- Renewal bonus: Reduced rate for extending successful engagements
Red flags in fractional pricing
Rates that seem too good to be true
Warning signs:
- Significantly below market day rates for claimed experience
- Insisting on hourly billing for ongoing strategic work
- No clear examples of previous fractional success
- Desperate to secure any engagement
Reality check: Experienced fractional leaders have options. If someone's day rates are 50% below market, there's usually a reason.
Hourly billing for ongoing strategic work
Why it's problematic:
- Creates an incentive to work inefficiently
- Generates constant billing discussions
- Prevents strategic thinking
- Makes budgeting difficult
- Signals a transactional rather than a partnership approach
Better approach: Monthly retainers for ongoing work, day rates for projects.
Vague scope with fixed pricing
Warning signs:
- "I'll handle all your marketing for $5K/month"
- No clear deliverables or boundaries
- Everything is "included" in the retainer
- No overage rates or scope change process
Why it fails: Either you'll get less than expected, or they'll go over budget trying to meet unrealistic expectations.
Budget planning for fractional leadership
Calculate total engagement cost
- Monthly retainer: $8,000
- Additional tools/software: $500
- Performance bonuses: $2,000 (quarterly)
- Total monthly budget: $9,000-10,000
Compare to alternatives
Full-time hire:
- Salary: $180K
- Super + benefits: $35K
- Equity value: $50K
- Total: $265K annually ($22K/month)
Fractional engagement:
- 6-month cost: $60K
- 12-month cost: $120K
- Savings: $145K+ annually
Budget for success, not just price
Don't skimp on:
- Market-rate compensation for proven talent ($1,500-2,000/day for C-level)
- Necessary tools and resources
- Performance incentives for exceptional results
Save money by:
- Providing a clear scope and efficient collaboration
- Choosing retainers over hourly billing
- Committing to longer engagements for better rates
Common negotiation scenarios
"Your budget seems low for what you're asking"
- Response approach: "Help us understand what fair market rate looks like for this scope. We want to attract the right person and are willing to adjust our budget for the right fit."
"I need equity to make this work financially"
- Consider if: They're taking below-market rates in exchange for upside, the role directly impacts company value, and you're comfortable with the equity dilution.
- Alternative: Performance bonuses tied to specific metrics rather than equity.
"I can only do this work for day rates initially"
- Reasonable for: Trial periods, project-based work, variable scope engagements.
- Transition plan: "Let's start with day rates for the first month, then move to a monthly retainer once we've established the working relationship and can predict scope accurately."
Setting up for success
Document everything upfront
Include in your agreement:
- Detailed scope of work
- Time commitments and availability
- Payment terms and processes
- Performance expectations
- Communication protocols
Plan for scope changes
Scope change process:
- Either party can propose scope changes
- Document impact on time/budget
- Agree on revised terms before proceeding
- Update the written agreement
Review and adjust regularly
Monthly check-ins should cover:
- Progress against objectives
- Scope and time allocation
- Any needed adjustments
- Performance against expectations
The bottom line
Getting the commercial terms right isn't just about negotiating the best price – it's about creating a structure that motivates great work and clear outcomes.
The best fractional relationships feel like partnerships, not vendor relationships. When both sides are clear on expectations, compensation, and success metrics, the focus can shift to what matters most: delivering results that transform your business.
Remember: you're not buying time, you're investing in accelerated growth. Structure your agreements accordingly.
Next up: Onboarding your fractional leader for maximum impact. Learn how to get your new fractional executive productive from day one.
