Comparing FTE and Fractional Costs

I've seen some get surprised by hourly rates of a Fractional CxO. Are they fair rates and does hiring them save the company money?

TLDR: Yes, they do, save money. But there is more to say.

To consider this question, I'll be using the role of Fractional CTO. Since I am one myself, it makes it easier to compare. I'll also be using data from Salary.com . Specifically, I will use numbers from the 10% (low), 50% (median), and 90% (high) ranges. To calculate hourly pay, I divide the yearly by 2080 hours.

Let's consider what a FTE CTO would cost.

The base pay for a FTE is:

• Low - $223,961 ($108 an hour)
• Median - $303,874 ($146 an hour)
• High - $387,718 ($186 an hour)

Many do this simple math and see the higher prices and think Fractional CTO are asking too much. However, this does not represent the total true cost of an FTE. Bonuses and benefits need to be taken into consideration. I'll use Salary.com data on this too. They calculate benefits to include social security, 401k, disability, healthcare, pension, and time off.

The median bonus is $80,000 and the median benefits are $103,000. Adding these to the FTE rates gives:

• Low - $406.961 ($196 an hour)
• Median - $487,269 ($234 an hour)
• High - $570,718 ($274 an hour)

What I list here is close to a true cost of an FTE CTO. There is more in equipment and realestate that would need to be added. But I think these numbers are good to start with.

What does a Fractional CTO cost?

While the hourly rates I listed above are close to the true cost for and FTE, for a fractional CTO, benefits for an individual or family cost more. In addition, the fractional CTO also has to pay for extra taxes, billing software, buying their own equipment, having their own business insurance, paying for learning platforms, marketing, etc.. All that can add some to the hourly rate.

Typical Fractional CTO rates are:

• Low - $180 an hour
• Median - $240 an hour
• High - $400 an hour

Most fractional CTO I know land in Median to High range based on their skill set. Most bill closer to the median, but some bill a bit more. It tends to be the Fractional CTO that has spent a lot of time in some of the very top companies that charge near the High level. If you're looking for those with FAANG or Fortune 100 background, you may pay close to the High range or even more.

Keep in mind, for this hourly rate, you are getting people with lots of experience. They have been there and done that. They know what works and what doesn't. And you are taking on an individual that is taking a lot of risk on by taking on fractional roles.

What about my Fractional CTO rates?

At the time of writing this article (8/28/2024), my base rate is $240 an hour for Virtual Fractional CTO work. That said, I will adjust the rate for some conditions. For example, if part of what I am contracted to do is to build an enterprise architecture program, I might add $20 an hour for that specialized skill set I have. If a contract wants me to travel to be onsite, I may charge more. I offer hourly discounts for longer-term contracts and a little discount if we use a prepaid retainer approach. I also may charge less if I'm virtually working for a company whose local economy is not nearly robust as the US.

For North American clients, I ensure my rates land between the median and high rates of an FTE. Which is in line with median rates of a Fractional CTO.

Occasionally, I also run some discount deals. Right now I'm running a Labor day special for 20% off for two months. Find the details in this post.

https://www.dhirubhai.net/posts/mike-t-conley_fractional-advantage-fractional-cto-consulting-activity-7233813195176472576-eX6K

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