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:
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:
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.
Here are some rough figures across the spectrum of potential fractional CMOs for evaluation and planning purposes:
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.
“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.
Topics: CEO Choices, Marketing Strategy, ROIWed, Oct 12, 2016