So, there are you, sitting at your desk late one night. You’ve had an exhausting day on sales calls, meetings with team members, and making all the operational decisions necessary to keep everything running. Yup, you made it through the day, but you didn’t have time to work on the bigger projects to move your business forward.
You feel like you’re on a merry-go-round that never stops, and sometimes you just want to get off and walk away. Well, at least for a few hours, right?
But what you really want is someone you can trust to partner with you and help run your business.
If that sounds like you, it may be time to consider hiring a Fractional COO. A F-COO is an experienced executive who is not a full-time employee but only works a fraction of the time. It’s an attractive option for companies who want the benefits of hiring a veteran business executive without the costs of a full-time salary, benefits, and executive perks.
For example, you could bring in a Fractional COO to work on an organization-wide implementation project. Or, like many companies are now doing, you can have a F-COO work on a retainer, providing leadership and direction to functional areas of the company so you can work on the broader vision for your business.
It already sounds like a good idea, doesn’t it?
But every good thing comes with a price tag, and so right away, you start to wonder, “How much does a Fractional COO cost?”
Like many things in business, the answer to that question is, “That depends.”
To start unpacking the variety of issues that contribute to Fractional COO costs, let’s start by reviewing the different fee models.
Fee Models
Hourly Fee
This is exactly what it sounds like. You pay for the total number of hours the Fractional COO works during a defined pay period. While this can be an attractive option for businesses on a budget, very few experienced fractional executives offer an hourly rate option. Most F-COOs tend to go with project or retained fee models. But if Fractional COO costs are important to you, explain your budget constraints and see if you can negotiate an hourly rate. It never hurts to ask, right?
Project Fee
This is also exactly what it sounds like; it’s a pre-determined fee to deliver a defined outcome. For example, you could request a project fee quote if you wanted to hire a F-COO to develop a process for onboarding new customers and enhancing customer experience. In this case Fractional COO costs are not directly related to the time and resources necessary to provide the outcome.
This option gives the client an understanding ahead of time of how much the project will cost – there’s no Fractional COO cost sticker shock at the end of the project. This is a good option if your business does not have an ongoing need for a F-COO, but you’d like some executive expertise to address a specific issue within your company. A side benefit to this option is that if you ask them to work on another project in the future, they can get started quickly as they’re already familiar with your business.
Monthly Retainer
Again, this is precisely what it sounds like. A monthly retainer is a pre-determined fee agreed to be paid in advance, typically monthly, for a specific outcome. For example, you might hire a Fractional COO to oversee and manage one or more functional areas of your business. Or, you might bring in a F-COO to enhance your customer experience and then have them stay on to manage product/service delivery. Fractional executives who provide retained services may require an initial commitment for a minimum number of months before switching to a month-by-month engagement.
The advantages of a monthly retainer are that you know you have “reserved” time so that you don’t have to worry whether your F-COO is available on an ongoing basis or if they have time to help with something that pops up unexpectedly. Monthly retained F-COOs may discount their typical hourly rate for retained service engagements. This is an attractive option if you want to minimize unexpected ups and downs in Fractional COO costs.
Revenue Bonus Compensation
As much as 50% of a full-time COO’s total compensation is bonus-based compensation. The bonuses are based on various factors, including revenue, net profit, and specific business needs. While big bonuses are standard for full-time COOs, they are not common for Fractional COOs. However, it can be an effective compensation option if, by hiring the F-COO, you anticipate a large influx of revenue due to their work, and you want to pay a little less upfront. But you may end up with a hefty bill at the end of the engagement if the F-COO helped substantially improve revenue.
Caution: if you and your Fractional COO choose to go with a revenue bonus compensation model, you should have an iron-clad contract that clearly outlines the deliverables and metrics for compensation. At the end, when you’re celebrating your increased revenue, you don’t want to have to stop and argue with your F-COO about what their payout should be. Proceed with extreme caution if you’re considering a revenue bonus compensation model.
What does a Fractional COO Cost?
So, in real terms, how much does a Fractional COO cost? Generally speaking, you can expect to pay the same amount for a Fractional COO as you would for an attorney, finance expert, or another highly specialized business consultant.
To get an idea of current Fractional COO costs, let’s start by understanding how much you’d pay for a full-time COO. As of February 2022, the salary range for a full-time Chief Executive Officer is $264,082 – $718,587 USD, with an average salary of $458,921 USD. The full-time compensation of a COO varies based on experience required, size of the company, complexity of the business operations, and business location. A business of 50+ employees with only one or two product lines located in rural Texas will pay less for a COO than a company with 250+ employees with three distinct business units, nine service offerings, and a location in New York City.
Now that you have a general idea of how much a full-time COO would make, let’s look at what your Fractional COO costs might be.
If we take the salary range listed above and divide the low and the high by 2080 (the number of hours an employee works in a year), we get a range of $127 – $345. If we do that same calculation with the average full-time COO salary, we get $220. But we can’t stop there. A full-time COO has benefits, and the company pays all the payroll taxes, which costs the company about 30%. And our full-time COO doesn’t have to cover the cost of overhead or business expenses, which can run as low as 10% or as high as 35%, depending on the business.
After we factor everything in, we’re looking at a Fractional COO cost range of $181 – $493, with an average hourly rate of $314. But remember, that’s just the average hourly rate. A project quote or retained services agreement will not include an hourly rate quote.
Now that we know what the full-time equivalent would be let’s look at the employment market – because what you’ll pay is also impacted by “the going rate.” As of March 2022, Fractional COO costs typically start at $200 per hour and go up based on the F-COO’s experience, track record, and the complexity and length of the engagement. Monthly retained Fractional COO costs typically range from $4,000 to $10,000 per month. Which is a fraction of the $22,006 – $59,882 monthly salary you’d pay for a full-time COO.
Any way you cut it, your Fractional COO costs are an investment in your business, for both the short- and long-term. You get the advantages of years of experience and success, without the big ticket price tag. A F-COO could make the difference in day-to-day operations and we as strategic business goals.
If you’re ready to have a conversation about how a Fractional COO can help your business, just click the button below to get started today!
