In a recent post, we looked at the Digital Agency business model and some of the cracks that have emerged due to market + technological forces.
The Fractional CMO (Chief Marketing Officer) model has emerged as an alternative to the Digital Agency model.
The model can work for certain high-growth companies who have not yet reached the plateau of hiring a full-time CMO.
Fractional CMO Business Model
Target Market Segment
- high-growth small firms
- lack of budget for experienced VP of Marketing or CMO
- firms looking for ‘experience’ as an asset, provides leadership and brand value beyond what Digital Agencies can provide (in most cases)
- go deep with less firms (ie 3 – 5 firms), as opposed to wide like the Digital Agency model
- hourly rate or flat fee
- ‘fractional’ means part-time, whether a handful of hours per week or month
“I do think that, especially for smaller companies or companies that don’t want to be in a position of potentially laying people off later, if there’s a lot of fluidity and fast growth, fractional can be a really wonderful way to be smart about staffing up,” she said.Marketing Brew
Depending on the strategy of the individual or firm, there may be agreements based on equity or stock options with companies who are in more of a startup phase. But for now the model is centered on high-growth, cashflow-positive small and mid-sized firms.
In many cases, a Fractional CMO will end up managing Digital Agencies or freelancers in one form or another. 60% of B2B Companies will hire a Digital Agency, so to some extent it is expected that there will be an overlap.
There are different types of Fractional CMOs:
- freelance ‘solopreneur’ CMOs who work solo
- specialized, multi-disciplinary Fractional CMO firms
- agencies specialized in placement of Fractional CMOs
The question will emerge as to who makes one qualified to be a Fractional CMO vs. an Agency and that is a question that depends on multiple factors.
Some firms who specialize in the placement of Fractional CMOs will vet talent and only accept a small % of applicants to ensure quality control.
Naturally, the more qualified an individual or group is, the higher the price they will command in the market.
Fractional CMO – Industry Growth
Multiple signals in the market show the rise of interest in the Fractional CMO model. Google Trends, for example, shows the uptrend in search data over the last few years.
At a more granular level, we can see that firms that specialize in the ‘Fractional’ sector have seen a significant revenue uptick in 2023.
Deborah Fell, managing partner at Chief Outsiders, told us that the firm has worked with more than 1,550 companies to date and saw 25% revenue growth last year
If we start to think of the ‘Fractional CMO’ trend at scale, it begs the question, what about fractionalizing other C-Suite positions.
Fractional CFOs (Chief Financial Officers) are another similar segment in a major uptrend.
Are Fractional CEOs next?
There are interesting dynamics in play that underpin this market. A lot of what may make the model work for one company may not work for another. ‘Skin in the game’ (ie. fully committed) is core tenet of making a business successful or not.
But nowadays, with multiple factors in play, bringing in a seasoned executive on a fractional basis at a key moment in a business’s history can create exponential upside on both a growth and investment basis.
Versus the Digital Agency model where the ‘externality’ of it makes it tougher to scale. The intangible, soft attributes such as leadership, previous experience, and strategic decision-making seem to make all the difference.
Yet the Fractional CMO model is designed to be temporary, whereas an Agency model can be more permanent based on the data. Both have their upsides and downsides.
The ‘Fractional’ Business Model
If we look at the Digital Agency Business Model, we can see that a lot of the problems in the model emerge from misaligned incentives between the agency and the client.
A Digital Agency is driven to maximize billings and is thus incentivized to continuously upsell their clients on other services.Digital Agency Business Model
A Fractional CMO has a different set of incentives.
On one hand, the move towards becoming fractional (assuming one is qualified), presumes a greater financial benefit compared to alternatives:
- ie. 5 Clients x Y Hours x $Z per hour = greater remuneration than previous engagements
On the other hand, bandwidth is limited, and the Fractional CMO Is responsible in many ways for the marketing performance for the business as a whole.
In this way, the Fractional CMO has to perform in line with the expectations of the leadership and/or investors. The Digital Agency can remove itself from that equation by technically being external to the execution of the business activities.