So, You Want to be a Fractional CTO?
Part 3: Mastering Your Value - A Deep Dive into Pricing and Negotiation
Welcome to Part 3 of my guide to becoming a Fractional CTO, delayed a few weeks due to overseas travel. This was to be my final part, but like Douglas Adams’ Hitchhiker’s Guide to the Galaxy, this is becoming a trilogy in five parts. Today, I am tackling what is often the single most challenging hurdle in this entire journey: valuing your work and getting paid for it.
It certainly was for me. As a New Zealander, I grew up with a healthy dose of Tall Poppy Syndrome - that annoying cultural instinct to not get too big for your boots or shout about your own achievements. The idea of putting a high price on my own expertise has always felt unnatural and deeply uncomfortable.
But if you can’t confidently articulate and charge for your value, you don’t have a business; you have a stressful hobby. In this deep-dive, we're going to build a practical framework to help you overcome that anxiety, negotiate with confidence, and create a pricing structure that ensures your long-term success.
Pricing and Packaging Your Value
Talking about money can be uncomfortable, especially for people from a technical background who are used to a fixed salary. But getting your pricing and packaging right is the difference between a stressful side hustle and a thriving professional practice.
The Primary Model: The Retainer
For a Fractional CTO, the best model is almost always a monthly retainer. This is a fixed fee you charge each month in exchange for a set commitment of your time and expertise.
Think of it as a subscription to your brain. Common structures include:
A set number of days per month (e.g., 4 days a month, which often translates to "one day a week").
A general level of availability for strategic meetings and oversight, with a cap on hours.
The retainer model is powerful. First, it provides you with predictable, recurring revenue, which is essential for your own financial stability. Second, it shifts the client’s mindset. They treat you as a core part of the leadership team, proactively involving you in strategic decisions, rather than as an external consultant they only call when trouble strikes.
The Alternative: Project-Based Fees
Sometimes, a retainer isn't the right fit, especially for new clients. A project-based fee is a fixed price for a specific, well-defined outcome. This is the perfect model for the "sprint projects" discussed in Part 2, like:
A technical due diligence report for a VC.
A 3-month plan to modernise a team’s tech stack.
An audit of a company’s security posture.
A successful, fixed-price project is often the best gateway to a long-term retainer, as it proves your value in a low-risk way for the client.
How to Negotiate a Fair Rate
This is often the part (definitely, in my case) that feels the most daunting, but it doesn't have to be. Having a clear framework for negotiation empowers you to state your value confidently.
Here’s a practical approach I've found helpful over the last few months:
1. Know Your Baseline
Before you talk to any client, you need a number in your head. Start by calculating your "all-in" day rate. A simple way to estimate this is to take your last senior-level salary, add about 30-40% to cover your own taxes, superannuation, insurance, and lack of paid leave, then divide by the number of working days in a year (around 220). This gives you a solid baseline to work from.
Of course, a fair market rate isn't one single number; it's a spectrum. You'll need to adjust your baseline depending on your own experience as an FCTO and the specific stage and funding of the startup. While the nuances of that spectrum are a deep topic for another day, the key is to use your baseline as a confident starting point.
2. Frame the Conversation Around Value, Not Hours
This is the most important shift you can make. You are not selling your time; you are selling outcomes. During your discovery calls with a founder, guide the conversation toward the value of your potential impact. Ask questions like:
"What is the business cost of not solving this scalability issue?"
"If we successfully complete this tech roadmap and it helps you close your $2M seed round, what is that worth to you?"
Don't be afraid to ask directly: "What is the budget you've allocated to achieving this outcome?"
This changes the dynamic from "How much do you cost?" to "What is the right investment to solve this critical problem?"
3. Present Options, Not a Single Number
Never go into a negotiation with just one number. It creates a "yes/no" scenario. Instead, present two or three tiered options. This changes the question from "Should we hire you?" to "How should we hire you?"
For example:
Option A (The Full Strategic Partnership): 2 days/week. Covers tech strategy, team mentoring, and board reporting. This is your top-tier anchor price.
Option B (The Core Retainer): 1 day/week. Focuses on the core goal of scaling the team and modernising the tech stack. This is likely the option you want them to choose.
Option C (The Project Sprint): A fixed-price 8-week project to deliver the tech roadmap. This is a lower-risk entry point for them to say "yes."
4. Be Prepared to Walk Away
Your confidence comes from knowing your value and being willing to say no to a bad fit. If a potential client drastically undervalues your expertise or tries to haggle your rates down to an uncomfortable level, they are likely to be a difficult client in other areas too. Politely declining is a sign of a healthy business.
The Complication: Let's Talk About Equity
Sooner or later, a cash-strapped startup will offer you stock options as a major part of your compensation. While tempting, this is the riskiest part of your income, and you need to handle it with extreme caution.
It turns out that best practice is the rules I have been living by:
Cash is King. Your primary compensation should always be a fair cash retainer. Equity should be a sweetener or a bonus, not a replacement for the income you need to live on.
Insist on Standard Vesting. Any equity you receive should come with a standard vesting schedule, just like a full-time employee (e.g., a 4-year vesting period with a 1-year "cliff"). This protects you if the engagement ends after a year or two.
It's a Lottery Ticket. Until the company has a liquidity event (like being acquired or going public), that equity is just paper. Treat it as a high-risk, high-reward bonus with a potential value of zero.
Always Get Legal Advice. Before you sign anything related to equity, have a lawyer who understands startup compensation review the agreement.
By starting with a clear retainer model, using projects strategically, and being disciplined about equity, you create a financial foundation that allows you to focus on what you do best: providing incredible value to your clients.
Getting comfortable with these conversations is a skill, and it takes practice. But by focusing on the immense value you deliver - not just the hours you work - you change the dynamic entirely. You are not a cost to be managed; you are a strategic investment in a company's future.
Now that you're confident about your value and how to price it, how do you put that into a formal agreement that protects both you and your client?
In Part 4, we’ll dive into the practical art of crafting clear contracts and Statements of Work that set every engagement up for success from day one.