In this edition, I'm going to give you a new way of thinking about how to price your CFO services.
Pricing is an extremely important component of running a successful business. With the right pricing strategy, you'll land great clients, provide well for you and your team, and build a business you love.
A bad pricing strategy results in too much work and not enough money.
Unfortunately, 89% of firm owners I see don't have a good pricing strategy.
Most pricing strategies only consider what you think customers will pay.
Sometimes they consider what you think you're "worth".
But pricing is more dynamic than that!
Pricing should also consider:
👉 How many clients do I want?
👉 How big of a team do I want?
👉 How much take home do I need?
👉 How many hours do I want to work?
Over the last 6 years, I've developed a framework that I use as the starting point for my pricing.
Here it is, step by step:
Step 1: Calculate how many hours it takes to deliver your service.
I know you don't want to because I don't either. But log the time it takes to deliver your monthly service from cradle to grave.
Everything hinges on this, so don't be lazy here. Actually track the time for a month (or two!).
There are a million apps you can use for this.
If you absolutely refuse to track your time for 30-60 days, you can estimate. But then multiply that number by 1.5 or 2 because I promise you're underestimating.
👉 Let's assume the average client takes about 10 hours per month.
Step 2: Determine how many hours you want to work per week and multiply by 4.33.
Your business should serve your personal life, not the other way around.
That means understanding how many hours per week you'd like to be working. It's a key component in the intentional design of your firm.
Once you know that number, multiply it by 4.33 to determine your total available working hours per month.
(Note: the average month has 4.33 weeks, not 4. This nuance is significant in our math.)
Let's assume you want to work Monday through Thursday from 8-5.
👉 That gives you 155 working hours per month.
Step 3: Divide the answer from Step 2 by the answer from Step 1
This will show you how many clients you can serve per month based on your ideal work schedule.
👉 I'm able to serve around 15 clients per month.
Step 4: Divide your revenue goal by the answer from Step 3
As fractional CFOs, we usually have a calculated revenue goal that is a function of our net profit goal.
So if we want to take home $200,000 per year and we know that we have a net profit margin of 33%... then we know we need to clear $600,000 in revenue.
This tells us how much revenue we need to generate per client on an annual basis.
👉 In our example, we would divide $600,000 by 15 leaving us with $40,000.
Step 5: Divide the answer from Step 4 by 12
This is going to tell us how much we need to charge per client per month on average.
👉 $40,000 / 12 = $3,333 per month per client
Step 6: Set strategic initiatives
You are now armed with a wealth of information about your firm.
👉 How many hours you want to work per week (36)
👉 How long you can spend serving a client (10 hours)
👉 How much you need to charge on average ($3,333)
👉 How much money you will net you and your family ($200k)
The beauty of this strategy is that it identifies just a few levers you can pull if you want to change the narrative.
Here's an example:
You decide that you only want to work 30 hours per week but you still want to take home the same $200,000 in net profit.
What's a CFO to do?
• Serve fewer clients (raise prices)
• Serve the same clients faster (better processes, more automations)
• Find someone else to work your hours (build a team)
👉 This 6-step process gives you a much more comprehensive way to think about your pricing. And it gives you specific areas to target if you're not where you want to be or if priorities change.
Whenever you are ready, here are 3 ways I can help you:
1. The Inner Circle - every month my team and I go live and share the most impactful lessons we've learned in our journey to start, scale, and optimize our own CFO firm (including live Q&A). Plus you'll get access to our private community of nearly 150 fractional CFOs.
2. The CFO Academy - This is a 7 week deep dive into the exact playbooks that I use to run my firm, KFE Solutions.
3. If you'd like more amazing (and free!) content about starting, scaling, or optimizing your Fractional CFO firm check out:
→ The CFO Report on YouTube (if you love video)
→ The CFO Report on Apple Podcast (if you prefer audio)