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Sign on a brick wall with the text 'How much $ for a Fractional CTO?' displayed in bold black letters, sparking the question of how much to pay for a Fractional CTO.

How Much Should You Pay for a Fractional CTO?

How much should you pay for a Fractional CTO when you need to hire one? There are all kinds of articles floating around discussing Fractional CTO salaries. There are also plenty of sources explaining how it is cheaper to hire a Fractional CTO than hiring a full time CTO. Yet, as I continue to talk to potential clients I see that most people either don’t have an idea, or they have their own notion of what a Fractional CTO should cost.

This article aims to break down the numbers in the US market, provide some comparisons, and really get into the math details. The goal is to help any employer who is considering hiring a Fractional CTO, not only make wise financial decisions for their own company, but to also understand the side of the Fractional CTO contractor, and offer fair compensation that will be mutually beneficial.

 

How Much Does a Full-time CTO Cost?

Let’s break down what it truly costs an employer to have a full-time CTO on their team.

First we have to agree on what an average salary is for a full-time CTO. I would argue that an annual salary of $250,000 is on the low/conservative end of the spectrum. Don’t believe me? Below are screenshots of real job posts on LinkedIn, as of December, 2024 (the time of writing this article).

Why am I not providing actual source urls? Because job posts are temporary and I don’t want to end up with a number of dead links on my article a few months later.

The rest of the article and its numbers will assume an annual salary for a full-time CTO to be $250,000.

 

How Much Does a Full-time CTO REALLY Cost?

An employer’s full cost of a CTO is more than their annual salary. The employer has to also pay benefits. Additionally, C-level roles often come with a 10%+ annual bonus, and sometimes even equity on top of everything.

Therefore, here is a conservative full cost to employ a full-time CTO

  • Base Salary: $250,000
  • Benefits (25%): $62,500
  • Bonus (10%): $25,000
  • Total Annual Cost: $337,500


Check out the Bureau of Labor Statistics for more detailed information.

Here is a breakdown of the total cost for a full-time CTO, using the numbers above.

Cost per:

  • Year: $337,500
  • Month: $28,125
  • Week: $6,490
  • Day: $1298
  • Hour: $162


It is also worth mentioning that a full-time CTO will most likely get at least 10 company paid holidays per year and 3-4 weeks of paid vacation, plus other benefits such as sick and parental leave.

 

Why Does a Fractional CTO Cost More per Hour than a Full-time One?

If you are an employer considering hiring a Fractional CTO, it might be tempting to use logic similar to this:

  • Average salary for a full-time CTO is $250,000
  • That equates to $120 / hour
  • Therefore, I should not pay more than $120 / hour for a fractional CTO


There are two flaws with this approach:

  1. As explained in the section above, the true cost of a full-time CTO is a lot more than their base salary. Therefore, assuming an annual salary of $250,000 does not equate to $120 / hour costs. It equates to $162 / hour (and in some cases more than that).
  2. A Fractional CTO, whose annual compensation is $250,000 gets to keep a lot less of that amount in comparison to the full-time CTO with that same salary. Therefore, even if you paid $162 / hour the Fractional CTO would be under-paid. I explain why in detail, in the next section.

Why Does a Fractional CTO Take Home Less Money Than a Full-time One with the Same Salary?

A fractional CTO typically operates as an independent contractor. As such, he/she has additional financial obligations that a full-time employee does not have.

Self Employment Tax – 15.3%

Fractional CTOs have to pay self employment tax – 15.3%, which a full-time employee does not have to worry about. Therefore, to compensate for that a Fractional CTO has to charge more. Here is the numbers breakdown, when we add 15.3%

Compensation per:

  • Year: $288,250
  • Month: $24,021
  • Week: $5,543
  • Day: $1,109
  • Hour: $139

     

Business Development – 20%

A Fractional CTO has to spend a portion of their time on business development. This includes (but is not limited to) networking, prospecting, writing articles, using social media, performing outreach, speaking to potential clients, writing proposals, etc.

Many fractional veterans will say that at a minimum one needs to spend 20% of their time on business development. In my personal experience so far it is a lot more than that, but for the purposes of this article, we will assume 20%.

Here is what happens to the numbers when a Fractional CTO has to earn $288,250 by working for clients only 4 days per week:

Compensation per:

  • Year: $288,250
  • Month: $24,021
  • Week: $5,543
  • Day: $1,386 (goes up)
  • Hour: $173 (goes up)

     

Health Benefits

A Fractional CTO has to pay their own health benefits which can be quite expensive, especially if they have to support a spouse and children. Below is the breakdown of numbers when a $2,000 / month expense is factored in for paying for health insurance as a contractor.

Compensation per:

  • Year: $312,250
  • Month: $26,021
  • Week: $6,005
  • Day: $1,501
  • Hour: $188

No work, No compensation

Unlike a full-time CTO the Fractional CTO does not get paid when they do not work. That means, if one makes $173 / hour, one has to work every single week-day of the year in order to collect a salary of $288,250. Below is a break down of how the numbers change to compensate for that:

10 Holidays (no other vacation) – Compensation per:

  • Year: $312,250
  • Month: $27,062
  • Week: $6,245 
  • Day: $1,561 
  • Hour: $195

10 Holidays + 2 weeks vacation – Compensation per:

  • Year: $312,250
  • Month: $28,189 
  • Week: $6,505 
  • Day: $1,626 
  • Hour: $203

10 Holidays + 4 weeks vacation – Compensation per:

  • Year: $312,250
  • Month: $29,415 
  • Week: $6,788 
  • Day: $1,697 
  • Hour: $212

     

Why Fractional CTOs Charge More?

Using all the numbers from the previous section, a Fractional CTO would have to charge $212 / hour in order to be in roughly the same financial situation as a full-time CTO who earns a base salary of $250,000 per year.

However, many Fractional CTOs charge more than that per hour, or its equivalent in a monthly retainer. There are a number of reasons for that:

  • Conservative Numbers: The numbers used in this article are quite conservative. A seasoned CTO with 20-25 years will command a much higher salary than $250K and many employers pay upwards of $300K as a base salary, plus hefty benefits and bonuses.
  • Health Insurance Costs: Buying insurance for your family can be a lot more than $2000 / month, which is another conservative number we have used here for illustration purposes.
  • Additional Benefits: Not included in the scenarios above are sick and parental leave benefits, which most employers will offer for a full-time role. The Fractional CTO does not get to enjoy these.
  • 401K Matching: Another benefit, which has not been included in the above examples is 401K matching. This is yet another perk that the full-time CTO will most likely receive, while the fractional will not.
  • Equity: It is not uncommon for a full-time CTO to also receive some company equity. This has not been included in the article either.
  • Business Development: While we factored 20% business development effort for the Fractional CTO, in reality it can take a lot more time than that.
  • Unsteady Work: Most Fractional CTOs do not have a constant stream of new clients pouring in. This means that they may have to go through periods with smaller compensation or no compensation at all.

     

So What is Fair Compensation for a Fractional CTO?

My simple answer is – as of December 2024, for an experienced CTO with 20-25 years of experience the conversation should be at least in the $225-250 range per hour or a similar equivalent in the form of a monthly retainer or another arrangement. 

Will some Fractional CTOs take on a client who offers less? Yes, they will. The question is – will that be fair compensation for them?

Based on everything that has been presented above, I believe that it will be unfair. Nevertheless, that remains to be discussed and agreed upon between you and your future Fractional CTO.

Thinking a bout hiring a Fractional CTO?

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Why You Still Save by Hiring a Fractional CTO?

When businesses consider hiring a Fractional CTO, the initial cost comparison often grabs attention: a Fractional CTO may charge more per hour than a full-time CTO’s hourly equivalent. However, focusing solely on hourly rates misses the broader financial picture. The real savings come from not having to hire a full-time employee, with all the additional expenses and commitments that come with it.

Avoiding the Full-Time Commitment
Hiring a full-time CTO costs more than their salary. It is a long-term commitment to a substantial annual cost. Beyond the base salary of $250,000, there are benefits, bonuses, health insurance, 401(k) contributions, paid time off, and other perks, which collectively inflate the true cost of a full-time CTO to over $337,500 annually. On top of that, you’re locked into these expenses even during periods when your company may not require full-time leadership at the CTO level.

A Fractional CTO, by contrast, operates on a flexible, as-needed basis. This arrangement eliminates the obligation to cover long-term benefits and ensures that you’re paying for expertise only when you truly need it.

Paying Only for What You Use
One of the key advantages of hiring a Fractional CTO is that their work is highly concentrated and strategic. Instead of filling a full 40-hour workweek, a Fractional CTO might dedicate just 10–20 hours per month to your organization, focusing on high-impact initiatives like defining your technology roadmap, overseeing critical projects, or troubleshooting complex challenges. This allows you to access top-tier leadership without the overhead of a full-time role.

For example, if your company requires 20 hours of a Fractional CTO’s expertise each month even  at $250/hour, your annual expense would be $60,000—far less than the $337,500+ it would cost for a full-time hire.

Scaling With Your Needs
For many growing businesses, the demands on a CTO’s time and expertise fluctuate. Early-stage startups, for instance, may not need a full-time CTO year-round but still require someone with the experience and vision to guide their technical decisions. A Fractional CTO allows you to scale their involvement based on your company’s evolving requirements, offering both flexibility and cost control.

Reduced Hiring and Onboarding Costs
Bringing on a full-time CTO involves significant hiring expenses, including recruitment fees, onboarding processes, and time spent integrating the new hire into your company culture. Should the hire not work out, these costs are compounded by the need to start the process all over again. A Fractional CTO mitigates these risks by offering a more agile, low-commitment alternative.