No One Has Ever Proven This Number
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The fractional industry has a number problem. Everyone repeats it. No one has ever validated it.
“Fractional works best for companies doing $1M to $15M in revenue.” You’ve heard this stated so often it sounds like research. It isn’t. Why has no one published the math behind it? When you do the math yourself the number collapses. Because revenue was never the right variable to measure in the first place.
The right variable is net profit: what a business has left after everyone else, employees, landlords, suppliers, lenders, has already been paid. Revenue tells you how big a business is. Net profit tells you whether it can afford you.
🟦 Inside the Affordability Matrix™
Want to know how to determine if a potential client can afford you? Divide your fee by the client’s net profit. Not revenue. Not gross margin. That ratio determines whether the budget conversation is easy or impossible, before you ever get on the call.
If your fee comes in under 10% of the client’s net profit, it’s an easy yes, the budget conversation barely registers. Between 10 and 20%, it’s a stretch, the client can often still make it work, but expect real friction in the negotiation. Above 20%, walk away, the math doesn’t support the engagement no matter how good the fit feels otherwise.
🤥 Revenue Lies
Gross margin is the wrong number too, and most affordability thinking in this industry stops there. Gross margin is what’s left after the cost of the product or service itself. It says nothing about payroll, marketing spend, rent, or debt. A company can carry a 70% gross margin and still be scraping by, because everything below that line ate the difference.
You get paid out of what’s left once everyone else has been paid. That’s net profit. Price against anything else and you’re pricing against a number that was never yours to begin with.
⛯ Where Every Industry Actually Lands
Net margin, not gross margin, is what separates an easy client from an impossible one. Financial services, software, and professional services run 15 to 30% net margins and stay easy conversations at most revenue levels. Healthcare services and manufacturing look strong on a gross margin basis but drop to the middle of the pack once staffing and capital costs are accounted for. Ecommerce, consumer retail, food and beverage, and single-location home services all land in the same thin band, 3 to 8% net margin, regardless of how different their industries look on paper.
That last point is the one worth sitting with. Ecommerce isn’t uniquely bad at affording a fractional executive. It’s one member of an entire class of businesses where thin net margins make almost any fixed monthly fee a heavy lift, no matter how large the revenue number looks. A $25M ecommerce brand and a $25M food distributor have more in common with each other, financially, than either does with a $5M SaaS company. Revenue tells you almost nothing on its own. Net margin tells you the truth.
🏦 Funded Changes Everything
This entire framework assumes the fee comes out of the client’s operating profit. That assumption only holds for unfunded companies, the ones paying you out of what the business itself generates.
A funded company pays you out of runway, someone else’s capital, deployed against a burn-rate plan that has nothing to do with unit economics. A seed-funded startup with negative net margin can afford a fractional CFO easily, because the money isn’t coming from operations, it’s coming from the round. Run that company through a net-margin formula and you’d wrongly flag it as unaffordable.
The real qualifying question isn’t “what industry are they in” or “what’s their revenue.” It’s “is this company paying me out of profit, or out of capital.” Get that wrong and you’ll either walk away from a well-funded, easy yes, or chase a bootstrapped company that was never going to close.
📈 What I Know Firsthand
The net margin figures behind this matrix come from public company averages. Private businesses, especially the ones most fractionals serve, run thinner than public comps at the same revenue. Every rating here is a ceiling, not a floor.
Single-location home services is the one category I can speak to firsthand rather than from a benchmark. My father owned a furnace and air conditioning manufacturing plant. My husband and father later owned an HVAC dealership, part of a roughly 40-dealer cooperative for close to 30 years. That vantage point shows a spread, not a tight band: the middle of the pack runs 5 to 8% in decent years, the strong operators reach 12 to 15%, and the weak ones run anywhere from slightly negative to break-even. Know which end of that range a specific business sits on before assuming the fee is affordable at all.
🎯 Before Your Next Discovery Call
Run two numbers, not one. First, funded or unfunded. If funded, the affordability question is about runway and timeline, not margin, and the conversation is entirely different. If unfunded, run the net margin math before you build the proposal. A company that’s interested, engaged, and completely unable to pay you is not a lead. It’s a research subject.
The founders who are genuinely stretched thin, doing too much themselves, watching the business outgrow their capacity, are real, and they’re everywhere in the SMB world. Being stretched thin and being able to afford the fix are two different problems.
“We don’t chase broke people”. We find the ones who can actually pay for what we’re worth.
📈 The Next Step
Your next step is a live working session built around the Fractional Operating System™, the same framework I use directly with clients to help them position, package, promote, and pipeine their way into a real fractional business. It’s not a pitch, it ends with the option to apply for one of six mentorship spots per cohort.
Register for the next live webinar: www.fractionalinabox.com
Fractional powerhouses are not born. They are built.
— Sue
