PERFECT Profit Margins for Fractional CFOs

One of the most common questions that I'm getting asked right now is what are good margins for a fractional CFO firm? In today's episode, I'm going to answer that question, but I'm also going to give you a list of questions that you must answer before you even think about figuring out what your margin should be. Let's dive in. This is a question that I get asked a surprising amount considering the industry that we're in. You guys have probably heard me talk before about the seven figure firms and the seven figure blueprint and how do we build seven figure firms and what needs to go into it. And every so often I find somebody that gets a little bit uptight about it because they're like, Mike, we're all fractional CFOs. We know revenue is vanity. We really need to be thinking more about free cash flow and profit margins. What profit margins should we have in our firm? And the reason that I get a little bit in a space about this is because I think that question in and of itself is fundamentally flawed, especially for fractional cfo. I think that it's a fundamentally flawed question because I can't tell you what your margins should be because your margins shouldn't necessarily be a function of what my firm does or what I see other firms doing or what industry averages are your margins. Write this down. Your margins should be a function of your goals. And we're going to talk about what do I mean by that today. And don't worry, I'm going to get into some numbers. I'm going to show you some numbers. We're going to talk about gross profit margins and net profit margins and all that stuff. I'm not going to completely avoid the question, but I think it's important that we go back and we walk through how do we get to what those margins should be. And so we're going to go through that together today. For those of you that haven't heard this story before, about five years ago now, I fired all my clients. And on the other side of that, I made three promises to myself that would need to be true in my firm in order for me to continue as a fractional CFO firm owner. And so what were those goals? Number one, I said I'm going to make more money as a firm owner than I did or that I could in corporate America. Like a lot of you, I have highly coveted degree. I have mba, I have a lot of professional experience. I could go to work a lot of different places and make a pretty good Amount of money. And so if I'm only taking home 60, 70, 80 grand a year as a firm owner, then something's wrong and I'm not interested in playing that game. So the first promise I made to myself is I'm going to make more money as a firm owner than I did or that I could in corporate America. Number two, I'm only going to serve clients that I love. I had that season where dealing with clients that didn't respect me by our boundaries, they didn't align with our values and we burn out, we get resentful. Just didn't really like the clients, wasn't proud to talk about them. And then the third thing, the third promise I made made is I'm going to have a firm that works for me, not the other way around. And what I mean by that is I'm going to have a firm that serves the things that I'm trying to do as a person. Rather than me feeling like I'm just an employee, I am a victim of my firm and I have to bend to the will of the firm. Gosh, I work for the firm. My personal life takes a second seat to the firm itself. I was like, I don't want to do that. And so how is it that we make it so that these things, things become true? It starts with proper goal setting. And I have found that you've got to start with setting personal goals first. What I'm talking about here, this is one of those times where you guys hear me, I'm like, don't be the yeah, yeah, yeah learner. The one that's like, yeah, yeah, yeah, Mike, I know I need personal goals. Yeah, yeah, yeah, Mike, I know I need to have business goals. Because the truth is, you probably haven't taken the time to do them yet. If you're still asking questions about margin. And so don't be that yeah, yeah person, especially if you haven't done this yet. So pay attention. When I talk about personal goals, what am I thinking about? Number one, I break the personal goals into four categories. Number one is what are the goals that I have for my family? What are the goals that I have for my family? And so the kinds of things that I think about is we've got an 11 year old, the 11 year old wants to start playing basketball. I want to be the kind of dad that's at the practices. I want to be the kind of dad that's at the games. I want to be really involved. I want to be the kind of husband that goes on date Nights with my wife. I want to be the kind of dad and the kind of parent and the kind of husband that goes on vacations. And so it's important for me to figure out what are those goals that I have for my family so that I can make sure that the firm is built around those goals. Because what ends up happening is if you build the firm first and then you look back and you're like, well, I can't go to the practices because I took on that client that requires me to be on the 6pm calls because they're in a different time zone. And I've already taken on that client. And so now it's too late. So I can't go to the practices. Gosh, I hope I can make the games on Saturday or same thing with date night with my wife. I want to make sure that I'm able to go on date night with my wife to keep that relationship healthy and strong and thriving. But a lot of times we end up building the firm and we look back and like, gosh, really didn't do a good job of having family first and those personal goals first. So I think it's really important that you sit down and think through, what are those things when it comes to family that are important to you? Number two is lifestyle goals. And when I think about lifestyle goals, I'm like, what hours do I want to work? What kind of clients do I want to be able to have so that I'm excited about this stuff? We want to take vacations. We want to be able to do certain things as a family and as an individual. And I want to make sure that I'm intentional about thinking those things through just from, like, the general lifestyle perspective. You know, for me, I'm like a Monday to Friday, 8 or 9am till about 5pm most days. That's important for me. Just from a lifestyle perspective, what I want to do. I'm a Monday to Friday guy. That's not everybody. It's not good or bad that I'm. That there's other people that just love to work. When I was younger, when I was single, I wanted to work a ton and then take big vacations and go to Dubai and Bahrain as an example. That was the season that I was in. That was the kind of lifestyle that was important to me, that my priorities have shifted over time. And my guess is that that's probably true for a lot of you as well. So think through. Based on the season of life that you're in, what kind of lifestyle do you Want to have number three? This one we don't talk enough about. But what kind of things do you want to do in your community? If anything, I love teaching in South Dallas to entrepreneurs down there a couple times a quarter or so, and to talk about business and business finance and volunteering there. We do volunteer stuff through our church. Those things are important to. If that's important to you, it's important to figure those things out before you get into figuring out the structure of your business. Now, here's the big one as it relates to margins. Say, I'm going to tie all this stuff together. You got to think about, what are your income goals personally, what are those income goals that you have? How much money do you need to bring home to your family to be able to support your family the way you want to? I was on a sales call with a lady earlier, just started up her firm, and she's like, I need to be bringing home 15k a month. I'm like, all right, if you need to bring home $15,000 a month to your family, then you've got to rethink the approach that you're to building your team. And it ended up. We'll talk about this in a minute. But it ended up really kind of impacting what she needed to charge for her services. But the thing is, like, if you're not thinking through how much money do you need to bring home, then as you start thinking about pricing and building out your team and your margins, you may end up building a firm that's not going to serve your personal goals well. So really think through the family goals, the lifestyle goals, community goals, income goals, and then move over to the business goals. Once you're armed with a very clear picture of what your personal goals are in the family. Lifestyle, media, income, now you can start figuring what hours can you work in your firm. You start thinking about, how big of a team do I want and how big of a team is required. If you're somebody like me that only wants to work 40 hours a week. But you start looking at your. We'll talk about this in a second. The services and pricing is. You start thinking about those things. You're like, gosh, I really need to have 20 clients in order to hit the income goals that I want. Well, I got news for you. You ain't going to serve 20 clients well by yourself. And so then team starts to become a question for you. We know our hours. We kind of have an idea what we want to do with team. Now we can think, well, what is our scope of work and what pricing do we need to charge for that? And so I've got a YouTube video that we'll share with you guys on this. But, you know, you think through hours first. I think it's important to think through how many hours a week are you able to work? Because as you start thinking through your scope of work, you start to say, like, okay, for this scope of work with the type of clients that I want to serve, how many hours of a month does it take to fulfill that scope of work? And you say, okay, well, it takes. I'll make up 15 hours a month to be able to deliver on this scope of work for this type of client. Well, that starts to really inform how many clients you can handle, doesn't it? And that kind of feeds back into that number two thing, but it also feeds into pricing is you say, like, okay, I can only handle, let's say, 10 clients and I need to be bringing home net profit, $15,000 a month. Well, isn't it true that that tells us what we got to charge per client that also informs what size clients we can work with? You know, if you're that person that needs to charge 5k a month or 3k a month, whatever that number is, well, you probably aren't going to be able to go work with clients that are only doing half a million dollars a year. Top line. The math just doesn't work. So it starts to inform what kinds of clients, size wise, you need to work with. And once we figure out our services and our pricing, then we can start to figure out what our revenue and what our margins need to be. And so if you're like, all right, look, our ideal hours allows me to serve eight clients a month at $3,000 each. Well, that's $24,000 a month. I need to take home $20,000 a month. Well, shoot, that only leaves me $4,000 a month in total overhead to be able to build team and have software and all the other stuff that we've got to do. Does that work for me? Maybe it does, maybe it doesn't. So there's a lot of things to factor in to all this and I want to highlight again. See, the last thing on this list is margins, and that's intentional because I think your margins have to be a function of all those other things that we talked about before. They've got to be. And so that's why I'm like when somebody asked me like, well, what should my margins be like? Well, I don't know you got a lot of other things to figure out. But if you go through the work of figuring out your personal goals, figuring out your business goal, your hours, your team, your services, your pricing, your revenue, the margin then becomes kind of a byproduct of that. It becomes a variable in a much broader, more important conversation. It's not just a About the Margins.

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Let's talk about the margins. I want to get into some numbers here and I want to give you some guidelines though to think through as you're figuring out what your margins should be or could be. And so going down the P and L what's the first thing list is gross profit margin. And the number one factor by far, maybe the only factor is cost of services. I mean that's really all we've got. We don't really have. Cost of goods, cost of services is the only thing. And so, you know, that boils down to, what are you going to comp the fractional CFOs that are on your team? And this is hands down between gross and net. I mean, labor cost for fractional CFOs is the largest expense you're going to have in your firm, hands down. Now, before we get into this conversation of what's going to go into your gross profit margins, I want to get the disclaimer up for our lawyer. And I'm going to say I'm not a lawyer, and you should always consult a labor attorney before determining how you handle employees in labor and comp and all of those things. So this is not legal advice. I'm just sharing with you what I've learned. But I do know this. You got to be thinking about, are you going to pay 1099 or W2 for your labor? This is what I know a lot of people handle the debate between I'm going to have 1099s on my team or I'm going to have W2 on my team. A lot of people handle that as a negotiation. What I've learned is this is not a negotiation. This is a function of labor laws, not an option. It's not a thing that you're like, well, you know, I can pay you this much as a 1099, or I can pay you this much as a W2. That's not what the conversation is, ladies and gentlemen. It's a function of, like, control over the work. And I like to think about it like, 1099 versus W2. As a plumber, how do we treat a plumber? Well, my toilet's overflowing, or my shower is broken, the drain's not. Whatever it is, I call a plumber. I give them a problem. Hey, my toilet is stuck. And they say, okay, I'll come out and I'm going to charge you $200 to put a new toilet in or to fix your shower. And they come out, bring their own schools. They show up at my house in a uniform. They have their own schools. I don't have a process that they should follow to fix my toilet. I assume that they are already trained and know the process to fix the toilet. I show them the work site and they're like, Gotcha, Mr. King. And they open up their toolbox and they get to work. And when they're done, they let me know that they're done fixing my toilet. They flush the toilet, like, look, your toilet's not flushed anymore or not clogged anymore. And I'm like, yay, I can use the toilet again. And then they give me an invoice and they leave and I pay the invoice. That's 1099. That is classic 1099. It's control of work. I don't care. Control their work. I give them a scope and they go and execute on it. So I really want to encourage you, talk to a labor attorney before you get into the nuances of how you're going to comp fractional CFOs on your team. Now, legalities aside, soapbox complete, the decision between 1099 and W2 can really have a big impact on your margin. The amount you pay them, whether it's 1099 or W2, it's kind of a balancing act because you've got to pay them again, whether it's 1099 or W2, you've got to pay the fractional CFOs on your team. If you're somebody that wants a team, you've got to pay them enough that attracts the kind of talent that you need, that you require against keeping your margins high enough that you can have a profitable firm. And that gets really tricky sometimes. And it's really a function or a factor of, you know, what, what complexity of clients are you working with? So if you're working with, you know, SaaS, companies that are in the series C rounds, you're going to need to bring in a CFO that's familiar with that industry, that's got a lot of experience that maybe can help lead those rounds, that maybe is doing pitch decks. Really depends on your scope versus if you're serving clients that are sub $3 million a year, that are in the coaching and consulting industry. Probably requires two different caliber CFOs, two different experience levels, two different skill sets. So how much do you have to pay? Well, it really just depends on what you're looking for. You've also got to think through are you going to pay them like a salary or a fixed rate versus maybe like what my firm does where we pay a percent of revenue. There's pros and cons to each. Now when you're thinking about like should you pay them like a salary or like more of a fixed rate. You can just load them up with work, you know, and those costs are fixed. Maybe you're paying them 150, 200k a year, fixed cost. I prefer the percentage of revenue that they manage for a couple of reasons. Number one, forecasting and projections become a hell of a lot easier for the firm if you know that you're going to pay 40% across the board. Well, it's real easy to figure out your margin. You don't have to worry about, well, how many, many clients can I load onto them to extract the most value out of that, let's call it $150,000 or $200,000 salary. The other reason that I like that percentage of revenue is because it keeps everyone's interests aligned. The firm's interests, the CFO's interests, and the client's interests. Why is that? Well, when they're playing a percentage of that revenue that's coming in, it incentivizes them, number one, to make sure that they're serving their clients really well each month. Because just like with a solopreneur solo cfo, if that client leaves, then that CFO loses inc income every month. And so they want to make sure that they're not just phoning it in, they're showing up, they're delivering a great service. And so it makes sure that they're taking care of their clients. But it also means that they want to be as efficient and effective as possible because they want to handle as many clients as possible because they're going to make more money the more clients they handle. And so their interests are aligned with themselves, but also with the firm. The firm wants more clients, more profitability. They want more clients, more take home pay. But we're also giving great service to the clients because if they don't, then that client can leave and they will lose money. And so that percentage of revenue model has worked great. I love it as a firm owner again because it's very predictable. When I'm doing our firm's forecast and projections. Well, Greg doesn't now, but when I was doing forecast and projections for the firm, I always knew what our margins were going to be. So I wasn't worried about, you know, I've got to get Nick over here. Two more clients, because it's just not working out for me. I'm not making enough margin off of Nick. Nick's not efficient. Then my margins are still the same. And Nick is encouraged to work with me or Greg or the team to figure out, well, how can I handle more clients? What am I not doing? Well, that only at seven clients, I want to be at 10 or 12 clients. That's a great question. Let's work on that. And then we go into the CFO academy. And are you following the scope of work? How are we doing the boundaries. It just keeps everybody's interest aligned. Here's the question everybody asks, what percentage should you pay? And like I said, there's several factors that you've got to consider when you're thinking, what percentage should you pay if you go on that percentage model, One of them is, how much are you charging a month? Because remember, the overarching thing here is you got to pay them enough to attract and retain the talent. And so you got to say, well, how much are you charging a client per month? If you're only charging your clients $2,000 a then if I want Nick Britt to be on my team, I probably can't pay him 30% per client. He would need 30 clients in order to for me to pay Nick what Nick needs to get paid. And so that really factors into what are you charging per month, which factors into what size clients are you working with, which factors into scope of work and market, all of these things. See what I'm saying? Margins very much. You can't just ask that question in isolation. It's a broader thing, which is why we're here today. Next up, if they're W2, the obvious thing you've got to be thinking about is payroll taxes. You got to think about payroll taxes. That's another, you know, what does it come out about 15% or something? 13.6%. You know, it factors in there. It's a meaningful percentage that's going to impact your margins. The other thing you got to think about with W2 employees is as your firm grows and as you get a higher and higher caliber of fractional CFOs on your team, they're going to start to want things like benefit. So my firm is an example. This January 1st, we started with medical, dental and insurance benefits. Those aren't cheap. Those impact the margin. You've got to be aware of that as you're thinking about the kind of firm you want to build and the kind of talent you want to attract that will adversely impact your gross profit margin. We want to roll out a 401k with a match next year. That's going to impact our margin. I know that and I don't care. It's important for me to offer those things to my team. It's not good or bad. That's just what's important to me. That's again, important for figuring out those business goals that you have and just thinking about the kind of firm you want to have. What do you want to do? Do you want to offer those things do you want to offer, like, benefits and those kinds of things, or do you want to keep more of that 1099 model? Again, not. Not good or bad, but I want you to be intentional about it. Those things all impact what your margins are against what they ought to be. So what do we do? We pay 40% of revenue on that. Normally, we pay more if the CFO brings clients in. So if you bring a client to the firm, if you bring the lead in, you close the lead. Or if you bring me the lead and I close the lead, I'm not picky. I'll do the sales call. I'm going to pay you more. But if it's a lead that I brought in as the firm owner, a lead that I closed, we pay 40%. And when you factor in burden, that comes out to a gross profit margin of around 48 to 50%. I would say that on average, you need to be north of 45% gross margin. You have to. And the more team you get, the more important it is to be north of that, because your G and A expenses are going to go up. We're going to talk about that here in just a second. So we're at like 48 to 50% gross. I would say you probably need to be north of 45. You start getting down closer to 40, certainly below 40. It's really, really to cover the GNA expenses that you need to grow, the firm gets really, really tough. You've also got to think about with gross margins, are you paying affiliate commissions? So let's say that you were on a podcast or you spoke on somebody's stage and they want a piece. They want, like a referral bonus. If you're paying ongoing referral bonuses, that's going to impact this equation as well. So you've really got to look at all these things holistically when it comes to gross margin. Next, let's talk about net margins. There's a little bit more to consider here than gross margin. It really depends a lot on what kind of firm you're trying to build and really understanding your personal goals and your business. Business goals. It's important to ask yourself, how many hours are you willing to work? Income becomes a factor. Another thing you got to ask yourself is, are you building a firm that you want to sell one day? I know a lot of you want to build a firm up and you want to sell it. And so if selling a firm, your firm is something that's on your radar, you've got to think about team. If you're a one man shop, you're not going to sell your firm or you're going to sell it for very little, a lot less than you think you are. If you don't have team, if you don't have processes, if you don't have procedures, if you don't have staff systems, those things just like for your clients, those things impact the enterprise value of your firm. You've got to think about those kind of things as you're building your firm. So if selling it's on the radar, you got to be mindful of that. I think the number one thing for me, I'm like, when it comes to like GNA expenses, EA or an operational like operations admin assistant, really, really important. If I was going to start a firm over today, in fact, if I was going to start any business today, first hire I'm making is this one hands down, got to do it. But it impacts margin. I'm okay with that. Because more important than margins to me is time with my family. And I know that if I don't have a good executive assistant, not enrolled agent for the nerds on the call, I know that absent a good EA or a good ops support kind of person, I end up having to work a lot more hours. And I'm not willing to sacrifice that. And so that to me, no brainer is a G and A expense. I'll take the lower margin all day because my time with my family is paramount to me. And a great EA will make sure that you have more time. Office and rent expense expenses can add up for a lot of this. How important is it for you to get out of the house to do your work? I can't work from home, ladies and gentlemen. I can't. I learned during COVID it just doesn't work. I had an office, my wife had her office. She's a corporate drone at a big multi billion dollar company. We came together in the same house, separate office spaces during COVID And I was like, I gotta find an office that's open during COVID because I can't do this. And she's like, good, because I can't either. So you gotta figure out, is that something that's important to you? It's a big expense that factors in the margin. I'm willing to take lower margins in my firm because a separate space for office is important to me. I also can't work in a closet. I spent 11 years on submarines in a tight little space underwater. And so now I need lots of room. And so we have this I don't know, it's like a 12, 13, 14, 15. I don't remember how many square feet is. It's a huge office over here. Just a big open space. That's important to me. I'm willing to pay for that. That goes into margins, though. Here's another one that's important. You got to think about travel expenses. One of the things that we're testing right now in our firm is we're doing onboarding in person right now. Why are we doing that? We had our CFO accelerator live. A couple weeks ago, Greg left Dallas and flew to Hawaii. Poor Greg. To onboard a new roofing client. I know feel sorry for him. He's recovering. Well, your prayers and thoughts are very appreciated for him. He's recovering. He went though and he spent a day and a half with this new client. And I said, well, how did it go? What did we learn? Because it wasn't cheap to fly out there. Now we charged $7,500 for onboarding for this client, but it's still, I mean, there was still cost with it. And I said, was it worth the cost? Was it worth you being away for an extra four days? And he said, mike, I don't know that we're going to ever onboard another client, client virtually again. He said, I got so much deeper with them in a day and a half. He's like, where we're at now is typically where we're at somewhere around four or five, six months into the relationship. He's like, we're meeting for breakfast and we're talking and we're getting into stuff. And then we went to see their offices and a job site and we're really getting in with them. And I'm just spending this time shoulder to shoulder with them in the trust, in the rapport, in the insights that I'm getting around the leadership team as people. It's normally like six months later. And he was like, I know they're going to be a better client and they're going to be a longer term client because I went and did it in person and I'm like, well, there goes margin. But I'm thinking in terms of decades, not days. And so I would rather sacrifice a little bit of margin for travel expenses to get that level of, of trust and just the relationships with our clients. Another thing to think about is if you're one of those people, like we are, where we have like eos and team culture is really important, you're going to have to invest in travel expenses that bring the Team together from time to time. That's important to us culturally to get together at least once a quarter for our EOS quarter quarterlies. You know, we're, we're here in this office for two days each quarter setting goals, reflecting on what worked last quarter, reflecting on what didn't work, what are the issues that are in the firm. Let's work those things out together. That's really important to me culturally to do that. And it's not cheap. So I just want you to think about that. You know, if that's important to you from a business goal perspective, is having that culture and the perks that come from it. You got to plan for that. That impacts margin. Another big one for me that does impact margin. Even with the scale we're at is personal and professional development. It's really important to me and I know this has to factor into my margins because I know that our company, our companies won't grow if I don't grow. I've told you guys before, I probably spent north of a million dollars in the last five years. I mean, it's definitely half a million. I don't know. I'm sure it's north of that by now. It's stupid. The amount of money that I spend, the amount of time I spend on personal and professional development. I also know that I'm going to have to invest in Greg and Gretchen in the team's personal and professional development or the company's growth will be impacted as well. So you got to think about those things. They impact margins. And then there's the normal check in the box stuff, right? Software, phone, Internet, website. You guys, I'm a, I'm a snob when it comes to Apple products. That's why the, the Google Play app just got launched today. But we've had iOS. I'm like, I won't buy Dells. I don't even know if they make Dells anymore. Like whatever. The Google Chromebooks, I won't buy those for the team because I don't like them. I won't work with them myself. And so I don't want my team to do that either. And So I buy MacBooks for the team. I'm not telling you you need to do that, but that's a business goal of mine. That' for me. And I'm willing to sacrifice margin for that. Again, I worked at a software company. Our desks were literal beer pong tables, little plastic chairs. And it was a great culture. The company was great. They provided Chromebooks for Everybody. I think 250 bucks, 300 bucks a piece. The monitors were on boxes and that was really cool. That was the cool vibe there. People didn't care. So I'm not saying you need to do those things for your company, but just know what's important to you and just you got to ask yourself, am I willing to sacrifice margin for those things? Maybe you are, maybe you're not. But you've got to think about all of those things. So when it comes to, well, what should my margins be? I don't know. Your margins should be. You need to know what your margins should be though. And again, I would argue you can't know what your margins should be if you haven't figured out those goals yet. So let's talk about two different kinds of firms and get into margins and what they might look like. So let's say that you're that solopreneur, right? You're the single fractional CFO doing it by yourself. What should it look like? What could it look like? Well, your cost of services are probably $0. It's just you, you don't have anyone else on your team. Or else we're not calling this the solo firm. Gross profit margin. Even easy math, 100% SG and a Super low no team. Maybe you're working from home, doing your own thing. Sgna, really, really low. And your net profit margins might be somewhere 70 to 90%. The biggest factor in there is are you taking an S Corp election? That's probably going to be the only thing that really keeps, you know, 70% or 90% is how are you comping yourself? How are you comping yourself? So if you're an S Corp taking a W2 salary, that's probably hands down your biggest expense. And so your margins might be 70 to 90% percent. You know, if you're not S corp, then it's probably closer to 90. If you are escort, probably closer to 70 or 80%. And there's some benefits to running a firm that way, right? You've got really high margins. You know, most businesses would kill to have 70 to 90% net profit margins. But with the firm like this, there's also the fact that you've got to consider the high risk level. I was talking to a lady earlier. She's got a client that's paying her $10,000 a month, which is great, but she's like, if that client leaves me, my family's literally screwed. And she's like, but the. Because I have this client at 10k a month in the scope of work that comes along with that. I can't get another client in. She's got that client and a couple of bookkeeping clients. She's like, I can't get another client. And so I painted myself into this corner of risk that if that client leaves all of a sudden my 15k a month goes down to 5k a month and my family is immediately upside down. And so she's like, I gotta solve this quick. And I was like, yes, ma'.

Am.

You do. The other thing that goes along with this model, you get the benefits of the high margins. But isn't it also true that it's almost impossible to take true vacation? Isn't it true that sick days become really dangerous now? God forbid you actually get sick and have to go to the hospital for a couple of days. With this, you're also doing invoicing and prospecting in sales calls and all the other administrative things of the business. Yeah, yeah, you got the margins, but you also have a just a ridiculous workload, longer hours, higher workload. Also with this, you're going to hit a cap. You know, it really depends on you. But on the high end, you're going to cap on out about 300k top line. You just are. Because I know how many clients somebody can serve. I've been doing this a while now. You're going to cap out probably high, high in 300k. It's probably a little lower than that. And you'll cap out somewhere around 240k net. And so the question you got to ask yourself is, is the risk worth the hours in the workload in the margin? And I don't know the answer to that question, but it's got to be a function of your personal goals. It really truly does to me. Go back to those personal goals and the business goals. Maybe it is for you. Maybe that client that you've got got is they're not going anywhere and you feel great about it. Maybe you're that mom that has a kiddo at home. And if you lose one client, then rent becomes a question. Certainly not like thriving. Maybe that risk isn't worth it to you. Now let's look at more like the team approach and what can your margins look like here? Again, these are just kind of guidelines from what I've seen in my firm and working with the folks in Elite and that kind of stuff. Cost of services are going to run you somewhere between 40 and 55%. So the subsequent gross profit margin there, 45 to 60%. I think that's a really healthy, healthy place to target with the team. Obviously with that approach, your G and A is going to be higher. You get assets for the teams, your software costs go up, team meetings, all those things are going to go up and that's going to drop your net margin. And so typically what I shoot for, 18 to 22% is great net. There have been seasons where we're fueling growth and we're bringing in CFOs and stuff. And I'll let that drop down to 10% or lower sometimes with intentionality or I'm like, hey, look, we need two new people on the team. Team. I know they're not going to be covering their costs for a while. And so net margin goes down for a season and that's okay because it's fueling growth thinking in terms of decades, not days. Now, with that model, you're going to have lower margins. It's a byproduct of the machine. It's math. There's no way around it. But I also believe that with that model comes lower risk. You've got a team again, whether it's 1099 or W2, you've got a team. That means you have more clients and that means you're not as dependent on any one client. I love that. It also gives you more, more margin for vacation in sick days and all those things. As the pharmo with this though, I'll say, as we talked a lot about in Dallas at the conference, prospecting becomes really freaking important. Because if you do lose a client, especially if you're on that fixed compensation model, your margins go down, your gross margins go down, and your net margins go down. So you've got to have prospecting dialed in so that if client goes out, you get client back in quicker. It's also important to have prospecting dialogue dialed in because if you're going to go higher team, you need to know that you can fill their book of business pretty quick. Whether they're 1099 or W2, whether it's fixed price or percentage of revenue, you've got to be able to predictably get those leads in and fill up their book of business. You got to have that dialed in. Where does the cap hit? Well, the cap is really kind of unlimited based on two things. How many people are you willing to have on your team and how many leads can you get? At the end of the day, you grow this thing as big as you want. I know firm owners that make $20 million a year. Huge team, lots of of leads, lead machine I think it's also important to point out that in this model you're more CEO than fractional cfo. And so you've got to start thinking about leadership and management and sales and prospecting. And so let's circle back to the original question. What are good margins? It depends. It really does depend. I would say if you haven't taken the time to figure this stuff out, do it. Drink your own Kool Aid. Put time on your calendar to figure out your personal goals, the income goals, the lifestyle goals, the community goals, the family goals. Put time on your calendar calendar to do those things. Loop in your spot, your spouse, loop in your partner. Put time on your calendar to map out your business goals. For the love of God, put time on the calendar to get your books in order, if they're not in order. Because you also need to put time on your calendar to put together forecast and projection. If you're one of those people that's like, well, what should my margins be? And you don't have projections in place, then I'm going to shut up, put the projections in place and then we can talk about what your margins need to be. Because you really don't care about margins. If you don't have your books and order and forecast and projections. You're just saying that is an excuse. This is the same stuff we tell our clients, is it not? You need to have goals. Oh, clients, you need to have cash flow forecasts. Oh, clients, you should have projections. And I'm like, isn't it time we drank our own Kool Aid? And so you get those things in place and then you look at your cost of services, you look at your G and A, you look at your margins, you look at your cash flows and make sure that as you have them forecasted, they support your personal and your business goals. And if they don't, then it's time to massage the projection. It's time to figure out what you need to do, revenue, gross profit, or net profit to get it where you need to be to support those goals. Now I'll tell you as a quick sidebar, a quick shameless plug. If getting leads and prospecting is something that you know you need to work on because you need to hire a team, because you need it to be more predictable, because you want to grow your firm. We are offering a brand new prospecting workshop here in Dallas July 23rd and 24th. And we're going to cover three big things, three kind of high level things. We're going to talk about how to systematize prospecting. We're going to talk about how to systematize getting leads. We're going to help you build the systems, implement the systems and tell you how to use sprints to get more prospecting done in less time. So that's the first thing. Systemization. We're going to talk about where to find leads and how to find leads and we're going to talk about how to convert leads into sales calls. Two full days. We're going deep, long days on those three things. It's going to be me and Jeb Blunt. If you don't know Jeb Blunt, you might see my stack of books back here. He's written 15 books on prospecting. I was talking to somebody about it earlier today and I was like, no ads, no cold calls, no cold emails. We're going to teach you how to build relationships. Relationships to get leads. This isn't hacked stuff. We're not going to show you the latest AI thing to increase your SEO so you get 24 new clients next month. That's all bullshit and you know it is. We're going to talk about how to do it. This is what my firm does. For those of you that were at the conference on stage, you saw those elite folks, that's how they built their seven figure firms. We're going to show you how to do it and we're going to teach. So you're going to like sit down, we got the workbook and you're going to like do the work and then you're going to get feedback from me and from Jeb and from my team. So this isn't just lecture. We're going to do the work. If you found this episode's content to be helpful, then you should check out my monthly program called the Inner Circle. In fact, the episode that you just watched is a replay from my most recent Inner Circle session. So what is the Inner Circle? Well, every month I go live and share the lessons I've learned. And frankly that I'm still learning as I grow my firm, KFE Solutions. I also share the insights and trends and best practices that I've discovered from coaching around the thousand other fractional CFOs firms over the past three years. I also spend about an hour every month answering your questions live during office hours via Zoom. And on top of that, you're going to get access to a badass community of about 250 or so other fractional CFOs inside of our private Slack group. This is hands down the most engaged, supportive community that I've ever been a part of. If you'd like to check out the inner circle, just click the link below to try the program. For just $1 for your first month, you can cancel it anytime, so there's really no, no risk. In the meantime, I can't wait to see you next week, my friend.

I'll see you then.