You hired a fractional CTO partly so they could help you hire your first senior engineer. Four months in, the engineer starts. Then a line appears on the invoice: placement fee, fifteen percent of first-year salary. On a $180,000 hire that is $27,000, and nobody mentioned it during the engagement.
Or the opposite happens. The fractional CTO ran the whole search, wrote the job description, screened forty candidates, did six technical interviews, sold the offer on a Sunday evening call, and billed nothing extra, because it all happened inside the retainer days. Which is fine, except it consumed most of two months of their capacity and your architecture work did not move.
Both of these are avoidable, and they are avoidable with the same conversation.
The default: hiring is inside the retainer, and it is expensive in days
Unless your agreement says otherwise, helping you hire is part of what a fractional CTO does. It is not a separate product. Defining the role, writing a job description that does not attract the wrong people, designing a work-sample test, running technical screens, calibrating offers, and closing a candidate are all squarely the job.
So a placement fee that appears without warning is not a normal term. It is a renegotiation done unilaterally, and you should push back on it on that basis rather than on the number.
But the second failure mode is the one that actually costs founders more, and almost nobody sees it coming. A real senior hire consumes somewhere between six and twelve days of a technical leader's time across six to ten weeks. If your retainer is eight days a month, a search can eat forty to seventy percent of a month's capacity for two consecutive months. That is not a billing problem. That is a scheduling problem, and it means the migration, the security questionnaire, and the diligence prep all slip by a quarter while nobody notices why.
The honest version of the conversation, before the search starts, is this: a search will cost roughly X days over Y weeks, here is what stops moving while it runs, do we still want to start now or after the raise closes?
If your fractional CTO does not raise that trade-off unprompted, raise it yourself. The timeline side of this is worth being realistic about, because the calendar is what slips first. I laid out what a first senior engineer search actually takes in how long it really takes to hire your first engineer.
Three structures that are legitimate
There are three ways this gets priced fairly, and all three are fine as long as they were agreed in advance.
Inside the retainer, with a days budget. The simplest and the one I use by default. Hiring comes out of the same pool of days, and before a search starts we agree it will take roughly eight days over two months and we explicitly name what gets deprioritised. No extra invoice. The cost is paid in attention, and you have seen the bill before it arrives.
A retainer bump for the duration of the search. If you do not want anything deprioritised, add days for the search period. Two extra days a month for two months, at the normal day rate. Clean, proportional to effort, and it ends when the search ends. This is the right structure when the search is genuinely additive rather than a reprioritisation.
A separate fee for a search they run end to end. If the fractional CTO is doing true sourcing rather than just evaluation, running outbound, managing a pipeline, and handling scheduling, that is closer to recruiting work than to technical leadership and it is reasonable to price separately. A flat fee is the sane version: $10,000 to $20,000 for a senior engineering hire, payable on start date, with a replacement guarantee.
What I would not sign is percentage-of-salary on top of a retainer you are already paying. Percentage fees exist in agency recruiting because the recruiter takes all the risk and gets paid only on success. Your fractional CTO is not taking that risk. They are being paid monthly regardless. Taking both the retainer and the contingency upside is having it both ways, and on a senior hire the percentage version usually prices out well above what the days were worth.
The incentive problem nobody mentions
There is a second-order issue with any per-hire fee that is worth saying out loud, because it is the real reason I avoid the structure.
The single most valuable thing a technical leader can tell you is that you should not make a hire yet. That you should fix the roadmap first, or that the contractor you already have is enough for another quarter, or that this role should be two levels more junior than you think. That advice is worth more than most hires.
If they get paid per hire, that advice costs them money. You have created a small, quiet pressure toward more hiring, at more senior levels, sooner. Nobody involved is being dishonest. The incentive just sits there and bends judgment a few degrees, and a few degrees over six months is a different company.
Same logic applies to the offer level. A percentage fee means the person advising you on compensation benefits from a higher number. You do not want that, and a good operator does not want it either, because it makes every compensation conversation slightly suspect.
If you are going to pay separately for search work, a flat fee removes both problems. It pays for the effort without paying for the outcome you did not want to bias.
What to put in the agreement
Three sentences, agreed before the first search starts, not after:
Recruiting support for engineering hires is included in the retainer and drawn from the monthly day allocation. Before any search begins, we agree an estimated day cost and which work is deprioritised. Any arrangement outside this, including sourcing-led search or per-hire fees, is agreed in writing in advance.
That covers every version of this. You are not banning a search fee, you are requiring that it be a decision rather than a discovery.
And if it has already happened, if there is a placement fee on an invoice you did not agree to, treat it the way you would any other unannounced charge: ask what it is for, ask when it was agreed, and offer to pay for the actual days spent at the normal rate. Most of the time that resolves it, because most of the time the fee was an optimistic ask rather than a contractual right.
If you are scoping an engagement now and hiring is part of why you are hiring, get it into the terms at the start. You can see how we structure this on the Fraction pricing page, or book a call and we will talk through what your search will actually consume.
Common questions
Is a placement fee from a fractional CTO ever reasonable?
Yes, when they are doing sourcing-led search rather than evaluation, and when it is agreed before the search starts. The defensible version is a flat fee with a replacement guarantee, not a percentage of salary stacked on top of a retainer. If they are only screening and interviewing candidates you sourced, that is core retainer work and a fee is not appropriate.
How many retainer days does a senior engineering hire actually consume?
Six to twelve days spread over six to ten weeks, in my experience, and the variance is driven by how well-defined the role is at the start. A vague job description doubles the screening load because you interview the wrong people. A day spent sharpening the role definition typically saves three days of interviews.
Should the fractional CTO or the founder make the final hiring call?
The founder, on a recommendation. The fractional CTO should own the technical assessment and give you a clear yes or no with reasoning. You own the decision, because you own the consequences and you will be managing the person after the engagement ends. A technical leader who insists on the final call on a permanent hire is taking authority that does not belong to them.
What if I use an external recruiter as well?
Then the fractional CTO's role is calibration and assessment, which is less day-intensive, maybe three to five days across the search. The recruiter takes their percentage and that is a normal market cost. Be explicit about who owns the candidate experience, because a split between recruiter and technical leader is where good candidates go quiet.
Does a replacement guarantee make sense on a flat search fee?
Yes, and it is the main reason to prefer a flat fee with terms over an informal arrangement. Ninety days is the normal window. If the hire leaves or is let go inside that period, the search is rerun without a second fee. Anyone confident in their assessment process will agree to it without much argument.