Full-Time vs. Freelance Project Managers: A Comprehensive Cost Analysis Guide

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In the fast-paced world of digital agency ownership, relying solely on gut instincts and quick decisions may not suffice. While there’s merit to quick action, calculated, data-driven decisions bring extreme value to the table. Today, we’re diving deep into one such critical decision: should you onboard a Senior Project Manager as a Full-Time Employee (FTE) or opt for a Fractional Project Manager (FPM)? We’ll dissect the costs, effectiveness, and associated risks, providing you with a no-nonsense guide to making an informed choice.

(Note: For the purposes of this article, we’ll use the term ‘fractional’ as synonymous with freelance and contract project managers.)

A Challenge You Know Well

You may find your project management team is rapidly reaching its capacity, or perhaps you’ve lost a key project manager unexpectedly. The need for quick, competent reinforcements is critical to prevent team burnout and project derailment.

The pivotal question remains: Which route offers the most value to your agency—FTE or FPM?

We won’t claim to cover every variable at play, but we will offer a comprehensive cost analysis grounded in industry-specific data.

The Baseline

Let’s begin by focusing solely on senior-level project managers, diving into the financial nuances associated with bringing them into your fold. Whether it’s Full-Time Employment (FTE) or Fractional Project Management (FPM), each comes with its own set of costs—both hard and soft.

The Financial Anatomy of an FTE

When it comes to FTEs, Senior Project Managers command annual salaries ranging from $120,000 to $140,000. In the agency space, these figures lean more toward the lower end, especially in smaller firms. For this exercise, let’s employ a conservative estimate of $120,000.

Beyond the base salary, other expenditures include:

Hard Costs Breakdown

Expense Type Cost Calculation Total
Salary $120,000 $120,000
Benefits 31% of Salary $120,000 * 0.31 $37,200
Recruitment Costs $18,000 15% of Salary $18,000
Taxes* $9,222 $9,222
Total Costs $184,422

*Taxes are calculated for an employee hired in Pennsylvania and do not include SUI or local PA taxes.

But Wait, There’s More: The Soft Costs

Ignoring soft costs is a grave oversight. These hidden costs can significantly impact your bottom line.

They encompass factors such as:

Soft Costs Breakdown

Expense Type Cost Calculation Total
Onboarding $4,700 $4,700
Training $4,120 40 hours*$103 $4,120
Software Licenses $300 $300
Total Costs 9,120

The Grand Financial Picture

Adding it all up we get:

Expense Type Cost Calculation Total
Salary $120,000 $120,000
Benefits 30% of Salary $120,000 * 0.31 $37,200
Recruitment Costs $18,000 15% of Salary $18,000
Taxes* $9,222 $9,222
Onboarding $4,700 $4,700
Training $4,120 40 hours*$103 $4,120
Software Licenses $300 $300
Total Costs $193,542

Be aware that these numbers can vary based on how you acquire talent. The bottom line: talent isn’t cheap. An FTE will require at least a six-month runway to start delivering a return on your substantial investment.

Calculating Hard and Soft Costs for Fractional Project Managers

Let’s shift gears and examine the costs involved when hiring a Fractional Project Manager (FPM). A thorough understanding of these expenses—both hard and soft—is crucial for accurate budgeting and effective decision-making.

The Direct and Indirect Costs of an FPM

Not unlike Full-Time Employees (FTEs), Fractional Project Managers (FPMs) also have their financial implications, both direct and indirect. These costs can make or break your budget, making it essential for digital agency owners to fully understand them before making a hiring decision.

Hard Costs Breakdown

Cost Type Description Cost Estimate
Hourly Rate Most Direct Cost $60-$110p/h
Equipment Necessary Tools $10-$30/month
Onboarding Initial Setup $200-$300

Unveiling the Soft Costs

While hard costs are straightforward to quantify, soft costs are less transparent but equally impactful. These are the financial elements that most don’t take into consideration.

Cost Type Description Cost Estimate
Time for Integration Time required for team integration $250
Communication Overheads Time spent on internal communication $60/week

Calculating the Average Total Cost for an FPM

For a detailed financial blueprint, let’s calculate the average total cost for an FPM based on a median hourly rate of $85, within the range of $60-$110 per hour. The FPM in this scenario is working 20 hours a week, yielding an 80-hour work month for your agency.

Expense Summary

Expense Category Description On-Time Cost Cost/Hour or Monthly Total Monthly Cost ($) Breakdown Aggregate Hourly Rate ($/hr)
Hourly Rate Most Direct Cost $85/hr 6,800 80 hours x $85/hr
Tools Necessary Tools $30/month 30 $30/month
Onboarding Initial Setup $250 (average) 250 One-time
Time for Integration Team Integration $250 250 One-time
Communication Overheads Internal Communication $60/week 240 4 weeks x $60/week
Total On-Time Cost $500 Sum of on-time costs
Total Monthly Cost 7,070 Sum of all expenses $88.38

The aggregate hourly rate stands at $88.38 when you account for both one-time and recurring costs over an 80-hour work month. This refined calculation gives you a more complete financial perspective, further informing your decision

Determining Cost Per Hour

At this stage, let’s get granular for financial planning: the Cost Per Hour (CPH). This metric gives us a normalized basis for comparing Full-Time Employees (FTEs) and Fractional Project Managers (FPMs), ultimately helping you make a more informed decision.

Calculating CPH for an FTE

The FTE route might appear daunting when one looks at the annual cost, but understanding it on an hourly basis can offer new perspectives. Let’s break it down:

Using the standard 2080 hours (calculated as 40 hours per week multiplied by 52 weeks) as the average working hours in a year, the CPH for an FTE is calculated as:
CPH = $193,542/2080

CPH = $93.04

Calculating CPH for an FPM

For the FPM, the calculation is straightforward given that we already have the aggregate hourly rate. This rate—$88.38—already includes any additional monthly expenses and falls within the industry standard range of $60 to $110, depending on variables like experience and project scope of course.

CPH = $88.38

Cost Per Hour for FTE and FPM

Cost Per Hour $93.04 $88.38

Now, instead of juggling abstract numbers, we have specific, concrete data points. Let’s run these numbers in a few scenarios.

The Scenarios

Now that we know what each resource will cost per hour let’s walk through a few scenarios on when it would make sense, financially or logically to hire an FTE or engage a FPM.

Scenario #1: The Emergency Rescue

You have a web development project that is halfway through completion, with 6 months left in duration. This project is going off the rails and if it’s not pulled in tight it will not deliver value and you will suffer financial loss. You need a sharp, targeted intervention.

While it’s tempting to consider an FTE, their onboarding time and cost often outweigh their benefits in a time-critical situation. An in-house project manager might be another option, but their effectiveness would depend on factors beyond just availability and capacity.

To illustrate the financial aspect, consider the following. You have 95 hours remaining in your project management budget:

Metrics Full-Time Employee (FTE) Freelance Project Manager (FPM)
Hourly Rate $93.04/hr $88.38/hr
Total Hours 95 hours 95 hours
Total Cost $8,838.80 $8,396.10
Billable Rate $185/hr $185/hr
Total Revenue $17,575 $17,575
Total ROI $8,736.20 $9,178.90
Profit Margin 49.7% 52.2%

In this case the FPM is more cost effective and yields a 2.5% higher margin. But other reasons to opt for the FPM are:

  • Immediate Availability: FPMs are generally ready to jump in quickly, a critical factor when your project needed attention yesterday.
  • Expertise on Tap: FPMs are often specialists in rescuing projects. Their prior experience and domain expertise can be invaluable in course-correcting quickly.
  • Flexibility: FPMs are accustomed to working on a variety of projects and can adapt quickly to your specific needs without the need for extensive onboarding.

Scenario #2: Tackling the Multifaceted Beast

You’ve just secured a high-value client looking for a comprehensive multi-channel marketing strategy to be executed within the next quarter. This isn’t merely about digital strategy; the project involves complex layers such as rebranding, UX/UI enhancements, and possibly even website maintenance. Based on your estimates, you’ll need approximately 250 hours dedicated to project management, allocating 4 hours a day over a 3-month span.

To make an informed decision about which resource is optimal, let’s look into the financials.

Metrics Full-Time Employee (FTE) Freelance Project Manager (FPM)
Hourly Rate $93.04/hr $88.38/hr
Total Hours 250 hours 250 hours
Total Cost $23,260 $22,095
Billable Rate $185/hr $185/hr
Total Revenue $46,250 $46,250
Total ROI $22,990 $24,155
Profit Margin 49.7% 52.2%

As we determined in the first scenario the FPM will always turn a higher profit in these scenarios. However, that doesn’t mean it’s the right choice. Here are compelling reasons to opt for an FTE in this context:

  • Team Synergy: An FTE, will be better aligned with company culture, has access to more people and can better coordinate between diverse internal departments and business units.
  • Long-term Gains: Employing an FTE now can build a relationship and knowledge base beneficial for potential long-term contracts with the client and learning for future clients.
  • Continuity: With so much work from one client it’s likely the client will stick around and your shop will have to maintain and measure what was done. The FTE can provide that continuity since typical FPMs don’t stick around past the end of the project.

Scenario #3 – Not so Straightforward

You’ve just landed a significant client who’s interested in a long-term contract involving multi-channel digital marketing campaigns, web development, and potentially app development. The project is estimated to span 18 months, and there are clear deliverables for the first 6 months but only general goals and key performance indicators (KPIs) for the subsequent 12 months. The contract is a big win, but it puts your existing project management capacity under stress.

Reasons to Opt for a Freelance Project Manager (FPM)

  • Immediate Expertise: Given the multifaceted demands of the project—ranging from marketing and development to design—a seasoned FPM can add immediate value without the need for a ramp-up period.
  • Contract Flexibility: The contract has built-in ‘outs’ at the 6- and 12-month marks. An FPM gives you the flexibility to reevaluate your staffing needs without being saddled with long-term commitments and overheads.
  • Budget Scalability: An FPM provides you with the flexibility to adapt to budget changes. Since they’re contracted for specific durations or project milestones, it’s easier to adjust your expenditures in alignment with project needs or financial constraints, without the long-term commitment of a salaried employee.

Reasons to Opt for a Full-Time Employee (FTE) Project Manager

  • Long-term Development: Given the 18-month duration, an FTE has the opportunity to deeply integrate into your company culture, which can translate into more effective project execution in the long term.
  • Internal Capacity Building: The new contract stretches your existing PM resources. An FTE serves as a long-term investment, enhancing your in-house capabilities for managing future, possibly larger, projects.
  • Client-PM Dynamics: Introducing an FTE fosters a more stable and predictable client-PM relationship. Clients tend to form stronger bonds with FTEs than with FPMs, who might be perceived as external or temporary.

Conclusion: The Smart Play in Project Management

Deciding between a Full-Time Employee (FTE) and a Fractional Project Manager (FPM) goes beyond simple calculations, although the numbers start the conversation. As we’ve seen, both options have their merits depending on the situation, and those merits extend past the balance sheet and into strategic planning, risk mitigation, and client relations.

Putting it all Together

What’s the smart play then? If you’re looking for a quick, expertise-driven solution and have a well-defined problem space—FPM is the way to go. If you’re thinking long-term, building client relationships, and fortifying your internal capabilities are high on your list—opt for an FTE.

By systematically examining the pros and cons in different scenarios, you not only make a smarter choice but also set up a framework for future decision-making. These are not just numbers or “either-or” situations; these are strategic decisions that should align with your business goals, client expectations, and team dynamics.

As the landscape of project management evolves, it’s crucial to approach these decisions with a keen eye for detail, strategic foresight, and an understanding that some benefits—be they cost savings or long-term gains—aren’t immediately visible on a spreadsheet. Make your choice not just as a function of cost, but as an investment in your future capabilities and relationships. That’s not just good project management; that’s exceptional business acumen.