Criticisms of Hourly Billing

Not all hours are created equal. Some hours you are more productive than others. Do you bill half-time for hours when you aren't at your best? Do you bill extra when you are in the zone?

Some people use what I call lawyer hours. Once a lawyer told me that certain tasks have a set billing rate. For example, writing an NDA might be 3 billable hours. Regardless of the time it takes you to complete the work, you bill for three hours.

Because of these two factors, the hour ceases to be a measurement of anything related to the passing of time. Instead, the hour is now a bullshit abstraction, representing some amount of effort or work on an abstract problem.

This is hourly billings only use, in fact. It gives a measurement to talk about. Writers have 'the article' or word count; designers have the comp. Coaches and trainers have the class or the session. I'll concede that most clients won't accept "it costs what it costs and no I cannot explain why." Many clients want to have some insight into the cost of providing a service because that is how less abstract service providers have taught them to think.
This is effort time when talking about projects. Contrast with calendar time, which is how long a project takes. You could work 10 hours of effort time in one day or three weeks of calendar time.

Hourly billing focuses on expense over value

Hours focus discussion on inputs at the expense of outcomes. More talk is had about how many hours things take and instead of weather or not they are good for the project. Clients do not, should not care about the amount of time or energy you spend working on a solution, they only care about the quality of the solution.

If they care about time, they only care about calendar time. Clients do not care about effort time when you aren't charging them for it.

Billing by the hour encourages estimation, which is a bullshit practice. Because of this, the act of estimation becomes an act on unconscious product design. When defining estimates, what you've done is define appetite.

Hourly billing increases project overhead

Hourly billing adds to additional project management time that accomplishes nothing but adding to the illusion of legibility. Time is spent talking about how much time was spent on tasks, and if it matches up with the estimate. hourly billing = bureaucracy.

Depending on the precision of your estimates, this also leads to making every conversation a business decision. Should we build this is immediately followed by "how many hours will it take?"
These conversations put the client and service provider in an adversarial position to one another, instead of a collaborative one.

Hourly billing punishes productivity

You aren't encouraged to make decisions that could save the client money because they cost you money.

Interestingly, I see developers doing this to themselves. They worry about billing for a fixed amount, finding a quick or off-the-shelf solution, and consequently feeling guilty that they "over charged", even though they delivered exactly what the client wanted for the price they agreed upon. It's not unethical to make a large profit margin.

Hourly billing punishes quality

It gives the client a financial incentive to cut corners, and remove things from the project in order to save money.

Tasks are not worked on discretely. Sometimes work on one task will affect another. How do you track that? How do you decide which part of an estimate it goes against?

Hourly billing puts a cap on your earnings.

You can only bill so many hours, and unless you are fudging the time (see lawyer hours), the only way you can increase profits as a service provider is to start subcontracting people at a lower rate.

Tags consulting pricing