If I believed in universal ethics, I would say that hourly billing is 100% wrong. I’m not sure I believe in it. But hourly billing is still 100% wrong.
When you charge by the hour you create competing incentives. The person paying wants to pay as little as possible to get a result. The person charging by the hour wants to make as much money as possible for the work.
One person wants to minimize and one wants to maximize. The person paying wants less. The person charging wants more.
This is hard enough to overcome. Its worse than playing tug of war with a tiger. (If you’ve never seen a group of large, presumably strong men play tug of war with a lion, take a moment and see it now.)
Who do you think will win this? The person with the money is probably going to win. That is why we have standard work weeks, expected bill rates and caps on how much most hourly workers can charge.
This isn’t even the worst part about hourly billing.
Those paying want results. Those charging want work, or inputs. Hours, or any unit of time, is an input. Hours are not results. If you charge by the hour or track hours, you are focusing on the wrong metrics.
Most corporate workers spend 2/3 of their work day actives that are not related to work. And most of the work they do doesn’t matter anyway. Why waste your time tracking hours when you are spending those hours browsing Reddit? Or shopping? Or sitting in meetings that everyone knows is a total waste of time but no one will admit it to themselves because it would mean asking the hard question of am I slowly wasting my life?
When hourly billing is used, the person paying and the person charging are focused on two different things - results vs inputs. And they are competing on utilization. One wants the most, one wants the least.
How can this be a positive partnership? How can you build trust, relationships and a partnership when from the very beginning of the relationship there is a competition. This isn’t rhetorical. Tell me how you justify it. Creating a competition with your clients or partners is on the dark side of the ethical spectrum.
I want you to get me results for as little money as possible.
I want you to give me as much money as possible for my inputs.
This is stupid. 100% stupid. I don't know who came up with it but they need to be punished.
There are a number of other problems with hourly billing, too.
- You have a cap on how much you can make. Even if you tripled your rate. You can only work so many hours.
- You actually have to track hours. In the knowledge economy, when are you working vs not working? Thinking about a project or a client on your way to the movie. Track it. Have an idea after breakfast on Sunday. Track it. At the office but talking about whether Iron Man had to sacrifice himself instead of Captain Marvel using the Infinity Gauntlet. Should I track it because I’m at the office even though I’m not working? It’s tiring. And pointless.
- You should try align hourly inputs with results to show that your work actually matters. Which is literally impossible. And your work probably doesn’t matter, any way.
- Those paying don’t know how much they will pay. Will this invoice be 10 hours? Or 100 hours? If you know how many hours you will pay, why not just switch to fixed fees instead? Don’t you just want results?
- It may only take me an hour to do something, but I’ve spent 10 years getting my skills to a point where it only takes an hour. Shouldn’t I then charge you for the ten years and not just the hour? (I can compose a 5 minute jazz instrumental piece in about 5 minutes and 10 seconds. But it took me 15 years to get to this point. So how long did it really take me? 5 minutes or 15 years? Tough to bill, right?)
The solution is easy. Just stop. Stop tracking hours. Stop billing by the hour. Stop trying to equate an hourly input with a tangible result.
If you are paying by the hour, just stop that, too. Don’t ask for hourly reports. Don’t forecast how many hours people will work.
Switch to project based or monthly/yearly pay. If you have employees, don’t pay them by the hour and don’t track their hours, either.