If you've read some of my other articles, you’ll know that I hate hourly rates but saying that over and over again gets boring.
So, I’m trying another avenue. Sarcasm.
My teenaged son is nodding his approval… even as he’s rolling his eyes.
Here goes. Here are my top 10 super sarcastic reasons for sticking with billable hours for software services firms, consulting firms, creative agencies, and just about any other type of professional service firm.
1) You think of yourself as a hired hand
I mean, you’ve spent years honing your craft between school, work experience, and studying trends and emerging breakthroughs. Shoot, you may even be decades in by now.
Why wouldn’t you compare yourself to the person flipping burgers over at McDonald's or Five Guy’s?
They do work and get paid. So do you. Same.
Never mind the brain in your head or the results you can produce that even the most talented burger flipper couldn’t even begin to comprehend.
If that customer asks you to pick up a broom and put down your laptop, why wouldn’t you just shrug and do what you’re told?
2) You want to sell your time (all of it)
You have time. Tons of time. It’s practically worthless given there is so much of it to go around.
If that customer doesn’t like the hourly rate you put in front of them, no big deal. Just chop it in half. You can always make time; right?
The time you reserved for your family in the evening, you’ll just use that to fit in a few more hours of work. Work is billable, family is not. No brainer.
Weekends? Who needs them?! You could be billing your customers to sweep their floors even if you’ve finished the work they originally requested.
3) You love having an income ceiling
You’ve done the math. You have 52-weeks and 40-hours per week. From there you can extrapolate out your potential income, assuming you can sell every hour. Plus, hours come cheap so you can just work longer. Easy.
When you get better at delivering customer solutions, you can raise your rates. Customers won’t push back. They wouldn’t dare ask you to charge less if you only need a fraction of the time you used to take.
But, if they do, you can always pad your hours. Why should you make less because you are now more efficient; right? You still represent the same “value” you originally did earlier on.
Ethics? Who needs them! Move along; nothing to see here.
4) You don’t care about the outcome
Outcome? Who said anything about an outcome? You’re here to get paid. If you show up and put time in, you deserve to make some coin.
Want to hear a joke? Customers really want results.
I know, right?! It’s not your fault if things don’t work out. No guarantees. All you offer is a good ol’ college try. No warranties.
Time spent means money earned. Screw outcomes. Those are for hippies.
5) Low margins are your “thing”
Figuring out your hourly rates is easy. You start with your costs (fixed and variable) and then add a margin on top of that. Bingo. Done.
Of course, you’ll sell all your hours. Plus, if you don’t, that’s what “margin” is for anyways. Duh. You’re totally safe.
You don’t care that your customer is going to save $2 million on the work you’re billing them $50k for. Not even if they would have agreed to share in the savings where you could have claimed 10% of that savings ($200k). I mean they would have expected results and you’re all about “effort”.
Why chase results ($200k) when you could do a ton of work for $50k?
6) You love tracking all your time
Remembering where you spent your time is heaps of fun. You love spending 10–20% of your time recording your time in software. Plus, justifying it to your customer is what everyone else does too.
What else would you do with the time if you weren’t tracking hours? Why would your family want to see more of you? Weird. Gross.
Of course, you remember how you spent your time. It couldn’t possibly be forgotten when you record Monday’s efforts late Sunday night before you need to invoice your customer. Plus, time is “fuzzy” so a little tweaking here and there is totally normal. You eat integrity and ethics for breakfast.
7) You don’t want to align incentives
You maximize hours while your customers push for less of them. It’s a classic game that everyone loves to play. Sometimes you win, sometimes they do.
How else would you do it? Win-win? That’s for hippies. Your customers don’t want to reward you for achieving results; they just want you to show up. They want to squeeze you until you can’t make any money. So, you’ll show them.
Plus, figuring out how you would benefit them is too hard. It requires all this upfront relationship building when you could just get started and bill them for whatever they want or whatever you think they want. Same difference.
You bill. You win. They pay. You win. You don’t produce results. They lose but you still better get paid!
8) You want to instill a culture of anxiety
To bill or not bill, that is the question. Duh. Easy. You BILL.
Johny over there next to the water cooler better be billing his time! You’re not paying him to stand around and talk to Carl. So what if they just figured out how to deliver the project with half the effort. You bill based on effort so that has no value for your business. You don’t do non-bill. You don’t do efficient.
How dare Carl leave at 6pm to take his son to baseball practice — there is work to be done and you need him to bill more hours. Work first, family second.
Why is Julia sweating? What does she mean she’s not sure whether to bill or not bill for her mistake. Of course, she should bill. We don’t do non-bill. She spent time on the customer’s account. It’s clear. Effort is billable. Just don’t tell the customer.
9) You want to avoid becoming effective
When you find ways to do more with less, that’s a problem. It means you won’t bill the customer as many hours. That means you’ll have to raise rates which customers totally love to see.
Or, if you’re feeling a bit brazen, you can now do twice the work in the same span of time. Do you have two customers with the same needs? Just bill them both for the old effort and you’ve doubled your revenue. Boom!
I know. Ethics have no place in hourly billing. It’s none of your customers' business how you use those hours but they better pay up. Am I right or am I right! The time it actually takes you and what you quote them have no correlation. You totally pulled those hours out of your rear-end anyway.
10) You know customers only care about effort
Remember that joke I shared earlier? Customers want results. That couldn’t possibly be true. After all, they ask you what your rates are within the first few minutes of your initial meeting. That means they must care about your effort.
If customers wanted results, they wouldn’t focus so closely on your effort. It couldn’t possibly be due to other firms like yours defaulting to that payment structure. And it couldn’t be due to misguided notions that every hour used is only as productive as the one before it. Creativity is linear.
Wow! I had a lot of fun writing this dumpster fire of a post. And I definitely feel a bit sick now and truly need a shower. A long, very hot shower. Barf!
I totally realize those 10 callouts above are over the top. It’s unlikely that people actually think that way… at least explicitly. But my commentary does represent the extreme end result of each of those misconceptions.
All in all, hourly billing is easy to use but hurts more than it helps. It has all sorts of shortcomings and pits you against your customers. If you’re serious about becoming a great partner to your customers, hourly billing has to be kicked to the curve.
Learning how to price based on value is hard but totally worth it.
I can help. If you’re curious about what pricing could look like for your software services business in place of hourly rates, let’s talk.
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