The billable hour is a trap into which more and more of us are falling

Another downside of the billable hour: it encourages perverse incentives. I was recently talking with a potential customer in the legal field, and he was interested in my startup's software, which helps people read on screen more quickly/easily. But at one point he turned to me and said "I know one of the senior lawyers is going to ask me if using your software is going to cause the billable volume to go down for their associates. I know that sounds like a silly question, but how should I answer?"

In short, efficiency is discouraged when dollars are on the line.

I've been beating a related drum on HN for years, about billing hours, and I'll try not to repeat too much of it:

https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...

I know this post is mostly not about billing strategy (though that's what the thread is now about), but I'm going to chime in with a simple bit of advice for tech workers that I believe is universally applicable:

Bill days, minimum.

A lot of the pathologies involved in metered billing, time tracking, and perverse incentives vanish when you bill days instead of hours. People have all sorts of weird excuses to talk themselves out of billing days --- "what if I only have an hour worth of work to do?" Bill a day. See how easy it is?

The last consulting company I built had a minimum billing increment of a fiscal quarter. I co-ran a consulting company for almost 10 years that did minimum-daily billing, for a pretty big and diverse set of clients, and nobody pushed back on the billable day. Bill days (minimum), not hours!

Jonathan Stark is a thought leader / coach / writer / blogger etc that has been beating the drum on time-based pricing vs value-based pricing. He helps software engineers and others get off the time-based model and transition to value-based.

Here's his website: https://jonathanstark.com/

Here are some interviews where he covers the topic https://www.youtube.com/watch?v=UT32G9wmONg https://www.youtube.com/watch?v=B1b7QlQILRo

I've been paid high hourly wages to build software and you definitely start to look at every minute of non-billable time as, "I could have made X in these 3 hours I spent relaxing." Leads to overwork. There's a healthy balance but took me a while to find it.

I have to say something good about billable hour: it made me value my time more. I used to work as a freelancer in tech, so I had to bill my time. I was billing my time at 50€/hour. Out of work, when I was doing something I liked, I didn´t think of the price of my time, but when I had to do something I didn´t like I thought "would I do this if I was payed 50€/hour?" Depending on the answer, I would try to leverage that.

Since then I try to make the most of my time. Not only my personal time alone, but also I think about who I spend my time with. Apart from my parents, my wife and my daughters (which is always a very valuable time) I try to spend my time only with people who provides value to my life, and I try to avoid people who don´t.

One example: 2 months ago my father died. We used to spend time together, less than I would have liked when I think of it now, but back then I was not that aware of it. I remember we would go work on the fields growing vegetables, collecting olives and trimming the trees. I remember one day that I was a bit tired when we were setting up a new land and trimming some very old, mostly useless, olive trees, so I asked my father (in a rude way):

- "why are we doing this? why are we wasting so much time and doing so much effort just to clean some old trees that will hardly provide enough olives to make a few olive oil litres?

His answer was so clear, emotional and bonding that still hurts me today. He answered:

- What? Who cares about the trees? The important thing is the time that we are spending together.

I would have never thought that now, I would pay several thousands just to spend a single more hour with him.

Counter-point to most of the comments here: I was a billable hourly consultant for the first 13 years of my career, and I never felt the urge to work "just a little more". I made plenty working about 40 hours a week, and valued my free time more than any marginal amount above that.

If anything, the biggest problem I had was knowing that the client had an alloted pool of hours, and I had to make my solution fit within that budget. Many times, I gave them unbilled hours just to ship something I was happy with. That's a separate problem worthy of its own discussion at some other time.

But even if you do work extra hours in order to make more money, that's better than doing the same thing on salary. I see people now working 50+ hours a week, with no incentive other than, I suppose, a go-getter attitude that they hope will result in them working 50+ hours a week for more money, with a fancier title, someday.

My point is that the billing model by itself is neither the problem nor the solution: overworking yourself, or letting your employer overwork you, is something you can do under any system if you aren't careful.

One potential advantage of the billable hour:

My wife works for a company which provides consulting and evaluation services to states and the federal government. Project budgets are fixed and every employee's time must be accounted for precisely. My wife's time is expensive.

What this means it that there are many project meetings to which she is deliberately not invited b/c her time is too expensive to be spent in a meeting. Someone else will summarize the key action items for her afterwards in an email or a five minute call. She is rarely, if ever, in an interminable, useless meeting b/c that costs her firm too much money.

This is not applicable to every business context: fixed budgets and a notion of exactly how much each employee's time costs are probably both crucial.

But if <insert your firm's name here> could implement this, think of the time you might save to do valuable work!

To build on another commenter's mention of perverse incentives:

I've thought about this a lot. I think, regardless of what we say, at a foundational level humans operate on incentives. Billing by the hour creates the following incentive: The more hours you spend on the project, the more money you earn. Period.

I know our high-level business brains will rationalize this away in our marketing:

"Now my friend, you know it wouldn't make sense for me to over-bill you, because I want you to be a happy client! I will hard and efficiently for you!"

But no matter what words are said, in the back of our lizard brains, we all know that another hour on the project means another [$10|$100|$1000], and that creates a reward system for the person billing.

The only time hourly billing should really be used is when time-based labor itself is the thing being bought and sold -- a retail worker, a security guard, etc. They are being paid for butt-in-seat time. The incentives line up -- the longer they stay butt-in-seat, the more money they earn! (Which is what the buyer wants too.)

I don't have the perfect solution for consultants/knowledge-workers, but something closer to value-based pricing (with appropriate accommodations for bad time estimates, etc.) feels like the right direction.

I’ve moved away from billable hours and gone to a fixed-fee retainer block. Clients get up to X hours per week at a single price regardless of what they use. This scopes engagements more tightly and results in a natural prioritization of time where I’m most impactful and offloads busywork or meetings where I won’t be productive.

As a result I can handle more business and be more effective for my clients, while actually reducing the overall cost of an engagement and charging a higher effective hourly rate. So far results have been excellent.

Edit: I consult as an interim CMO/VP Marketing for mid to late stage tech companies, typically focusing on accelerating growth or guiding companies through big changes in strategy.

> But I don’t think I’m over-romanticising to suggest that just as there is something psychologically corrosive about the fact that the lawyer can always bill another six minutes, there is something psychologically healthy about the fact that the farmer can sometimes rest assured that there is nothing useful to be done until the morning.

This sense of a “forced” break from work, reminds me of the Jewish concept of the Sabbath.

You were literally forbidden from productive work, 1 day a week.

So this forced time for reflection, spiritual care, and time with family.

My approach to money has changed as I've come to better understand its purpose - the storage of a future promise to give me something I value.

This leads me to ask, "What do I value?"

I value my free time, being able to eat breakfast and coffee out on a daily basis, and simple things in life like just having a comfortable home, debts paid, bills paid, and a happy wife.

My approach to money has, therefore, become one of finding the maximum amount I need for the short term (six months), immediate term (two years), and extreme future (retirement; probably 60-ish), in order to meet those value driven targets.

Once the balance has been found between selling my time and labour for money, I don't exceed it, because I've attained my goals. I go from, "I could be earning $X in this moment if I worked on my book" to, "I should go for a walk and then come home and play a game."

Salary incentivizes the employer milking every last hour from the worker.

Hourly incentivizes the worker to work slower.

Project-based incentivizes the worker to cut corners and get things done as fast as possible.

It seems like the optimal setup is some mix of these: retainer plus low hourly plus bonus on project completion.

The high rolling software contractors I know use "billable hours" as a random meter stick to charge whatever they feel like. I know a guy who has more billable hours than waking hours across the week across three contracts. The customers know and don't care, because he gets things done. I've even heard people complain about clients over beers and say "because they were being so stupid I added 8 billable hours"

charge what you want. Billable hours are to make the departments approving the spend feel comfortable. What are they going to do? Find someone else who can build a complex OLTP system in 2 months?

I love Tim Harford and both of his podcasts (listed on the site) are brilliant and well worth listening to -- but a lawyer's approach to hourly billing is not the only way to look at it. Take an Engineering firm who bid $100,000 for a scope of work and internally allocates 1000 hours to complete the job drawing from a shared resource pool of 100 full time staff. The PM in that case will need to closely balance productivity as a function of time vs completed scope which is very different from the pay-as-you go perspective of a lawyer. You jealously guard every fraction of those hours and fill them as much as is humanly possible. Not as easy to make the comparison with the Farmer I suppose which was his point in the article, but since this HN discussion is considering the overall concept of billable hours in general this needs to be said.

I'm just going to say that the billable hour sucks in accounting and I hope i never have to keep (to lie) on a timesheet again for awhile to meet the "budget."

I've been working as a freelancer for many years, billing hourly. I have absolutely no hesitation to take vacations. If anything, it makes me more likely to take a few more days off, since I don't feel bad about a client paying me for that time. I routinely take months-long sabbaticals between gigs, and use them to learn new things. I take extra long vacations over the winter holidays.

If someone is feeling an urgency to work more hours beyond what provides true value for their life, the problem isn't how one's invoices are arranged. The problem is one's attitude.

If you make $XX/hr, playing with your kids is worth greater than $XX/hr. Once you have enough money* to meet the basic needs of food, shelter, and security, the marginal utility of making more money drops considerably.

Life can be simplified to a conversion between time, money, and happiness. Time can be converted to money by work. Time and money can be converted to happiness by hobbies. College converts time and money into the possibility of making more money. Saving for retirement gives you time and money to be happy later in exchange for less money today.

Making more money is a net loss if your job makes you unhappy, you don't have time to relax, the stress shortens your life and so on.

Unexpectedly, the more money you make, the less time you should spend working. Someone with less money might take a second job to support their family, because more money makes a huge difference in their family's quality of life. Someone making more money takes extra time off every holiday, because the money "lost" is worth less than the family experiences gained.

In my experience projects tend to go over specifications pretty much every time. Fixed billing means having to review the contract every so often, and it's much more of a pain than being paid hourly. You want something we hadn't discussed before? Sure, but you'll pay me for my time.

The goal is eventually to be paid by day or by week, but still proportional to the work you're putting in, unless you're a world class talent and can bill $100k for a week long project; at that point fixed prices will be preferable.

I'll weigh in, since my current and previous 2 jobs were "billable" in the sense you had to fill out a time sheet every day.

There's good ways of implementing billable time and bad. What makes it good:

1. When you have a billable target, only calculating it based off the available pool of working hours (i.e. minus holidays and your PTO time). My first billable job was billable in the sense I had an hourly rate, and when I didn't have billable work, I'd use up my vacation days and my boss thanked me for it because it made hitting his numbers easier as well as mine. It was nice.

2. Not micromanaging your employee's time sheets. I only ever put in 15 minute increments, but sometimes I put in blocks of 1 hour. My boss doesn't bug me on it because she trusts me. In turn, she trusts me because I deliver.

3. Having NBUE time allotted for some things (like self-study, hiring people, etc.).

When you don't have 1, you start seeing people work 80 hour weeks just before they take a week off. When you don't have 2, bosses spend a lot more energy reviewing time sheets, and employees spend a lot more time submitting them. When you don't have 3, you have people avoiding important, but non-billable activities and the company is loses out.

As a couterpoint, I've never been happier than at my current role where I'm expected to put in 40 hours per week, and not a minute more. Sure I do timesheets, but they cap at 40 hours.

Prior jobs always had the implicit expectation that I could be working a little harder, or clocking off early on a Friday was evil. Now, 40 hours a week can be done any time, and that flexibility is hugely liberating. I honestly think they get more out of me as well.

> If you bill £1,000 an hour, as some senior lawyers do, then any particular six-minute increment of time is available to be turned into £100. Can you really afford an hour in the gym? Can you really afford to call your mother or read a bedtime story to your child?

This really hit home.

Thinking like this cost me so many relationships in my late 20s and 30s. Working for startups & agencies, getting paid a bonus for launches or finding extra billable time on some projects -- and worse, even when I didn't have an insane deadline, I would usually find reasons to work.

"Oh sorry, [Girlfriend], I won't be at dinner with your friends tonight, you go without me... I've gotta work..." And I would use it as an excuse to get out of things I didn't really want to do too. "Oh sorry, [Mom & Dad], I don't have time to drive you to your cousin's funeral, but I'd be happy to send some flowers."

And what 27 year-old wants to do those things? They aren't fun, they're tedious, there's no ROI.

Except... years later, in my 40s, I really wish I had spent the afternoon with my parents grieving, to gain a bit more experience with that. And to hear their stories and memories of people who meant things to them. I really wish I made time for a few more of my ex-girlfriends too...

There will always be someone willing to help you turn each hour of your life into a paycheck. But man, you really can't put a price tag on a lot of things, and there aren't always do-overs. Not going to sit here and tell you to always put family first, but... I wish I had prioritized non-work over work when I was younger.

Penetration testing / security consultancy falls into this trap too. All the downsides are present.

It is weird, though maybe not so weird if you think about it for a few minutes, how closely aligned law and offensive security are with business practices.

One of the things I want to do with my consulting business going forward is to explicitly depart from this model. We will see if the market accepts it or not.

I found it interesting that the article started with “It will take about three minutes to read this column” because it seemed a little long for that (I don’t think I’m a slow reader but maybe). Anyway it made grasp the urgency of the six minute interval theme from the rest of the piece in a visceral way.

As my parents have a dairy farm, I can tell that the idea that they have time off after doing the milking is false. There is always something to do and it is also easy to fall into the trap of not calling your mother because it is not worth it. The solution is to set clear boundaries.

I spent much of my career billing hours though I had no incentive to be more than 75% or so utilized (i.e., 30 hours per week) however the firm had a system where you would be minimally rewarded if you exceeded 100% utilization though it was difficult to guarantee hitting that threshold (e.g., if you were at 110% and the project ended before the end of the quarter and you had a slow week or two, you received zero bonus)

As such, I deliberately worked between 70% and 80% during my years there as it seemed only chumps went for the small bonus

Interestingly, I billed around $400/hour back then and they collected on pretty much all of it though I made about 10-15% of that rate personally...

Saw this in consulting. Members of my consulting team were not a good fit for the project, but the consulting company prefered to leave them on the team because it paid everyone's paychecks, except the clients. The client will complain about the teams performance, but this is actually desired, if the client isn't complaining you're not slacking as much as you could be.

Same thing happens with individuals and hourly work, to be fair, but an individual can have integrity or at least find an excuse they're at peace with. When it's a group - a company - that is slacking some like myself inevitably feel they're being dishonest.

Earlier in my career I was billable down to the minute. It was truly terrible for all of the reasons outlined.

It also made no sense. If I could get the work done in 5 minutes or 5 hours why does it matter? It should be about the end result right? If I am too efficient that is bad. If I am not efficient enough that is also bad.

When hiring an outside vendor I suggest negotiating a specific deliverable for a specific price. Everyone will be happier, better work will be done and you will probably pay less.

billable hours are fine, counting hours is what I don't like. as an employee I wasn't worried about that. now I have to question whether I should stop logging hours when going to eat, shit, etc. of course it also depends on your morals, I see people in my field having no shame reporting 3x their hours... 10x of they can.

This is what did in one of my startups -- we did consulting to bring in revenue while we built the software, but the siren call of one more billable hour was always stronger than building the software, so we ended up making good money consulting but never built the product.

I used to charge per class when I was freelancing to avoid this. It creates other issues but I feel like they're easier to deal with.

My current job is billable hours + unpaid time working on things required for those billable hours.

> By accounting for every moment of their working lives, and defining each moment as either “billable” or, regrettably, “non-billable”, lawyers were being tugged inexorably towards an unhappy, unhealthy attitude to the way they spent their time. Not all lawyers, of course. And not only lawyers, either.

We fetish precision at the expense of humanity.

Organic life is messy, sloppy, and imprecise. Wisdom is understanding that diminishing returns sets in at the 80% solution. We don't need to Automate All The Things until the Orwellian social credit system leads to complete demographic cratering and the human race dies off.

As XKCD points out[1], you're OK at around four significant figures. Breath.

[1] https://xkcd.com/2170/

Only if the main virtue in your life is money.

On this page:

1. scrolling is strange

2. zooming is scrolling?!

Does anybody make $1000 USD / hr? What is your day to day like? How many clients do you have and how many hours do you bill per year? Do you actually work 2087 hours per year which would net you $2MM/year?

I'm curious how some people are able to bill such high amounts and how they got started. It must also be extra stressful since its not like you are working for a company either so you need to do marketing and find clients as well.