> 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.
A lot of Christians still do some sort of Sabbath. It could be a sin to skip the Sabbath, even, depending on the theology. But the definition of sin in some theologies can be quite broad, personal, and circumstantial.
We weren't really told it was a sin I guess but that it was more honorable or optimal to not do anything except reflect and socialize on Sunday? It's not as extreme as what my great grandmother talks about where they really did nothing on Sunday. She was an atheist too so there definitely was a shift in American culture here.
As a Christian who observes the Sabbath---is this not common among Christians? (I am genuinely asking, somewhat disconnected from the wider world of Christianity)
That's either a silly tautology or false. Jews live in the exact same "consumerist society", but did not lose the sabbath. Even the most progressive Jews I know rest on the sabbath in some form or another.
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 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.
Exactly in the same spot, I've recently gone freelance where I'm paid by the hour and I've yet to take a holiday cause I always think this week of holiday will cost me $$$ (huge amount of money compared to what a normal one week holiday would cost).
Sadly, I will probably burnout soon and ignore that thought.
I used charge hourly years ago. I had the same problem where taking a holiday made me think about losing money.
Now I charge a monthly rate based on the number of days a week I work (roughly equating one month to 4 weeks, granted they're not but it makes life easier).
Now I don't worry about taking time off because once I've clocked my days for that week I'm done I won't get paid more. It also means you know exactly what your income will be each month which is handy for budgeting.
I took this list to gauge how many hours I want to work per year, and decided that 1500-1600 hours is enough, if it’s not, then the rate should be higher.
Damn thats a nice list. Today I learnt that despite living in the USA, I have managed to arrange my life so as to work about as much as the average German.
Start charging day, week and month rates, along with retainer rates. For projects and clients you're confident in satisfying, also consider fixed prices for deliverables, revenue sharing deals, etc.
> I've yet to take a holiday cause I always think this week of holiday will cost me $$$
I'm a long-time hourly freelancer, and it's absolutely true - the lack of revenue for that period will indeed cost you money. But not taking the holiday will cost you a vacation. I personally think about the value lost from not working, and the value gained from the vacation, and usually conclude that taking the vacation is the clear winner. It's all about establishing a proper value system and being honest with yourself about it.
This is an interesting anecdote, which I can relate in a tangential way. I'm a huge fan of MMOs, and part of that fun is grinding for more wealth. Some of the games I played over the years at some point became infested with Real Money Trade (tl;dr people would buy and sell in-game currency with real life money), and over time such activities would make me quit the game because it framed everything in real money. Sure, I could play the game for 5 hours like I did before and make $5 USD in in-game currency, or I could do some freelance work and make 200x that.
I've been doing the hourly thing for over a decade and that is not my experience at all. If anything I work less because I make far more per hour. I'd be very afraid to do $X/mo or something like that because the clients would want to feel like they are getting maximum value out of me.
With hourly, if I want to take the day off no big deal. I just don't get paid but I'm not burdened by obligations. Whereas if I do want to work extra, I'm getting paid directly for that time.
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.
* A retainer block is a fixed price for up to a certain number of hours per week, usually 10 hours and clients can buy multiple blocks. There are four blocks in total (all sold currently)
* The client pays this amount regardless of how much time is worked
* The advantage for the client is they have this time available to them and them alone - no one else will take it since it is already sold
* The limit of hours per week naturally focuses my time where I’m going to be most effective; more impact in less overall time
Pretty frequently as I’m quite leaned in with clients. Some weeks are quieter than others, but I keep my time open enough that I can jump in on things with relatively short notice.
I must say as an hourly based freelancer (software engineering) for the last six years, I don't like this. One of the biggest perks is the flexibility to take time off whenever I want. If I don't work a full day in order to spend time with my kids outside because the weather is nice, then I do. If I want a day off, then I take it. As long as my projects are making progress or I give advance notice of long vacations, then my clients stay happy.
That said, I'm not fixed on the billable hour which is why this article and comments are so interesting. So, I do thank you for sharing your method.
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.
It's not uncommon in my field. And quite a few of the people billing that rate or higher actually net greater than $2m, because they get credit not only for what they bill but what work they bring in for others to bill.
That said, $1k/hr billed does not directly translate to $1k/hr earned. Usually there is shared overhead, etc taken out first.
It's inconclusive if it's fraud without knowing contract details.
If you're being paid simply to travel, then it is not fraudulent to also work on another client. If your being paid to travel _and_ focus on that client, then it would be fraudulent to work on another client.
No, if you are paid by a client hourly for travel, you cannot bill that same hour to another client. That's bog standard for every profession.
If you bill two clients for the same hour, that's "double billing," and it's fraud, and a number of accountants and lawyers have had their licenses suspended or (more commonly) terminated over this. Most of them usually plea bargain to avoid time behind bars, and this is generally acceptable because the true punishment is that their professional career is dead.
Very few (basically no) client will agree to pay you for travel time while also permitting you to work on another client's case for that same time. (Note however that if invoicing client for expenses like tickets but not for travel time, it is generally acceptable to work on another client's matter during the time spent traveling.)
I know a attorney/lobbyist who make pretty close to that. They spend a lot of time on the phone, doing emails, etc. The key thing is they know their shit and and pick up the phone and get people when needed.
Almost nobody is producing work output on an hourly basis worth more than $200/hr. You’re paying for what and who they know, together. The good ones are worth it.
That last part is actually the reason why hourly rates tend to be so high. You can't bill all the hours.
A common rule of thumb for setting a billable rate is 3x to 4x the hourly-equivalent salary. If you are currently making $200k/yr working a full-time gig with good benefits, then your hourly-equivalent salary is $100, and you should bill hours out at around $300/hr to $400/hr on a billable-hour basis.
So, you should figure that someone who would earn a TC of around $500k-650k/yr would be billed out at around $1,000/hr
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.
I'm a big fan of Jonathan Stark. As well as value-pricing he has lots of great content on writing proposals, developing productised services, moving to advisory roles etc. He has two podcasts that are worth listening to, The Business of Authority [0] and Ditching Hourly [1]
My side gig is that I have a few clients who pay me $1K a month for 10 hours of retainer. Most months, I barely put in 3 hours. A few, I might work 12 and I don't charge them because everyone's happy. They realize I have a day job and as such, I'm not going to be immediately available unless I can take a lunch break. A win for everyone.
Software dev. One client is a former employer, another is a company in an adjacent industry who would have to pay substantially more for the agency who built their sites to look into things for them. The price is not super high, but on average I probably end up making about $350 an hour when it's all said and done because I get paid on retainer and not hourly.
Thanks to Jonathan Stark book and podcast I stopped doing billable hours and go with flat fees and flat monthly and my income sky rocketed. I just offer more for my consulting services for a flat fee and customers seems to love it. I always over deliver and was frustrated with crappy time tracking and having to justify it.
Have any of you who work as a freelance programmer managed to get off the hours-based billing treadmill, and onto a value-based system? How do you determine value? When your clients need constant maintenance or small incremental work, do you end up spending a lot of time with estimates?
Chris Do's work was my introduction to this concept, perhaps you might find it equally helpful.
This is one of his lectures on value based pricing, but he has a number of them that are informative on the concept in different ways:
https://www.youtube.com/watch?v=ivKnj9ffcmE
You shouldn’t realistically expect to charge customers according to value delivered to their company. You’re still selling services on an open market, competing against other contractors and their pricing.
Nobody is really interested in handing a services provider more money than necessary to get the job done at market rates, so even value-based bidding ends up coming back around to market rate pricing.
You can always ask, of course, but at the end of the day any rational company is still going to evaluate your proposal against their other bids from other contractors.
This mirrors my thinking. At the end of the day you have to charge a price reasonable to the customer and sustainable to you for whatever you’re delivering and that’s going to fall somewhere relative to other bids and whatever Google tells them the average hours spent * rate “is”.
For several of my company’s customers they don’t really want to discuss ambiguous ideals of value for cash or negotiate fixed deliverable costs. They ask “so what’s the rate, bottom line?” and we have had a LOT better results estimating and billing hourly than with fixed rate, retainers, and so forth. Not because we are bad at estimating but because there are too many variables on the SMB side that no customer will pay to hash out fully before a project begins, and even if they did, ours tend to value the flexibility provided by hourly billing.
Fixed bid contracts are riskier than per hour contracts. There is the risk that you underestimate the project and have to work for free. There is also the reward when you overestimate the effort, the client accepts the bid, and then you get paid for doing nothing. The key for being successful with fixed bid contracts is responsible estimation and communicating that to the client.
For maintenance work it's almost always per hour unless you can negotiate a retainer policy. Back when I worked on contracts a not uncommon arrangement was a hybrid approach with the fixed bid deliverable and a pool of maintenance hours on the back end that were essentially options for the client.
for maintenance or incremental work i'd offer a retainer.
i did that with one client. i started hourly and eventually once we had a good working relationship suggested to switch to a retainer. i actually let the client pick the fee. he picked the same amount that he had paid in hourly rates before. i figured that if there was more work then i'd renegotiate. but what happened was that my work went down, yet the retainer stayed.
that's the big advantage of a retainer.
with hourly you get more if you work more and less if the work is reduced.
with a retainer you don't work more than the limit of the retainer allows, but the less you work, the more you make for the time worked.
The dream is that you can deliver a project for 100 hour pricing in 10 hours of work, but usually value based pricing means you'll be spending 200 hours on something that was initially valued at a 100 hour level and there are no one to bill the OT to.
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.
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.
From the other side of the table, efficiency is encouraged when dollars are on the line too. A buyer is going to prefer a law firm that minimizes expenses.
It is not like the law firm has a choice to keep using pen and paper to bill 100x the number of hours as others. They have to compete with other law firms.
I do not know what “properly” price shop means, but I do not think law firms get blank checks. Buyers themselves are frequently lawyers so they are not completely out of the loop on what is and is not reasonable.
'Properly' price shop means that a client would be able to evaluate quality/price across a wide variety of firms in a transparent fashion relatively easily. Say with a week or two of work.
That is impossible because the quality of work for a lawyer is very, very difficult to gauge, and it may take years (or decades) for bad work to be visible in many cases (say missing some bad edge cases in contract language, or they can't handle in litigation in certain types of cases, or the like).
And other lawyers have little incentive to price shop either, as they usually get to add on a little on top when they farm out the work. Cost-plus, essentially.
And if 'very expensive and opaque' is the norm, it's not like 'very expensive and opaque' is unreasonable.
It's an opaque field how's a client supposed to know this particular law firm is billing less hours than another would because they're using this software? Can't run the suit twice with two different firms blind to see which bills less hours.
You look at the firms track records, testimonials, results; etc., the same way you evaluate most purchases. If two firms have similar results and one is cheaper, then you choose the cheaper option.
What do you mean you know very little? You would interview the firm and ask them what the discovery process was like. You likely wouldn’t care about the gritty details of how they sorted the documents. More important would be the scale of the discovery, the outcome of the case, and the cost. Unless there was literally only one firm handling this specific type of issue, then it will always be possible to compete on cost.
I don't think that works here. When getting a lawyer you are more interested in outcomes than price and we are probably not talking 100x but more like low to mid double digit percent. Important enough for the lawfirm in control of their price, but nothing the clients can really select for, especially since he is at a information disadvantage.
It's, frankly, pretty easy for a law firm to pump up their billable hours.
"Document review" is something law firms can dump thousands of manhours into with no real appreciable change in outcome. It ends up being more a question of what a company/individual is willing to pay.
The reason big lawfirms stay in business isn't because they generally get much better results, but rather it's because they have the time and manpower to chase down every single rabbit hole to fully understand the law around the cases they are working. So, instead of a firm giving you a "We are 95% sure the law is this way" with a bigger firm you get "We are 99% sure the law is this way."
The other messed up part of the US legal system is the bigger the law firm, the more time they have to chase down discovery rabbit holes looking for wins and (potentially) legally bankrupting their opponents. "Document A references document B written by Foo? Well, lets have a deposition of Foo and a request for Document B". It ends up looking a lot like refactoring spaghetti code in a dynamically typed language.
The finalizing Depp vs. Herd trial is good example what happens when both sides have stupid amounts of money to burn... 6 weeks in court for civil matter, and it probably would have been even longer. With seemingly hours and hours of depositions, stupid numbers of evidence and transcripts...
you have to wonder how much of that content is actually retained by the jurors. I always make a good faith effort to pay attention when I am selected, but I have a hard time remembering exactly what was said after a mere three days, let alone six weeks. in a criminal case, I suppose that works in favor of the defense (at least ideally). I have no idea what it does in a civil case.
Being on a jury was one of the few times in life when taking notes paid off for me, mostly to correct the memory of other jurors! oddly some judges don’t allow it.
I was allowed to take notes, but I was not permitted to bring them with me during the deliberations. Were you allowed to look at your notes, and share them, during the entire process?
They let me use them in deliberation, but took them at the end of the trial. The judge did specifically mention at some point that notes aren't the equivalent to a transcript.
I have, and many besides, billed every last penny on the basis of "what I may miss I still understand better than anyone else". My 0.01% failures are 100% of my proposition.
>"A buyer is going to prefer a law firm that minimizes expenses."
Yes, but I feel like this only works up to a certain point. There is absolutely a sense that high caliber attorneys charge more and getting a "cheap lawyer" instinctively sounds like you're setting yourself up to fail - despite the fact that the lower price firm is probably just as apt as the firm with the brand recognition.
Fortunately I'm a former lawyer, so I anticipated the question. I told him to say that our tools will also help associates work longer hours with less visual fatigue. That means that they'll be able to generate more revenue overall, even if a given task takes less time.
I never heard back after that conversation...lawyers aren't big on efficiency-enhancing technology. That tendency was probably one of the reasons I left biglaw!
It's definitely not overtly encouraged in the legal field. You'd get disbarred if anyone found out about it. That said, there isn't much proactive looking for fraud.
Low key hope in my life time I can see lawyers and other secretary tier professions disappear in favor of open source systems. The only time you’d need a lawyer will be in criminal court otherwise you don’t need to pay someone in six figure debt 800/hr to proof read something.
Maybe I’m wrong but I would rather eat dirt than spend time/money on lawyers and other secretary tier professionals who ultimately still make mistakes.
not as much as lawyers and accountants imo. they're a necessary relationship but its toxic. the systems in place for software are mostly open whereas the same cannot be said for a lot of legal and financial systems. they're not beginner friendly, and have a big barrier to entry from my experience.
It’s kind of like medicine. There can be high stakes and you want someone who has “done it” before. Someone who knows the statutory law, the case law, the precedents, who keeps up on that area of expertise.
It was tempting to buy a piece of software that could draw up the papers I needed to create my family trust, but if I really need that in 10 years and something is outdated or the laws have changed, then I’m just passing down a problem of unknown potential to my next of kin.
I had recent need of an estate attorney when my mom passed unexpectedly, and the time, hassle, and general insanity the attorney saved my family and I was well worth the expense of a few grand coming out of the estate. He was very conservative in his billings and gave us four trips, in person, to government agencies on the house.
I'm talking future state. What you're calling out is great, but that's in current scenario. From my experience with lawyers (immigration) - absolute nightmare and again I totally understand why things are this way but just let me vent as a nerd who codes. Seriously, it drives me nuts that I have to put my trust into these guys that sometimes they completely get wrong. If a doctor messes up, I'm dead or close to it that it doesn't even matter anymore. If a lawyer fucks up or I have to proof read my accountant's work because he makes so many mistakes, its GG START OVER.
I've thought about this before. Some people will be likely to try to "milk the contract" by taking more time to deliver than is needed. Besides being necessary to deal honestly with one's clients, I strongly think it's in my self-interest to avoid such milking. Instead, I try to provide as much value as possible per hour, and if I can increase efficiency I'll be better able to negotiate higher rates at some point down the road.
(Besides the fact that there's no shortage of software work, so it would be really hard to run out of things to do no matter how efficient you are.)
> if I can increase efficiency I'll be better able to negotiate higher rates at some point down the road.
How does a client know whether a provider that charges double is also twice as efficient? I suppose it might work if you have a long relationship with said client, but if you are talking to a new client, it seems they'd just go with the lowest price per hour that seems reasonable.
> How does a client know whether a provider that charges double is also twice as efficient? I suppose it might work if you have a long relationship with said client, but if you are talking to a new client, it seems they'd just go with the lowest price per hour that seems reasonable.
The same way that a client (or potential client) would know whether the existing rate is proper -- I (or my network references, word of mouth, etc.) must be able to sell them on the notion. If I can't sell it, then I might need to question whether that efficiency was really providing value to clients after all. I don't think people hire me because they're looking for the lowest bidder, so I'm not too concerned about that.
I was in a lawtech startup and this is the EXTACT reason why i left and the reason why its hocky-stick never evolved. Sure they have customers, but they cant retain or grow.
Lawyers get paid less the more efficent things are. Thats not a thing they desire, nore incentivize. Eventually they will come, kicking and screaming, but dont hold your breath.
Some firms take fixed-fee work, but it is looked down upon at most top tier firms. When the economy tanks, all firms open up to these "alternative billing arrangements".
This is actually an amazingly perfect example of the old B2B sales mantra "the buyer is not the user". I might steal it!
How long have you been selling your software? If it's new-ish this honest question from the prospect can be life changing for your product positioning and marketing strategy.
Good point! We've been selling for several years, but legal isn't our only/primary market. We've made much more headway in the higher education market, since students have to read so much on screen (and don't have these perverse incentives related to billable hours!).
But we actually run into the same buyer/not user problem on the licensing side of our business. Textbook publishers don't really care about the student's user experience, for example. This is because the textbooks are assigned by the professor, so students don't have a choice about which textbook to purchase.
Fortunately, we're finally going to launch an integration with a digital textbook platform. Not surprisingly it's a reseller platform, not a publisher. Unlike publishers, their product differentiation is more about the UI, so they're looking to provide additional value by adding our reading enhancement tech. [1]
So I was checking out your website and thought the product is actually deceivingly simple, but I couldn't find any mentions of actual reading speed improvements, other than the invitation to "take the challenge".
What kind of speed improvement can I typically expect?
Edit: I found the "research summary" link in the education page, but it doesn't appear to work in Chrome with uBlock for me. The actual "conventional" link in the FAQ does work. It might be because the former is not an <a href> but something else.
> What kind of speed improvement can I typically expect?
For a typical skilled reader, up to about 25-30%. For people with reading challenges (dyslexia, ADHD, vision impairments), it could be much greater. One fellow with ADHD (and two PhDs) said that he could read about 3x the speed with BeeLine versus regular text.
To get a sense of what the speed difference could be for you, check out our "Reading Challenge". [1] It's not super scientific (you might have more knowledge of one of the topics already, which would bias your results), but it can give you a ballpark figure.
Thanks for pointing out the issue with the research summary link. I'll get that fixed ASAP! There's actually newer research that shows even larger gains for students with reading challenges, as well as data from companies (including a YC company) who saw dramatically lower churn rates and/or higher engagement for users reading with BeeLine in their apps.
There have been several educational studies about BeeLine, and they've shown various benefits for reading fluency (which is measured as correct WPM) and reading comprehension. These were done with kids as young as six, but mostly older.
There was also a study done in an optometric office with patients, who saw improvements in visual tracking, not surprisingly.
Various of our partners have also tracked to see how user behavior differs between people reading with BeeLine and people reading traditional black text. These have shown increases in article completion rates, average scroll depth, pages per session, and app usage.
All of these studies were done independently and were not compensated. I don't know about bionic — they're pretty new, so I imagine they don't have a ton of research at this time.
> Hope it succeeds enough with commercial partners (especially ereaders!) that you can offer the browser extension for free on Chrome someday.
This is 100% our plan. As our B2B revenue goes up, we will reduce our B2C pricing, hopefully to $0. We've already released one tool for free, our iOS extension for Safari. [1]
I found the colours extremely distracting, and the test didn't give any results because I was better/faster without them. You still should give numbers in such a case.
An old Mixergy episode from around 2009-10 was a legal software firm. They were having lots of sales resistance until the crisis hit, and a lot of large corporations moved their legal work in house to save money. That customer segment was product/market fit, and they thrived. Today we are entering a downturn, more legal work will move in house, and efficiency is rewarded. You can be assured that if that legal work eventually moves back to outside counsel, it will be very hard to bill more hours than the customer knows the work takes with modern tools.
Having worked as a lawyer from 2007 to 2014, I watched the legal landscape change during the Great Recession. Clients realized that firms were having partner-track associates bill thousands of hours on document review, when it could be done more cheaply/efficiently by contract lawyers (who billed at a fraction of the cost, and could be hired on a project basis).
Clients pressed for fixed billing arrangements to save money, and law firms obliged because their books of business were shrinking. But then things came roaring back, and the purse strings loosened again. We may be in for another contraction, and if fixed-fee arrangements come back that would be a good thing for legal efficiency.
That's really just a guide for mechanics to figure out what to charge, it's a fixed fee deal with the estimated man hours on the invoice for reference purposes. You could call them work units or story points and arrive at the same number.
...that kind of surveying which I could do with most satisfaction my employers do not want. They would prefer that I should do my work coarsely and not too well, ay, not well enough. When I observe that there are different ways of surveying, my employer commonly asks which will give him the most land, not which is most correct. I once invented a rule for measuring cord-wood, and tried to introduce it in Boston; but the measurer there told me that the sellers did not wish to have their wood measured correctly- that he was already too accurate for them, and therefore they commonly got their wood measured in Charlestown before crossing the bridge.
- Henry David Thoreau, from Life Without Principle, 1863
> using your software is going to cause the billable volume to go down
Yeah, that's a huge concern. If they get paid for literal hours, then they're directly incentivized to maximize hours.
Software is highly effective when you get paid for productivity: hourly rate scales with efficiency. I want to reduce the hours I spend working so I can go back to enjoying my life as soon as possible.
I wrote my own software to track my process and compute statistics so I could identify bottlenecks and opportunities. Essentially a profile-guided optimization run on my job which doubled my hourly rate and got me home faster.
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.
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.
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.
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."
> "the storage of a future promise to give me something I value"
This is a good insight, and exactly how I've described money in the past -- a promise, that can be exchanged for goods and services. Everyone's happy to receive these promises in exchanges for goods and services because they know that they'll always be able to find someone else willing to do the same later.
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.
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!
Multiple IC's brought together in a meeting, to prepare for the meeting with the contractor, "to avoid wasting the contractor's expensive time." Writing and reviewing a statement of work for the contractor in excruciating detail, when an IC doing the same work would just figure out what was needed.
I made a mental note of what skills were so much more valuable than mine. Now I have those skills.
That's pretty intense. I'm a contractor and my clients have all been happy with my ability to work independently - they give me goals and I figure out how to meet them. That being said, I only work in high-trust environments and generally get word-of-mouth referrals for contracts.
A long time ago when I was freelancing (as a student, writing software) the company I had been working with for a whiole suddenly decided to not let me write up hours for meetings that were basically requirements/planning because they wanted to treat it like a pitch or informal business meeting or whatever (media agency). That's when I wrapped up the month and never worked with them again.
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.
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?
More positively framed: this is essentially charging for value added, not time spent. A contractor who saved/made the company a lot of $$$ can overcharge, knowing that his rate pales in comparison with savings/profits he made, so no one cares. However if he does not deliver enough value add, that sort of behaviour won't fly and he most likely will under-charge to avoid embarrassment.
For really big clients the trick is finding out the maximum allowed budget before the next approval escalation kicks in. You divide that by the LOE in hours and that’s your hourly rate.
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.
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 think the incentive to bill 41hrs vs 40hrs is real, but talk to a lawyer about whether they care about 2301hrs and 2300hrs for the year and I think you’ll get Avery different answer
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...
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.
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.
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!
> A lot of the [...] perverse incentives vanish when you bill days instead of hours.
I'm confused how that's supposed to eliminate perverse incentives. Doesn't it exacerbate them? Don't you now have an incentive to spread out every client's work over every day possible? Like doing a few minutes of work for each client every day round-robin?
If you bill hourly, you have a strong incentive not to invest in process improvements that will cut the number of hours you bill. Most process improvements worth investing in are measured in at least hours. If you bill daily, you have a lot of headroom to make yourself more efficient before you get to a place where efficiency is cutting into your returns. That's the most mechanical way to respond to the question, but I could keep noodling on reasons you'll work more efficiently billing days than hours.
I too see how on paper it doesn't seem to change anything, but I think culturally it's a huge gap.
The incentives are not always to bill the most, and you also might have to pitch a time estimate before starting the task.
Having a day as the minimum unit removes the need to decide if it's a 2h fix or a 5h fix, an estimate that could take 2h in itself to reach.
Then a lot of scrum team will report advancement daily, and it will be way easier to communicate with the client with a billing that fits that cycle (this is also where you probably don't want to report small time sliced increments to the client, if they're already not very happy with your 20 days estimate for changing a page's footer)
> A lot of the pathologies involved in metered billing, time tracking, and perverse incentives vanish when you bill days instead of hours.
Billing daily and not tracking time doesn't make lazy contractors less likely to be inefficient. If anything, it gives them more opportunity to obscure what they're doing.
The only model that really eliminates the perverse incentive to be inefficient is project-based billing.
Not really. You can bid a project-priced project with T&M overages, which is what every project at Matasano did; Matasano was founded by @stake people, which is where we got our project structure from; @stake was Cambridge Technology Partners people, which is presumably where they got it from; and so on down the line all the way back to, I assume, Samuel Adams or Patrick Henry or some other famous Bostonian who came up with the concept.
Just break the project out by week (or by day if it's short) and provide a "total project price" line, and then a clause saying you'll charge overages at a pro-rata day rate. Of course, you can decide whether or not to actually charge OT; if you're OT because of something you did wrong, you're best off not charging, while if the client did something flagrantly wrong, like not kick off the project until 2/3rds of the ostensibly billable time was over, you're well within your rights to do so.
This stuff isn't hard, and I've been a little confused for, like, about 17 years as to how message boards manage to make it seem complicated.
If this is news to you, and you start doing it yourself (you should; it's easy, aligns incentives, and will probably make you more money) you have to credit me, but also cite the whole Apostolic succession (Matasano, @stake, CATP, ..., Paul Revere) I just did.
I think the difficulty in software comes from the fact that it’s very hard (impossible?) to provide estimates because you never know what problems you’ll run into until you do. And so how can you tell “project will take 8 weeks, times weekly rate, for a total cost of X” under these conditions?
A project can have fixed time and cost, but you won't know what the results will be. Hopefully you can define the project so that complete failure is highly improbable.
Isn't "churning out garbage that technically meets requirements" a motto of IBM Global Software Services (or whatever they name themselvs these data).
But jokes aside one of my friends seen this kind of setting degrade to "our lawyers will talk to your lawyers about this change request" on every piece of communication between client and big software consulting company.
I'd always prefer project billing to T&M billing, but even if you're stuck doing T&M billing, if you're in tech, you can always eke out an improvement by not billing hourly.
I guess what I’m trying to get at is, as a practical matter, there are many tasks that are <1day of work, how do you bill for those tasks? Hyperbolic example: have a 1hr client call, charge for day’s worth of work, pursue non-work interests the rest of the day?
I recently switched to billing by the half day and it has been a big improvement in my quality of life. I don't think I wanna bill by the full day because some days I wanna be able to take off after lunch, even if I have more work to do, without feeling guilty. On days where I go into and stay in a deep focus and work from early till late, I can bill for a day and a half and feel both productive and uncheated.
Perhaps full day billing is better for people who work on a more regular schedule, but for my nomadic lifestyle I think half day billing strikes the perfect balance. It certainly is a massive QoL improvement from billing in 15 minute increments.
You shouldn't feel guilty about this even a little bit. Consultants are a steal for clients. The alternative is to hire someone full-time, committing to their salary and benefits for years at a time. That you're willing to bill them a single day, and then get out of their hair? Unreal. Your bill rate should be an integer multiple of (your salary / 250).
These are recurring clients and it is less about what is fair for them or how much work they have for me (which is usually more than I want) and more what is good for me mentally and helps me manage the unreasonable expectations bI place of myself.
With half day billing, if I work the first part of the day and have more work to do (that isn't time sensitive), it is easier for me to stop working and go do something fun. When I do work a full day or put extra time for a day and a half, then I don't feel like I gave away my time and it helps me feel fully satisfied with my productivity.
You can still do that with day-rate billing! Your client cares about (a) the calendar date your project is completed on and (b) the total price tag. They don't want to care about anything else. Asking them to care about whether you worked a full or half Tuesday is counterproductive.
I co-built and ran a successful consulting company that was sold to a client many years ago, am now running another successful consulting. So I've been at this game for many years.
And for what it's worth, tptacek's advice on billing, especially this advice on billing daily, is one of the foundations of our success in this business. When we were just getting started, a lot of tptacek's advice helped us to learn and grow what we are doing, and I don't think we would've been anywhere near as successful in growing, or in understanding the business, without it.
Billing daily is a no-brainer. Almost every client is absolutely fine with it. This depends somewhat on the exact field and the exact client base you have, but if they're not fine with it, it's a sign that you're targeting bad clients and should change your aim.
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[ 2.6 ms ] story [ 109 ms ] threadThis 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.
https://en.m.wikipedia.org/wiki/List_of_countries_by_average...
I'm a long-time hourly freelancer, and it's absolutely true - the lack of revenue for that period will indeed cost you money. But not taking the holiday will cost you a vacation. I personally think about the value lost from not working, and the value gained from the vacation, and usually conclude that taking the vacation is the clear winner. It's all about establishing a proper value system and being honest with yourself about it.
With hourly, if I want to take the day off no big deal. I just don't get paid but I'm not burdened by obligations. Whereas if I do want to work extra, I'm getting paid directly for that time.
It's honestly more relaxing.
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.
* The client pays this amount regardless of how much time is worked
* The advantage for the client is they have this time available to them and them alone - no one else will take it since it is already sold
* The limit of hours per week naturally focuses my time where I’m going to be most effective; more impact in less overall time
That said, I'm not fixed on the billable hour which is why this article and comments are so interesting. So, I do thank you for sharing your method.
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.
That said, $1k/hr billed does not directly translate to $1k/hr earned. Usually there is shared overhead, etc taken out first.
And in the case of the legal and accounting professions, doing this will get your license revoked.
If you're being paid simply to travel, then it is not fraudulent to also work on another client. If your being paid to travel _and_ focus on that client, then it would be fraudulent to work on another client.
If you bill two clients for the same hour, that's "double billing," and it's fraud, and a number of accountants and lawyers have had their licenses suspended or (more commonly) terminated over this. Most of them usually plea bargain to avoid time behind bars, and this is generally acceptable because the true punishment is that their professional career is dead.
Very few (basically no) client will agree to pay you for travel time while also permitting you to work on another client's case for that same time. (Note however that if invoicing client for expenses like tickets but not for travel time, it is generally acceptable to work on another client's matter during the time spent traveling.)
I'm getting a bit "well, technically" on this. While rare, it is possible to have a contract that allows for this.
Almost nobody is producing work output on an hourly basis worth more than $200/hr. You’re paying for what and who they know, together. The good ones are worth it.
A common rule of thumb for setting a billable rate is 3x to 4x the hourly-equivalent salary. If you are currently making $200k/yr working a full-time gig with good benefits, then your hourly-equivalent salary is $100, and you should bill hours out at around $300/hr to $400/hr on a billable-hour basis.
So, you should figure that someone who would earn a TC of around $500k-650k/yr would be billed out at around $1,000/hr
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
[0] https://www.thebusinessofauthority.com/ [1] https://podcast.ditchinghourly.com/
Have any of you who work as a freelance programmer managed to get off the hours-based billing treadmill, and onto a value-based system? How do you determine value? When your clients need constant maintenance or small incremental work, do you end up spending a lot of time with estimates?
I'm really struggling with this in my own work.
This is one of his lectures on value based pricing, but he has a number of them that are informative on the concept in different ways: https://www.youtube.com/watch?v=ivKnj9ffcmE
Nobody is really interested in handing a services provider more money than necessary to get the job done at market rates, so even value-based bidding ends up coming back around to market rate pricing.
You can always ask, of course, but at the end of the day any rational company is still going to evaluate your proposal against their other bids from other contractors.
For several of my company’s customers they don’t really want to discuss ambiguous ideals of value for cash or negotiate fixed deliverable costs. They ask “so what’s the rate, bottom line?” and we have had a LOT better results estimating and billing hourly than with fixed rate, retainers, and so forth. Not because we are bad at estimating but because there are too many variables on the SMB side that no customer will pay to hash out fully before a project begins, and even if they did, ours tend to value the flexibility provided by hourly billing.
For maintenance work it's almost always per hour unless you can negotiate a retainer policy. Back when I worked on contracts a not uncommon arrangement was a hybrid approach with the fixed bid deliverable and a pool of maintenance hours on the back end that were essentially options for the client.
i did that with one client. i started hourly and eventually once we had a good working relationship suggested to switch to a retainer. i actually let the client pick the fee. he picked the same amount that he had paid in hourly rates before. i figured that if there was more work then i'd renegotiate. but what happened was that my work went down, yet the retainer stayed.
that's the big advantage of a retainer. with hourly you get more if you work more and less if the work is reduced.
with a retainer you don't work more than the limit of the retainer allows, but the less you work, the more you make for the time worked.
The dream is that you can deliver a project for 100 hour pricing in 10 hours of work, but usually value based pricing means you'll be spending 200 hours on something that was initially valued at a 100 hour level and there are no one to bill the OT to.
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.
It might be very hard to ignore the nagging danger of poverty especially if you are in America.
In short, efficiency is discouraged when dollars are on the line.
It is not like the law firm has a choice to keep using pen and paper to bill 100x the number of hours as others. They have to compete with other law firms.
That is impossible because the quality of work for a lawyer is very, very difficult to gauge, and it may take years (or decades) for bad work to be visible in many cases (say missing some bad edge cases in contract language, or they can't handle in litigation in certain types of cases, or the like).
And other lawyers have little incentive to price shop either, as they usually get to add on a little on top when they farm out the work. Cost-plus, essentially.
And if 'very expensive and opaque' is the norm, it's not like 'very expensive and opaque' is unreasonable.
"Document review" is something law firms can dump thousands of manhours into with no real appreciable change in outcome. It ends up being more a question of what a company/individual is willing to pay.
The reason big lawfirms stay in business isn't because they generally get much better results, but rather it's because they have the time and manpower to chase down every single rabbit hole to fully understand the law around the cases they are working. So, instead of a firm giving you a "We are 95% sure the law is this way" with a bigger firm you get "We are 99% sure the law is this way."
The other messed up part of the US legal system is the bigger the law firm, the more time they have to chase down discovery rabbit holes looking for wins and (potentially) legally bankrupting their opponents. "Document A references document B written by Foo? Well, lets have a deposition of Foo and a request for Document B". It ends up looking a lot like refactoring spaghetti code in a dynamically typed language.
Yes, but I feel like this only works up to a certain point. There is absolutely a sense that high caliber attorneys charge more and getting a "cheap lawyer" instinctively sounds like you're setting yourself up to fail - despite the fact that the lower price firm is probably just as apt as the firm with the brand recognition.
I never heard back after that conversation...lawyers aren't big on efficiency-enhancing technology. That tendency was probably one of the reasons I left biglaw!
This is normal and encouraged in law and the consulting world.
Maybe I’m wrong but I would rather eat dirt than spend time/money on lawyers and other secretary tier professionals who ultimately still make mistakes.
It’s kind of like medicine. There can be high stakes and you want someone who has “done it” before. Someone who knows the statutory law, the case law, the precedents, who keeps up on that area of expertise.
It was tempting to buy a piece of software that could draw up the papers I needed to create my family trust, but if I really need that in 10 years and something is outdated or the laws have changed, then I’m just passing down a problem of unknown potential to my next of kin.
I had recent need of an estate attorney when my mom passed unexpectedly, and the time, hassle, and general insanity the attorney saved my family and I was well worth the expense of a few grand coming out of the estate. He was very conservative in his billings and gave us four trips, in person, to government agencies on the house.
(Besides the fact that there's no shortage of software work, so it would be really hard to run out of things to do no matter how efficient you are.)
How does a client know whether a provider that charges double is also twice as efficient? I suppose it might work if you have a long relationship with said client, but if you are talking to a new client, it seems they'd just go with the lowest price per hour that seems reasonable.
The same way that a client (or potential client) would know whether the existing rate is proper -- I (or my network references, word of mouth, etc.) must be able to sell them on the notion. If I can't sell it, then I might need to question whether that efficiency was really providing value to clients after all. I don't think people hire me because they're looking for the lowest bidder, so I'm not too concerned about that.
Lawyers get paid less the more efficent things are. Thats not a thing they desire, nore incentivize. Eventually they will come, kicking and screaming, but dont hold your breath.
Or are there other limiting factors of how much work they can take on like court schedules or such?
How long have you been selling your software? If it's new-ish this honest question from the prospect can be life changing for your product positioning and marketing strategy.
But we actually run into the same buyer/not user problem on the licensing side of our business. Textbook publishers don't really care about the student's user experience, for example. This is because the textbooks are assigned by the professor, so students don't have a choice about which textbook to purchase.
Fortunately, we're finally going to launch an integration with a digital textbook platform. Not surprisingly it's a reseller platform, not a publisher. Unlike publishers, their product differentiation is more about the UI, so they're looking to provide additional value by adding our reading enhancement tech. [1]
1: https://www.beelinereader.com
What kind of speed improvement can I typically expect?
Edit: I found the "research summary" link in the education page, but it doesn't appear to work in Chrome with uBlock for me. The actual "conventional" link in the FAQ does work. It might be because the former is not an <a href> but something else.
For a typical skilled reader, up to about 25-30%. For people with reading challenges (dyslexia, ADHD, vision impairments), it could be much greater. One fellow with ADHD (and two PhDs) said that he could read about 3x the speed with BeeLine versus regular text.
To get a sense of what the speed difference could be for you, check out our "Reading Challenge". [1] It's not super scientific (you might have more knowledge of one of the topics already, which would bias your results), but it can give you a ballpark figure.
Thanks for pointing out the issue with the research summary link. I'll get that fixed ASAP! There's actually newer research that shows even larger gains for students with reading challenges, as well as data from companies (including a YC company) who saw dramatically lower churn rates and/or higher engagement for users reading with BeeLine in their apps.
1: https://www.beelinereader.com/challenge
"Read 30 to 300% faster with Beeline."
Cool stuff!
There was also a study done in an optometric office with patients, who saw improvements in visual tracking, not surprisingly.
Various of our partners have also tracked to see how user behavior differs between people reading with BeeLine and people reading traditional black text. These have shown increases in article completion rates, average scroll depth, pages per session, and app usage.
All of these studies were done independently and were not compensated. I don't know about bionic — they're pretty new, so I imagine they don't have a ton of research at this time.
Hope it succeeds enough with commercial partners (especially ereaders!) that you can offer the browser extension for free on Chrome someday.
This is 100% our plan. As our B2B revenue goes up, we will reduce our B2C pricing, hopefully to $0. We've already released one tool for free, our iOS extension for Safari. [1]
1: https://apps.apple.com/us/app/beeline-extension/id1571623734
1: https://news.ycombinator.com/item?id=6335784
Presumably this law firm may not like lower billable hours, but some upstart law firm might use it to bid lower and take their business.
Clients pressed for fixed billing arrangements to save money, and law firms obliged because their books of business were shrinking. But then things came roaring back, and the purse strings loosened again. We may be in for another contraction, and if fixed-fee arrangements come back that would be a good thing for legal efficiency.
- Henry David Thoreau, from Life Without Principle, 1863
https://xroads.virginia.edu/~Hyper2/thoreau/life.html
Yeah, that's a huge concern. If they get paid for literal hours, then they're directly incentivized to maximize hours.
Software is highly effective when you get paid for productivity: hourly rate scales with efficiency. I want to reduce the hours I spend working so I can go back to enjoying my life as soon as possible.
I wrote my own software to track my process and compute statistics so I could identify bottlenecks and opportunities. Essentially a profile-guided optimization run on my job which doubled my hourly rate and got me home faster.
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.
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.
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.
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."
This is a good insight, and exactly how I've described money in the past -- a promise, that can be exchanged for goods and services. Everyone's happy to receive these promises in exchanges for goods and services because they know that they'll always be able to find someone else willing to do the same later.
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!
Multiple IC's brought together in a meeting, to prepare for the meeting with the contractor, "to avoid wasting the contractor's expensive time." Writing and reviewing a statement of work for the contractor in excruciating detail, when an IC doing the same work would just figure out what was needed.
I made a mental note of what skills were so much more valuable than mine. Now I have those skills.
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.
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'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.
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...
1. scrolling is strange
2. zooming is scrolling?!
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.
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!
I'm confused how that's supposed to eliminate perverse incentives. Doesn't it exacerbate them? Don't you now have an incentive to spread out every client's work over every day possible? Like doing a few minutes of work for each client every day round-robin?
(If you can bill weeks, you should bill weeks!)
The incentives are not always to bill the most, and you also might have to pitch a time estimate before starting the task.
Having a day as the minimum unit removes the need to decide if it's a 2h fix or a 5h fix, an estimate that could take 2h in itself to reach.
Then a lot of scrum team will report advancement daily, and it will be way easier to communicate with the client with a billing that fits that cycle (this is also where you probably don't want to report small time sliced increments to the client, if they're already not very happy with your 20 days estimate for changing a page's footer)
Billing daily and not tracking time doesn't make lazy contractors less likely to be inefficient. If anything, it gives them more opportunity to obscure what they're doing.
The only model that really eliminates the perverse incentive to be inefficient is project-based billing.
Just break the project out by week (or by day if it's short) and provide a "total project price" line, and then a clause saying you'll charge overages at a pro-rata day rate. Of course, you can decide whether or not to actually charge OT; if you're OT because of something you did wrong, you're best off not charging, while if the client did something flagrantly wrong, like not kick off the project until 2/3rds of the ostensibly billable time was over, you're well within your rights to do so.
This stuff isn't hard, and I've been a little confused for, like, about 17 years as to how message boards manage to make it seem complicated.
If this is news to you, and you start doing it yourself (you should; it's easy, aligns incentives, and will probably make you more money) you have to credit me, but also cite the whole Apostolic succession (Matasano, @stake, CATP, ..., Paul Revere) I just did.
But jokes aside one of my friends seen this kind of setting degrade to "our lawyers will talk to your lawyers about this change request" on every piece of communication between client and big software consulting company.
Perhaps full day billing is better for people who work on a more regular schedule, but for my nomadic lifestyle I think half day billing strikes the perfect balance. It certainly is a massive QoL improvement from billing in 15 minute increments.
With half day billing, if I work the first part of the day and have more work to do (that isn't time sensitive), it is easier for me to stop working and go do something fun. When I do work a full day or put extra time for a day and a half, then I don't feel like I gave away my time and it helps me feel fully satisfied with my productivity.
And for what it's worth, tptacek's advice on billing, especially this advice on billing daily, is one of the foundations of our success in this business. When we were just getting started, a lot of tptacek's advice helped us to learn and grow what we are doing, and I don't think we would've been anywhere near as successful in growing, or in understanding the business, without it.
Billing daily is a no-brainer. Almost every client is absolutely fine with it. This depends somewhat on the exact field and the exact client base you have, but if they're not fine with it, it's a sign that you're targeting bad clients and should change your aim.