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'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.