Hourly Billing Gives You the Worst Results

Jun 12, 2023 business

I don’t do hourly billing (if I can help it) - but most businesses and partners still ask about my hourly rate. Hourly billing is bad. There are so many reasons. But in this article I will just focus on one: you get the worst results with hourly billing. Let’s find out why.

How do you get the worst results? Well let’s first talk about individual contractors - but then move on to businesses.

Individual Contractor Hourly Billing is Bad

When an individual contractor bills you as hourly, it’s in their best interest to charge you more hours to get the work done. The more ’time’ it takes to get the job done, the more they get paid.

Sure, you can say you have a specific budget and if they go over that time, it’s not going to work. But what if it legitimately will take longer? How do you know how long something will take? Even as developers, we rarely are right when it comes to estimation. It’s a mix of unknowns and scope changes.

You could argue that hourly allows flexibility - but is that what you really want? You want flexibility based on cost, not on conversation and relationship? When you have a flat rate project, you develop a stronger relationship - everyone’s in this together. You know how much things will cost - and they have it in their best interest to get it done faster.

That doesn’t mean the quality will suffer. Sometimes people use hours as a proxy for measuring quality. That’s not right. Quality is based on how much effort you put into participating with the project. Not always, but usually a crappy user experience also hints at crappy quality code. A troublesome deploy means less quality code. There are other proxies that are actually more in the wheelhouse of the business user.

Find a way to bill flat rate or pay flat rate. Then build your relationship with the developer. Programming is art and science - it’s not just assembly line stuff.

Agency Billing Hours

Now, I hope you’ve read the above section. Take all of that and understand that it applies here, too. But there is even one more thing to consider:

A business is another layer (besides just developers) who want to and need to make more money. In order to do that, it’s in their best interest to give you the lowest costing resources while charging the highest amount. Let me give it to you in a different way:

Developer A makes 100k a year. Developer B makes 150k a year. The likely reason their salaries are different has to do with their skill level. (not always but usually). Now, if a business is deciding to charge you $200 an hour, which employee will they pick for you? They will make their best effort to give you Developer A - because there’s more profit to be had there for the business.

If you do flat rate projects, this doesn’t necessarily go away. But it is one less variable that pushes for getting the cheaper developer. In my experience flat rate projects tend to cycle through developers - the cheaper ones in the beginning - and the more experienced ones at the end to clean up and do the final push. You may actually get more experienced developers on your project if you pay flat rate.

Is this true?

These are all generalizations. These may not be true in some situations. In my experience, though, they are gradients of truth in most organizations that charge hourly. You may still choose to want to do your business dealings in hours - but I wanted you to be aware of what some of the consequences or risks of those decisions are.

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