Why I Hate Hourly Billing

Why I Hate Hourly Billing

Trading time for dollars is how a lot of freelancers start their business. It’s easy to figure out, you just pick your hourly rate and start up the timer. Simple, right?

While it is probably the best way to get your feet wet if you’re new to online business, you’ll quickly realize that hourly billing sucks, both for you and your client.

It’s a catch 22

Before I get into nitty gritty stuff, let’s have a fun little example.

Let’s say we have Cindy, who has been in business for 10 years, knows her craft like the back of her hand, is in expert in her field, and charges $100 an hour. And over here we have Susie, who is new to her field, is still learning some things, and charges $50 an hour.

Now we have the client, Jim, who wants whatever done. Since Cindy knows what she’s doing it only takes her half an hour so she makes $50. Susie on the other hand gets stuck and has to troubleshoot stuff, so it takes her 2 hours. She makes $100.

See what I mean?

Susie might be nice and all but why should she make twice as much as Cindy for taking longer and being less knowledgeable? With hourly billing, you’ll be making less and less money the better you get are your job and the more efficient you become.

This typically leads to apathy for the job and resentment for the client – not good! Since Cindy was able to do it so quickly she may feel the need to work a little slower or have a snack while her timer is running. Also not ideal.

On the flip side, if a client is paying by the hour then they will always want the work to be done as quickly as possible. So you (the service provider) and the client are constantly at odds with each other. You, to earn money and them to save as much as they can.

If you become more skilled in your field you’d have to keep increasing your rates and eventually you would be charging $300/hr. And what client wouldn’t scoff at that?

On the clock

Another aspect of hourly billing that I despise is being “on the clock”. Maybe you’re not like me but I love to multi-task. I may be working on a couple of client projects, watching a video, and pecking away at a blog post all at the same time.

While I could have my timer running I would feel too sleazy about it. When I do go “on the clock” I have to make sure I’m only working on one project and have no other distractions. This makes me not want to start on hourly billed projects at all!

I’m sure my clients would rather me not have Seinfeld playing while I work my tech magic but we all work differently 😉

There’s also the predicament of forgetting to start your timer or leaving it running. Then you just have to make an educated guess on how long it actually did take you.

Estimating wrong

Unless your client is buying a package of hours you’ll most likely end up discussing an estimate with them and how many hours you think their project will take. If pricing is somewhat new to you, you’ll probably end up underestimating just about every time.

During the time my business started getting traction I had a project that I estimated would take 1 hour. Tech issues got in the way (as they always do) and I ended up working nearly 5 hours to make sure everything was working and resolved.

In hindsight I should have let the client know beforehand that it was going to take longer but often we get caught up in work, lose track of time, or just freak out.

When I let the client know you can guess how they reacted. They weren’t happy at all and explained they had only budgeted for the 1 hour estimate I gave them.

So I ate the extra hours and only billed the client for the 1 hour I had originally quoted. The result was a happy client and salvaged relationship but left me feeling apathetic; certainly there’s a better way to bill?

Project-based pricing

What can you do instead then?

Depending on what services you provide, you can start giving custom project-based quotes on your clients needs and situation. This is what I do. It takes a bit of legwork to figure out exactly what your client needs and how long you think it will take.

But then you can give your client a one-time price for their scope of work that you both agree on. No counting hours, no worrying about going over, and you client doesn’t have to worry either. You can still burn yourself by undercharging though.

A lot of factors can go into your pricing like time it will take, the level of complexity, and generally how you feel about them as a client (are they easy to work with or call you 5 times a day). It takes time to get a feel for all of these things.

On the other hand you can package up some of the services you offer for a one-time cost (or payments) or even offer tiered packages. It really just depends on your business and what you help your clients with.

What is your favorite way to bill your clients and what kind of service do you provide? Let me know in the comments!