Jonathan Stark

For the last few weeks, I’ve really been beating up on hourly billing. This week, I reveal my dirty little secret: I bill by the hour!

When I’m ranting about hourly billing, I’m specifically referring to hourly billing within the context of a project, which I define thusly:

A collaborative enterprise that is designed to achieve a particular aim.

As a consultant, there are several “non-project” activities that I’m hired to perform, and for these I charge on a time and materials basis. Here are a few:

Emergencies

If a former client frantically calls me to say that their database has crashed and won’t come back up, they are not going to be in any mood to have a long conversation about the perceived value of the database to the organization. More importantly, I don’t know if I can fix the problem because there isn’t enough information at first contact.

In cases like this, I’ll charge the client an emergency (i.e. very high) hourly rate to take a look at it, and see if I can diagnose the problem. If the fix is simple, I’ll just do it. If the fix is complicated, I’ll give him an estimate of how long I think it’ll take me to fix it. The client can then decide if he wants me to continue.

The key point here is that a successful outcome is not guaranteed. I’ll just do my best, and will invoice for my time after the fact regardless of what happens. Fortunately, these situations are few and far between (once a year or so), and are never more than 5-10 hours.

Maintenance

The trouble with the emergency scenario above is that I might not be available when the situation occurs. Some clients are not comfortable with the thought of not being able to get in touch with me on a moments notice, especially when the system is mission critical to their business.

To address this need, I set up a maintenance program under which I’m essentially on call. Clients pay a monthly fee to be part of the program (i.e. a time-based fee, not a value-based fee), which entitles them to 30 minutes of free assistance any time they have an issue (again, time-based). If the fix is going to take longer than a half hour, I bill the client hourly for the overage at a significant discount off of my emergency rate.

I average about 1-2 calls per week from my On Call clients – sometimes more, sometimes less. Sometimes they have a bug (e.g. “The XML feed stopped working. Can you take a look at it?”), sometimes they just have a simple question (e.g. “Should I upgrade to Snow Leopard?”).

In practice, almost every issue is covered by the free 30 minutes. What I like about this arrangement is that clients can contact me without fear of being charged, which seems to have a proactive effect on the health of the system (i.e. we can avoid the big emergencies).

Coaching

In addition to traditional software work, I offer coaching for consultants who are trying to grow their businesses. I charge everyone the same amount to enroll in the six month program (i.e. time-based), as opposed trying to determine individual value-based fees.

My rational for this is that I have much less control over the outcome than I do with a software project; the results are very unpredictable. Some people take my advice and run with it, other people nod their heads but never follow through on anything. The best I can do is give my honest advice in a timely fashion – it’s up to the participants to act on my advice. Therefore, I have no way to estimate the value in advance.

Push Back

In spite of the fact that I do bill on a time and materials basis in some cases, I’m sure I’ll continue to rail against hourly billing for software projects in the future. I know that my approach sometimes rubs people the wrong way, so please feel free to hold my feet to fire whenever necessary.

To be continued…