July 11, 2019

What’s hourly billing, and why must it be ended?

Sent by Jonathan Stark on July 12th, 2019

Late last night, a new follower on Twitter DM’d me to ask:

What’s hourly billing, and why must it be ended?

I thought this was a great opportunity to articulate my core motivation, both for her and for you here on the list.

Here’s my reply:

Hi! Hourly billing is how most independent service providers charge for their services. I mostly advise software developers but also designers and copywriters and photographers and lawyers and accountants and personal trainers and a long tail of other hourly billers. At the highest level, hourly billing must be ended because it destroys wealth creation in society. This problem will worsen as more and more of the economy is driven by service industry. How does it destroy wealth creation? I’m glad you asked! :) Buyers and sellers who transact based on the amount of time it takes to deliver a service cannot benefit from the leverage that comes from effectiveness, efficiency, and expertise. They are all staring at the clock instead of what they want accomplished. For example... When a buyer wants to hire a service provider to, say, repair a broken tooth, does the buyer REALLY care how long it takes? In fact, wouldn’t the buyer PREFER if the work was done is a second instead of an hour? But if everyone equates “time with money” there’s a not so subtle financial incentive for the service provider to take longer. Or at least, to not look for ways to deliver the same results faster. Hence, a huge swath of the working population is disincentivized from finding innovative ways to get better at delivering results, and instead are focused on putting in time. This results in a systemic lack of innovation that keeps me up nights. Like now, for instance :-)

Makes sense, right?