"i only speak liquid" #24: Is hourly billing dead? ⚰️

Hey all 👋!

Welcome to 'i_only_speak_liquid' by Storetasker, where active Shopify developers like me (Jean-Philippe Allard) share learnings we face daily. This is my 4th and final edition! 

PS: I'm a developer on Storetasker; Apply here if you want to join Storetasker's gated network of vetted Shopify developers. 

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Is hourly billing dead?

The hourly billing model has a bad rap. For many reasons, some good, and some bad, a lot of people are trying to distance themselves from it as much as possible. Having experimented with many billing models, I actually came back to hourly for most of my projects. Keep reading to understand why.

Where did hourly billing come from anyway?

This type of billing was used for the first time by Reginald Heber Smith, a lawyer that incorporated the concepts of Taylorism (the scientific measurement of work) to the law profession. You can thank (or hate) him for the 6 minute increment billing. The idea was to increase efficiency and transparency in a way that would make law more accessible to people of modest means. Before that, lawyers billed for "services rendered". Basically, it was any (generally astronomical) number the lawyer picked out of a hat, based on their gut feeling about the work required.

Hourly billing was invented to decrease costs, and increase transparency and efficiency. Not something people would credit it for, 100 years later. Where did it go wrong?

It went wrong when law firms figured the best way to increase the bottom line was to put insane billing hours targets on all their lawyers, of up to 2,000 hours per year. This means 40 billable hours every week, for 50 weeks of every year, which is insanity. Healthy numbers for billable vs admin hours are somewhere from 60-40 to 70-30, which gives around 5-6 billable hours for 2-3 admin hours.

For those lawyers with a target of 2,000 billable hours, that would mean spending anywhere from 2,800 to 3,300 office hours per year, which translates to 56-66 hours per week at the office, or 11-13h per day, 5 days a week, 50 weeks a year. No wonder hourly billing gets artificially inflated in those conditions. There's no way you can be 100% productive and deliver high quality work when squeezed hard like that.

I truly believe hourly can work if you don't have the pressure of billing a crazy amount of hours per year. I've been averaging from 900-1,600 office hours in the last few years, with about 80% being "billable", for an average of 18-32h / week. With that flexibility, I can afford to be honest and transparent to my clients, and offer a high level of service by not being overworked. 

Alternative billing methods I tried

When I started freelancing, I followed the advice of many business gurus, and created a productized service. It was totally unlinked from the amount of hours worked, and focused on specific tasks to accomplish.

The package was a fixed monthly cost, in addition to a percentage of increased profit, for unlimited consulting and dev work. Basically, I would do anything that wasn't part of "day-to-day" operations. It was all very well-defined in a nice contract, to set expectations correctly.

Despite my good intentions, I had multiple problems with this approach, and they were all related to said expectations. What I thought would happen, and what actually happened, was totally different.

The expectation was that the flat fee would incentivize the client to use the services: use it or lose it. The percentage on extra profit would incentivize the supplier (me) to provide quality advice and work that actually moves the needle in the right direction.

The problem was, I didn't have all the levers to move the needle.

I didn't control media budgets. I didn't control product selection and pricing. I didn't control day-to-day branding and messaging. And I certainly didn't control the actual business decisions going on with clients.

Another problem was that some clients asked for the output of a full-service agency with tens of people on their account, while it was expected from the start the output would be from a single person. Again, expectations didn't meet reality.

Despite offering quality work and advice, I realized my work and advice wasn't the main variable in a successful business. I'm just one of many levers the business owner has access to, which ultimately holds the ultimate responsibility in steering the ship the right way.

These experiences made me think: the only thing I have complete control on is the amount of time and effort I put in for a client. The closest proxy for this is time. This is why I decided to go back to transparent and honest hourly billing.

3 links you can't miss

1. Toggl Track - A great time tracking app I've been using for years. Simple, but powerful. I only wish they had a time bank tracking feature!

2. Ghost - An open-source CMS I selected over Substack to start a new blog - more on this below! They're small, awesome and fiercely independent. I love that.

3. Cloudflare Registar- Just in case you didn't know, Cloudflare started selling domains at cost! Just another reason to finally, finally ditch GoDaddy for good.

One app I like

I've had to set-up tracking for a client in Europe last week, and found Pandectes GDPR Compliance. While they have a free plan that gives you a privacy banner that actually works with the Shopify Privacy API (while Shopify's own privacy app doesn't), they also offer auto-tracking blocking for non-devs, on paid plans. It's one of the nicest UIs I've seen for these types of apps so far. Clean, powerful and well organized. It's now my go-to privacy app! 

One learning as a freelancer

How you set up your hourly packages is important in terms of perceived value. I have a few different ways of selling my time, but they all share one thing: the more hours that are booked, and the more committed the client is to my services, the cheaper it gets per hour. This lets me keep admin hours low, since having a lot of small clients brings a lot of overhead in terms of non-billable time. These are the options I offer:

• One-time 1h meeting: highest per hour fee, since it has the most admin overhead. I've saved clients tens of thousands of dollars on some of these calls, so even though the dollar amount per hour is fairly high, the value generated is huge.

• Prepaid time bank: I offer only two options, for twenty and forty hours, prepaid and non-refundable. These are about 15% cheaper, and 25% cheaper, than my 1h meeting fee.

• Monthly retainer: My retainers are structured as an "up to x hours per month" package, and are also prepaid. I offer "up to 10h" and up to 20h" retainers, with a 25% discount and a 30% discount, respectively. These clients are limited (I take up to 60h/month in retainers) and get the highest level of service, as the time is 100% reserved for them. The advantage for the client is that I'll always be available for them for last-minute requests, and the advantage for me is a steady revenue stream. Win-win!

I also do some project based billing, when something is very predictable, or the client insists on a flat rate, but I always cap them to a certain amount of hours, to avoid scope creep and unpredictable events.

Did you enjoy my writing?

I hope you enjoyed the last four issues. I certainly enjoyed writing them!

I'd love to invite you to my brand spanking new blog, called Small is Beautiful. I'll be mainly writing about the joy of being an independent freelancer / solopreneur, and why I think small businesses are awesome and how I love working with them.

I promise not to turn it into another "Business Guru That Sells Courses". The only objective is to put forward the independent freelancer life as a viable and valued alternative to being employed full-time. The first post I want to tackle on there is actually about that specific subject: why being small and independent really is beautiful, and why I want to share that with other people.

Hope to see you there! You can subscribe at this link: https://smallisbeautiful.blog

Jean-Philippe