[awolf]

I'd really like to hear more discussion around this "don't bill hourly" concept. I'm 4 years in to a successful, solo freelancing career and this advice still doesn't click for me. I've billed precise hours for every one of the 20+ projects I've taken on.

What am I missing?

[themodelplumber]

I'm almost 20 years into a successful, solo freelancing career. GP's advice is worth researching.

You might not be missing anything by sticking to hourly billing if you are aiming at a downmarket clientele. They usually appreciate hourly billing because they are either making nice margins off of your work (by reselling or by quality derived) or undercharging for their own work. Hourly billing is comfortable for them because they are usually extremely price-sensitive. This works OK for a lot of new freelancers, who themselves are also very price-sensitive.

The upside of only doing hourly billing is steady work. The downside is that you may never understand what upmarket work is like.

If you are aiming at upmarket clientele (or just clientele who are upmarket from your current set of clients), you have to adapt to a different mindset--quality, specialty, and responsiveness are key; pricing is used as a toolset that supports your business goal of offering those three things. Pricing becomes a group of activities that act as a market positioning message, negotiating tool, sales pitch, etc. All of that from a little dollar sign with a number after it (or a set of them).

If you are not aiming at any market, you might be headed downmarket. Good idea to check on that. Most freelancers do the same amount of pricing research as the average lemonade stand. Many freelancers who go out of business have authored their own personal failure narrative that revolves around an uneducated view on pricing.

[alinajaf]

I bill weekly. Clients can book time in increments of one week. Each week costs a fixed amount, though I give clients a 10% discount for pre-payment in full, cleared in my bank account before work starts.

Snarky but true: implementing this was roughly as hard as reading a comment by tptacek about billing weekly, deciding that I bill weekly, and then telling all existing clients and future clients that I now bill weekly.

[pjungwir]

Question from a per-hour freelancer:

Does this mean you only work on one project at a time? I seem to maximize my billable time by doing one project at 20 hours/week plus a few long-term relationships with smaller ad hoc projects. Sometimes the "big" projects overlap briefly but I try to avoid that.

If I moved to weekly billing, I'm afraid I'd need a longer sales process and I'd have to turn down a lot of work that I can slip in with my current approach. So I'm curious: do you work one engagement at a time, and what is your time between engagements?

[tptacek]

You can bill daily and still rotate through work for 3 different clients at a time. You don't even need to make special arrangements to do it. Just do it in the background, get your work done competently for all your clients, and be honest. You'll be fine.

The only thing we're telling you not to do is to break your bills out by the hour. A whole lot of bad stuff happens when you start billing in sub-day increments.

[danenania]

How do you deal with the expectation that 1 day means 8 hours exactly and clients who think in those terms?

How precisely do you specify upfront what a 'day' means? Are you just keeping it vague and not working with anyone who takes issue with that? Or are you specifying it as 6 hours so you have time to handle other things?

I recently attempted a move to daily billing but had a client who was anal about 1 day = 8 hours and this caused significant friction/lack of flexibility. The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?

[tptacek]

I think a bit of intuition you might need here is that the delivery date for a project and its fee structure are not the same thing. You carefully negotiate delivery dates. You do not carefully negotiate the definition of a day. You will find, when you do this, that most reasonable delivery dates are just fine with most clients, even if they account for more weekdays than you're billing for.

I think that with all sane clients, you will also find that once the delivery date is negotiated to both sides satisfaction, nobody gives a shit about what happens in the intervening days. Good clients are happy to know that they're going to get something on a specific date. They are thrilled to have a black box that they can put money into and get value out of. Don't open up the black box and explain it. They don't need to know how the fuel injectors work, and if you explain electronic fuel injection to them, some of them will just get neurotic about whether it's functioning correctly.

[Silhouette]

How precisely do you specify upfront what a 'day' means?

I don't. All my recent contracts of this nature have simply stated that a day on which any services are provided is chargeable, or words roughly equivalent to that.

This does require a client to trust that I won't abuse the deal by, say, charging for a day off just because I spent a few minutes replying to an e-mail. I suppose legally speaking I could do that, but then legally speaking a client can typically also fire me in the time it takes to get a letter delivered if they're not happy with progress on their project. As with so much of this business, trust goes both ways.

In reality, I have never found this to be a problem. As others have said, clients are typically more interested in the value of the work you produce than in how, when, or where you produce it. You might see the occasional raised eyebrow if someone asks directly and is surprised at your answer, but personally I'm not aware that I've ever lost business or left unhappy clients over it.

The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?

Given a reasonable alternative, which is usually the case: yes.

Incidentally, in the UK, where I am, you should be very wary of taking on "overly controlling clients". If you aren't sufficiently independent -- as demonstrated by signals like your clients controlling your working hours -- then you could be deemed a disguised employee rather than a separate business. That leaves you with all the overheads of running a business, yet also leaves both you and your client with all the tax obligations of an employer-employee relationship, which is a Very Bad Idea.

[percept]

I'm not sure of the current state of things, but that last bit has traditionally been true in the US as well: if you spend all your time with one client, and they control your hours and/or work location and equipment, then you may be considered an employee for tax purposes (IRS Form SS-8 covers this).

[sarciszewski]

"How do you deal with the expectation that 1 day means 8 hours exactly and clients who think in those terms?"

I suppose this only matters if the clients vocalize this assumption?

[alinajaf]

I'm usually working with one client at a time, but as you surmised spend considerable effort keeping the sales pipeline bubbling. Haven't had any time without work for the past couple of years unless I wanted it.*

I should probably point out that "maximising my billable time" isn't really an important goal for me as a freelancer, so we're likely talking about a different business model. You'll hear this a lot from patio11 and tptacek, but overwhelmingly, my goal is to provide as much business value to my clients as possible and charge accordingly.

You don't necessarily have to position yourself as a content marketing/CRO/Security/Sandwich-making consultant to do this, just find a way to make or save your clients buckets of cash and you can charge them whatever you want.

*: That makes me sound like some sort of rockstar freelancer, but in reality I'm a boringly average Rails developer. I get and keep clients by working really hard on sales and treating existing, long-term clients like my family's financial security depends on them (hint: it does!).

[thecodemonkey]

This is very interesting. How do you handle working with multiple clients? E.g. I'm working on this project for this client, this week but the client from last week has an urgent question/issue that I need to look at. Would that be billed hourly, or as part of next week or something to that extend?

[alinajaf]

For work that actually requires me to crack open a terminal, it's as you described i.e. in the vast majority of cases it can probably wait until the next week they've booked. In the rare case that they're losing money thanks to inaction or if the problem is directly due to an error I made, then I'll fix the thing so that it's in a working state right now and work on a longer-term solution in their next slot.

[tptacek]

Here's a start:

https://news.ycombinator.com/item?id=4101355#up_4103417

[awolf]

I think this is the list of arguments I saw back when you originally wrote it. Ever since then, I wished I dug into this deeper with you as it's been an open thread at the back of my mind. Even though this may not be the right place for it, I'm going to go ahead and respond point by point.

* It forces you to negotiate with clients in the worst possible numeric domain: where small deltas to proposed rates disproportionately impact the final cost. (This is a really good point and something that I will consider moving forard. I can see that higher effective rates may appear more palatable to clients if quoted on a per day or per week basis.)

I've categorized my feelings about the rest of your points:

The [HOW DOES BILLING HOURLY DO THIS] points:

* It positions you against the lowest-quality cheapest providers. (I charge a very high hourly rate, clients are happy to pay it.)

* It misaligns your incentives, so that you're penalized for doing a better job. (The times I accomplish a difficult task very efficiently are averaged with the times what appears to be a mundane task turns out taking much longer.)

* Not to mention: it generates more invoices. (I bill bi-weekly. I imagine I'd want to do the same no matter what unit I was using.)

* For that matter, it inclines your projects towards the small and away from anything ambitious. (Huh? What's wrong with "I expect this project will take 4 months of me working at 30/hrs a week and this hourly rate"?)

* It impedes your own flexibility, so that you tend to miss opportunities to interleave projects or for that matter take an occasional long lunch. (I typically tell clients that I'll put in 3hrs of work/day on their projects. It seems like my billing gives way MORE flexibility, not less.)

* It forces you to account for every waking hour of your day in a way that daily rates don't, when we all know that only a small subset of your work hours are truly productive. (See previous point: I'm never of the hook to provide a "full day". Some days I work more, some less.)

The [HAVING AN OPEN AN HONEST DISCUSSION ABOUT THE SOFTWARE DEVELOPMENT PROCESS AND WHAT EXPECTATIONS ARE APPROPRIATE AND WHY I FEEL UTTER TRANSPARENCY IS KEY FOR MUTUAL UNDERSTANDING] points:

* It totally hides the cost of ramp-up and ramp-down (if you think clients push back on daily or project rates, wait until you charge them for 2 hours of "getting in flow"). (My clients do not push back on this because I explain how very necessary this type of work is up front.)

* It conditions your customers to take a fine-tooth-comb approach to project plans and invoices. (If they're fine-toothing, that's fine. I can't really tell, it doesn't affect me. I've had a single client ask me a single time for clarification on an hourly line item in the past four years. It wasn't a big deal.)

The [I ALWAYS PRECISELY TRACK TIME ON EVERY PROJECT I WORK ON BECAUSE IT HELPS ME IMPROVE AT ESTIMATING, WHICH I'M NOW EXTREMELY GOOD AT] points:

* It forces you to be vigilant about time tracking lest you accidentally undercharge customers.

* It inclines you towards finicky accounting, the kind that charges a customer for a 45 minute phone conversation.

The [I DON'T UNDERSTAND WHAT YOU MEAN] point:

* Not to mention, with virtually any client worth doing business with, you (the consultant) are much more sensitive to the cost of a project than the customer is; it is a small miracle that the customer can get a programming project completed at all without potentially hiring and then firing 3 different people. So why is all the burden on you? Why is any of the burden on you? Key consulting idea: it's not the customer's money they're spending. (What burden do you mean? The burden of tracking time? The burden of estimating?)

The [HOW IS THIS DIFFERENT EITHER WAY] point:

* It obscures the final cost of projects in ways that make clients defensive, so that their immediate thought is "oh shit this is going to add up to lots of hours we better be careful".

The [I REALLY DON'T THINK GIVING FREEBIE TIME IS IMPORTANT FOR CLIENT RELATIONS IF YOU SET EXPECTATIONS APPROPRIATELY] point:

* It makes it harder for you to reasonable toss freebie work to your best clients without damaging the expected value of your time; for instance, I can cab over to a client in Chicago and spend 2 hours looking at a design with them for free without creating the appearance that my bill rate is arbitrary. (Why would the ability to offer free work inform the structure I put in place for billing?)

I hope I'm not coming off as disrespectful, I do really appreciate the time and care you put into HN. It's just that, if it's possible for it to happen, I'd love to be convinced to change my billing structure to something that works better for me.

[tptacek]

Good clients --- in fact, it's possible that all the clients of my previous practice, over 10(!) years --- will uniformly accept daily rates. In high-end contracting work, daily rates are industry standard. If you have the option to bill on a daily increment, why would you ever bill hourly?

You charge a very high hourly rate today. Savvy clients are happy to pay it. Those same savvy clients would be happy to pay on the day increment if you multiplied that rate by 8. And:

* So would slightly-less savvy clients! Clients will balk at a high hourly rate more often than a daily rate. People are accustomed to paying for service work --- housekeeping, car maintenance --- at an hourly rate, and have price anchors in their heads that your rate blows past. You sound more expensive hourly.

* You get an automatic 8-hour commit for every project you do without even trying

* You can repurpose the brain cells you're spending today on being really good at time tracking to getting really good at Jakiro in DOTA2 at no additional cost to your business

* You can still throw 3 hours per day at a client, and the next 3 hours of that same day at another client; all you have to do is be honest with yourself about how you're doing. And again: part of the terms of a day rate is, you get to round up.

* You can still work more some days and less other days. Your fee structure is not your delivery date.

* You don't need to explain ramp-up and ramp-down to clients, because it's built directly, quietly, and non-negotiably into your fee structure. It's a conversation you simply never need to have.

The two points it didn't seem like you followed from my original comment:

* By working with a contractor instead of hiring a full-time developer, your client is paying for projects to be completed on a specific timeline without the overhead of an employee on a deterministic schedule. There is a huge amount of convenience and de-risking implied in that. When I talk about burden-sharing, what I mean is that it is more than reasonable for part of the cost of that convenience to be "you get me for a day at a time, whether you need the whole day or not". The alternative they're looking at is "you get me for 2 years at a time, whether you need me that long or not".

* When you have an hourly rate, any time you do anything free for a client, you risk creating the expectation that that thing should have been free, and that it's reasonable to ask for that free thing in the future. But very few freebie tasks take a whole day. The client can intuit that a day's worth of work is going to cost, but still feel comfortable asking for a 30 minute phone call without wondering whether it's going to be invoiced.

[Silhouette]

If you have the option to bill on a daily increment, why would you ever bill hourly?

There are some circumstances where I think this can make sense.

One is that for urgent, very short, very specialised gigs (for example, an emergency fix for a previous but not usually recurring client) you might command a much higher rate per hour than the equivalent of your normal daily rate for medium-long term gigs. This just follows from all the same reasons we've talked about on HN before in terms of business value generated vs. time served.

Another is that it is sometimes useful to multiplex a part-time contract gig with some other task -- another part-time client, a start-up, supervising the guys building your home extension. It can be advantageous for all concerned to be up-front about the fact that you're only working part-time and how much time may vary considerably from day to day. This manages expectations if, for example, you aren't going to be around to answer the phone at reliable times. Obviously really top-end consultancy work isn't likely to be forgiving of part-time engagement anyway, but you probably aren't attracting that kind of gig no matter how good you are while you're also working part time on something else that can't wait.

[MortenK]

"In high-end contracting work, daily rates are industry standard. If you have the option to bill on a daily increment, why would you ever bill hourly?"

This advice is rather black and white, making it not exactly spot on for a large variety of cases. "X is an industry standard" is also rarely entirely correct. Ex. While daily rate might be standard in the UK and US, Scandinavian rates are almost always hourly based. Russian and ukranian as well, and most likely a whole range of other locations I know nothing about.

If you contract for a professional services firm that re-bill your hours, you're going to have an explanation problem when they see 3 hours logged and a full day billed. Conversely, the "full day" is easily stretched by a client-in-need into 10 or 12 hours, which leaves your hourly income plummeting by 25-50%

In this particular case, your best bet by far is to bill hourly. This applies to a variety of other cases as well, which is why there is no such thing as a universally applicable approach on consultancy billing, and such really shouldn't be given or taken without a huge disclaimer.

[sarciszewski]

I've been informed by evil bastards whom love to outsource that Ukrainians are perfectly happy with $5 per hour.

[ddebernardy]

You can get a junior for as little as $2/hour, if you need code grunt tasks done.

[dminor]

> You can still throw 3 hours per day at a client, and the next 3 hours of that same day at another client; all you have to do is be honest with yourself about how you're doing. And again: part of the terms of a day rate is, you get to round up.

Can you explain more clearly what you mean by "be honest with yourself about how you're doing"?

If you work 3 hours one day and 3 hours the next day, are you charging 2 days, or do you consolidate it into 1?

[tptacek]

If I am building a Foo widget and I work 3 hours one day and 3 hours the next and then I'm done, I bill one day.

If I am building a Foo widget and I work 3 hours one day and then I'm done, I bill one day.

If I am building a Foo widget and I work 3 hours one day and then I'm done, and then the client asks me to build a Bar widget and I work 3 hours the next day and then I'm done, I might bill 1 day or I might bill 2, depending on the relationship. This doesn't come up much.

If I am building a Foo widget and I work 3 hours one day and then I'm done, and then a week later the client asks me to build a Bar widget and I work 3 hours next week and then I'm done, I bill 2 days.

[newlog]

I missed the "If I am building a Foo widget and I work 3 hours one day, 3 hours the next and 3 hours the next and then I'm done, I bill ¿?."

One or two days? :) It depends on the client?

[dminor]

Thanks

[sarciszewski]

I have a question, though I don't know if it's relevant.

Do you suppose that there's a psychological effect here; where employees compare their hourly rate to your hourly rate? And it's less intuitive to compare a daily rate to an hourly rate?

Apologies if I'm off the mark.

[tptacek]

YES. People tend to have a sense of what they make per hour, but very few people have a sense of their daily rate, unless they're consultants.

[vram22]

>People tend to have a sense of what they make per hour, but very few people have a sense of their daily rate, unless they're consultants.

Why? Isn't it equally easy to divide a monthly salary by 30 as by 30 x 8 (ignoring holidays, to keep it simple)?

[walshemj]

you missing the point the big boy constancies all charge by the day - and decent clients know this and don't have a problem with it

hourly makes you seem like the little guy and you will be chasing after the small engagement with lower quality clients

[tptacek]

Lawyers bill hourly. But here's the rub: most lawyer tasks take less than 2 days (the modal corporate legal task is probably a 4 hour long contract review).

That's not true of software development. Serious development projects are broken into major milestones weeks apart from each other. That's why the term "weekend project" is so evocative.

[Silhouette]

Also, lawyers command significantly higher hourly rates at almost any level than the equivalent level on any sort of IT/software consultant scale.

For one thing, hiring a lawyer is much like buying an insurance policy in many cases: the potential amount of money you save if something bad does happen is dramatically greater than the fee you pay. Take the usual arguments about business value generated by IT consultancy, and scale them up by some number of orders of magnitude.

It doesn't hurt them that they operate in a tightly regulated industry with high barriers to entry and effective immunity to market disruption. This supports a culture of high pricing where, regardless of whether it really does represent good value for money, clients expect decent lawyers to be expensive but bill by the hour or shorter.

As a curious aside, the norm in the legal profession is that if lawyers want to fight for a good cause they do that work pro bono and still charge a small fortune for their regular clients. It is almost unheard of for a lawyer to charge real money but at well below the normal market rate for their services. It's an interesting contrast to other creative industries, where spec work is often frowned upon and you have the option to outsource work to foreign businesses who will charge you peanuts as long as you can accept the quality of work that buys.

[andy_adams]

I'm still new to it, but one huge advantage of daily rates is that it gets much easier to estimate projects. It's no longer "2 hours for this, 3 hours for that" and instead is "that'll take about a day".

[Alupis]

If you bill daily/weekly, make sure you don't slack a little and cut out early on some days. Billing hourly ensures nobody feels shorted, you aren't there, you aren't billing, etc. But with a daily billing, it might be easy to slip into a mindset of "I accomplished all of today's goals X, Y, and Z. I'm going to head out 30 minutes early today." Sooner or later, you'll have a client that ads up that time and feels like you've shorted them (especially on a longer project where the sum can be a full day or more).

If you bill daily, make sure you put in a full day. I would also make sure your definition of a "day" is known upfront (8 hours not including a lunch, or whatever). This way there is no confusion later.

[Silhouette]

If you bill daily, make sure you put in a full day. I would also make sure your definition of a "day" is known upfront (8 hours not including a lunch, or whatever).

Ouch. No. Please don't do this.

A major advantage of billing in longer increments is that you are not constrained to those minute-by-minute time tracking activities. If your client says they'll call you back with an answer in five minutes, and in reality it's half an hour, you did not just lose a half hour of chargeable time because you weren't on the clock. If you got the agreed work completed quicker than expected, you do not have any obligation to be a bum on a seat for the remainder of the day. If your client is even able to detect this if it happens occasionally, you're doing it wrong.

This cuts both ways, and sometimes you need to put in a longer day to get the job done, and on a daily rate you just have to suck that up. And obviously I'm not advocating slacking off or failing to make a reasonable effort to produce the results you're being paid for; that would be unethical whatever your charging agreement might be.

But if you want to start fixing what "one day" means because you think one party is going to feel cheated by the other without that, either you need different clients and better working relationships, or you probably are someone who should just work on an agreed hourly rate with some even shorter minimum increment anyway. It's a lower risk/lower reward arrangement, but it's more stable if that is what you want to prioritise.

[tptacek]

Such a great comment.