[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?

[tptacek]

I'd probably bill 1 day if I did the work in dribs and drabs over 3 days and the total number of hours I spent were closer to 1 day than 2. You know how you'd feel if you worked 3 hours a day for 3 days: not like a superhero.

I don't know, this has just never happened with me.

[newlog]

Thanks ;)

[sarciszewski]

You've put more than 1 standard 8-hour work day of effort into the project. If you round up, you have two days.

[newlog]

Although it's too close to one day, that it might be a bit unethical to say it were two...

[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.