Down with Tyranny... of Billable Hours

The "tyranny" of billable hours. Anyone who has ever provided a labour service - lawyers, consultants, designers, contractors - knows the inexorable pressure to find more hours which you can bill to some client somewhere. In multi-person firms it is far worse. Senior partners create minimum billable quotas on junior staff, who then have to run around to find them or lose their job.

But there is another side to billable hours, one that I regularly run into as a consultant to companies. Billable hours create a conflict between the interests of the provider and the customer. The customer wants you to do the job in as few hours as possible, since s/he is paying by the hour. You, on the other hand, would prefer (if not for your strong ethical sense) to fill all of the hours you estimated for this client, else you have a sudden non-earning gap.

The billable hour creates a conflict of interest between the provider and the customer!

There are lots of ways to mitigate the negative incentive, all of which I have used myself at one point or another:

1. Extremely strong ethics. This is the primary reason I have stayed a single person provider.
2. Guaranteed minimums: If the Web designer knows he is going to get paid for at least 100 hours, whether it takes him 75 hours, 100 hours, or 120 hours, he has no reason not to be more efficient.
3. Fixed monthly retainer: There is risk that either side may benefit too much, but an experienced provider should be able to estimate well.
4. Fixed project rate: This also creates a strong incentive to be as efficient as possible, but runs the risk of changes and feature creep.

When I have worked with companies that work by the billable hour, I have always seen a strong resistance to working more efficiently. After all, if I can come up with a method that reduces the amount of time to get something done from 40 hours to 20 hours, that is not time saved, that is 50% lost revenue!

What keeps the billable hour from being completely out of control? What provides the counter-incentive? To a limited extent, competition works. If you take too many hours, customers will eventually go elsewhere.

This week, I discovered a new, powerful counter-incentive: employees! In a market in which your talented billable staff have lots of alternatives, they create tremendous pressure to minimize billable hours.

Earlier this week, I had a fascinating conversation with Yashar Rassoulli, the co-founder and director of Myplanet Digital, a first-class digital design consultancy that builds truly impressive digital interfaces on the Web and mobile. If you want a "just do this for me," they are not for you. If you have a vision and want a user experience that will perfectly implement your vision and blow your users away, give Yashar a call.

Yashar and I were discussing his excitement about DocPad, a new form of Web site generator that combines the flexibility of building it all yourself, with the efficiencies of classical Content Management Systems (CMS) like Drupal, and the scalability of static Web sites. Yashar's primary interest, as a digital design shop, was in the speed of development. With DocPad, his time to develop is significantly reduced.

Since his company bills by the hour, the businessperson in me immediately asked, "but that reduces your billable hours! Great for your clients, terrible for you!" I expected Yashar to talk about competitive pressures, or how he has more work than he can handle in his nearly-100-person firm.

Nope. What keeps him honest is his employees! Yashar's people are very talented, working at the leading edge, and sometimes the bleeding edge, of client-side technology. These people want to get paid well, and treated with respect, but they especially do not want to be bored. Smart people, especially engineers and designers, are notoriously "lazy"; they hate to do the same thing twice unnecessarily.

The moment Yashar's smart designers and engineers realize they are doing something in 10 hours that they could do in 5, he has lost them. They could go to Facebook, Google, Twitter, 10gen or any of many other exciting fast-moving companies wherein they will work with cool technology and almost never do repetitive work.

Myplanet may be unique in that it is acutely aware of what it takes to hold on to talented employees. However, this awareness creates excellent positive pressure on the company as a counter-balance to the pressure of the billable hour. That this makes the company an even better provider to its customers is just icing on the cake!