I think it’s a trend! More and more web design, development, and marketing companies are learning one of the best kept secrets in the business. Charging by the hour can be incredibly good for business.
A marketing / web design firm we’re friends with in Phoenix just switched from fixed-fee project rates to an hourly rate and wrote an excellent blog post about the switch.
They tout flexibility as one of the biggest advantages of charging by the hour. I would agree. It gives customers way more leeway in making changes, and doesn’t create a problem every time the scope of the project changes. This also frees staff up from writing detailed change orders, and revising estimates.
Our company, Tornado, made the switch to billing by the hour about 3 years ago and we haven’t looked back since! It’s a big relief on so many levels compared to billing by the project (fixed fee). I wrote about our experience a year ago in a post called: Two Years of Tracking Time: It’s worth it!
Which way do you bill your customers? By the hour or by the project?
The value of hourly or short-term billing is no secret. Agile development is (relatively speaking) old hat. (What would be more interesting is to learn why people take so long to switch, given the known advantages.)
Per-project charging can work well if you are really good at estimates and change control. Many folks are not. (But you can learn to get better, learn not to fight with clients, and come out ahead, if you have the inclination.)
I much prefer hourly billing, or a series short fixed-bid sprints (e.g. fixed bid over 2 weeks). It’s less work for me, and lowers my risk of being out-of-pocket for large amounts of work. It also makes it easier and less expensive for the client to make changes.
But many clients want to know, up-front, what something will cost. They need to budget, raise funds, get a P.O. approved, etc. They may agree 100% with your reasons for hourly work, but they simply cannot go that route.
Many either have no choice (true for larger companies where everything is budgeted in advance and requires a PO) or are skeptical because they have no guarantee of getting a completed work of specific value within a certain cost.
I realize that fix-bids can go horribly wrong as well, but for client it is easier to take someone to court with a fix-bid contract than with an open-ended hourly agreement. And if the agreement is not open-ended, it very likely has become fixed-bid in disguise.
Folks have been burned by mounting hours that never resolved to a properly completed project.
Anecdotal tales are just that, and only describe what is true for some people at some time. The larger truth is that there is no one true way for all clients, and it is not a matter of being insistent, or explaining to clients the value of hourly billing. Tales of success with hourly billing tend to be skimpy on details about winning over difficult clients. There’s a lot of luck there.
If you really want to do only hourly billing, be prepared to have clients walk away no matter what you tell them. If you can afford that, great. If not, realize that client needs vary, and plan for it.
I suspect, though, that if you want to do hourly, find clients who have been burned by fix bids, and if you want to do fixed bids, find clients who have been burned by hourly contractors.
Great response, thanks for your thoughts.