Hourly billing punishes expertise

Incentives matter. And billing by the hour has bad incentives. There is no financial incentive to get better at what you do.

This claim is usually opposed, but the fact is even if someone does invest in getting better, the incentives are certainly not financial.

The counter-claim is that you can win more work. Here’s how that works out for someone who gets twice as fast. He invests into getting fast, and then works on twice as many projects while making half the money on each of them. Same revenue, more admin and switching costs. And that initial investment sees no return. Hourly billing punishes expertise. The better you get, the less you make.

All this could be why environments where billing is by the hour are fertile grounds for bullshit (Bullshit is more dangerous than lies to truth) oaks to grow.

Imagine a world where we moved on to business (Business) models better for the world. We might miss some aspects of it, but definitely not the weekly timesheet reminders.

Related: Labor theory of value (LTV) associated with Marxian economics which argues that the economic value of a good or service is determined by the total amount of “socially necessary labor” required to produce it.

References:

  • [Punishing Excellence Ditching Hourly Episode 184](https://share.transistor.fm/s/5c0d0396), Jonathan Stark

Notes mentioning this note

Sometimes daily billing makes sense
Although, [[Hourly billing punishes expertise]], there are cases where some loose coupling to time is useful in billing.
Sometimes daily billing makes sense
Although, [[Hourly billing punishes expertise]], there are cases where some loose coupling to time is useful in billing.

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