Do Yourself a Favor and Stop Charging by the Hour

20 Feb 2025 #misc

“I have developers who charge me $18 per hour. Your fee is way more expensive.”

I was on the phone with my first lead, a small business owner looking for a software engineer. A friend connected us. I was trying to start freelancing in my local market. And if I got a yes, I was about to become the subcontractor of a subcontractor.

I gave him a flat fee.

I had already heard about the dangers of charging by the hour. I had watched a couple of YouTube videos and learned a sales script.

But on the other side of the phone, he divided my flat fee by the estimated hours to completion he had. And he tried to persuade me to give him an hourly rate and an hourly rate as low as the one he already had.

Hourly billing is nuts. Here’s why.

1. Hourly billing doesn’t encourage productivity.

The better I become at my work, the faster I do it. And if I charge by the hour, the faster I do my work, the less money I make.

Sure, I could raise my hourly rates, but that would put me in a race to the bottom. “I have developers who charge me $18 per hour,” he said.

2. What should I charge for?

There’s no clear line between billable work and non-billable work.

If I set aside my time for that client, but I’m waiting for his input, should I charge for that? While I’m thinking or doing research, should I charge for that? What should I charge for? Only for the time I’m typing symbols on a page? Arrggg!

3. Hourly billing invites micromanaging.

“Hey, did it take you X hours to do that? I have people who do that way faster! Let’s revisit your timesheet.”

And that’s how my freelancing coding business ended with one phone call. Do yourself a favor and don’t charge by the hour. I’ve forgotten that lesson and I regret it.