The Billable Hour Leads to Burnout
When we started 33 Sticks, we did so with a promise that not only would we reject the billable hour model but we would become fierce enemies of the billable hour. The model, while long used in the consulting industry, is a broken model that leads to poor results for clients and burned out employees who hate their jobs.
Let’s talk a bit more about how the billable hour models leads to burnout, which leads to consultants creating low quality work for their clients, but first let’s talk about what the billable hour is.
The Billable Hour
The Billable Hour is by far the most popular pricing model. It's a model that is accepted by most businesses, large and small, it's a model that has been proven for decades, it's a model that has lots of existing frameworks that can be used, or replicated, when starting a new agency.
Many large businesses are accustomed to buying services by the hour and are accustomed to talking about hourly rates. This also has a downside in what is often referred to as the "rate card." Companies, through some form of deep financial analysis or in most cases just pulling some number out of the air based on how much they have been able to negotiate hourly rates down, have a defined set of rates that they are willing to pay. You will know if a company operates in this manner if one of the first things they ask you for is your "rate card." To them, this is just operations, you do X work, for Y cost. As an agency that may have various services and/or employees at different skill levels, this makes the rate discussion a bit fuzzy. So in order to make the discussion around rates more clear, often an average is deployed. In consulting circles, this average is called a "blended rate."
This discussion around hourly fees, rate cards, and blended rate, highlights one of the major disadvantages of the billable hour model. From the start, the discussion is removed far away from the value you will be creating for a company and is squarely centered on operational details around determining the lowest acceptable rate. Not only is this bad from a relationship perspective, you can see how this is bad from a value perspective, how can we expect a client to properly value our services if the very first thing we talk about is establishing the lowest rate possible?
While the billable hour may seem like a more approachable path because it's easier to sell, companies know what to expect, employees know how much they are supposed to work, let's really focus in on the major disadvantages:
When you bill by the hour, you create a disconnect between what is best for the client (faster delivery) and what is best for you (slower delivery = more hours = more money)
Billing by the hour creates a "burnout" culture for your employees
As you become more efficient, you earn less money
Predicting revenue becomes challenging
You put employees into an ethical quandary every time they have to submit hours
Often difficult to hire new employees ahead of needs (this results in selling deals you can't staff and then quickly looking to hire)
No time for learning or really anything else
Double and triple billing
Lack of collaboration
Forcing the customer into constant buy decisions
You are left out of important conversations
You position yourself as a contractor not a strategic partner
Ok, so now that we have a bit better understanding of what the billable hour model is all about, let’s talk about how this model is bad for employees. And if the model is bad for employees and they start to feel burned out, perhaps start to hate their job, how likely are they to give high quality services to your clients?
The Billable Hour Creates a Culture of Burnout
The Big 4 consulting firms absolutely understand this and have built an amazing system with this in mind. Their system is to hire bright, young, usually recent college graduates, that are ready to hustle their asses off in order to sling shot their careers. The Big 4 take advantage of this youthful exuberance, they brainwash these impressionable employees into believing that "hustle culture" is what separates winners from losers, they work these kids incredibly long hours, over a 3-4 year period of time, until either they raise high enough in the ranks to be a manager and pull back on some of the hustle or more likely they just simply burnout, unable to keep up the unhealthy demand of the company for more and more billable hours.
Let's briefly talk about utilization rates. The utilization rate is the number of billable hours a consultant bills in a given week divided by the number of workable hours. Most "reasonable" companies will typically ask consultants to bill 35 hours a week. 35 Billable Hours / 40 Workable Hours = 87.5% Utilization rate.
While this may seem eyeopening, there are actually many, many agencies that push for more, sometimes upwards of 37.5 (or even higher) billable hours per week.
Let's talk in more detail on how this leads to burnout.
Overworked Consultants
Most people are not capable of doing really deep brain work at anywhere near 40 hours a week on a consistent basis — the more realistic number is around 25 hours a week. If we are asking our consultants to consistently bill (and let's go on the low end here) 35 hours a week, which for most employees is an extremely full week of work that often leaves them mentally and physically exhausted, is it any wonder they become burned out?
Additionally, we need to talk about how those hours can work against the consultant, leading to increased fatigue and burnout. Consultants often get pulled into unnecessary internal meetings (non-billable), they are asked to take on operational tasks (non-billable), they have to eat lunch (non-billable), so now if we are starting with a baseline of 40 hours, and we cut out 5 hours a week just for lunch, we literally need to be working every minute or every work day to hit our billable hour target. Ok, let's extend this argument out. What happens if I'm sick? What happens if I want to go on vacation? What happens if I just want a damn day off? Well, this may come as a shock but that time out of office, in many agencies, will count against you as a consultant. How so? Well, the clock on "workable hours" doesn't stop, while your billable hours for that time off go to zero. Better work double time if you want to catch back up to your utilization goal so you are eligible for your bonus or you simply want to avoid getting yelled at by your overbearing boss (who honestly doesn't care about the work, but his bonus is based on your billable hours, it's kind of like a pyramid scheme thing).If, as a consultant, my primary focus is on making sure i'm billing enough hours in any given week, it's really easy to forget about the other things that I have going on in life. It becomes very easy to forget time to just think, because our time is so compressed we often forgo lunch and instead shove down some unhealthy food in a few minutes that we are also billing to a client, we forget about taking time to learn new skills, anything we learn has to be on the job and billed to a client otherwise we are penalized for it.
Starting out with a measure that is fundamentally unattainable in the long term is accepting that your employer has a model in place that is designed to run you as hard as possible for as long as you can run. When you drop from exhaustion, they will have a new consultant waiting in the wings to take your place. That fear is what often drives consultants to push through mental and physical barriers until it simple becomes impossible.
And let’s not forget the ethnical dilemma that many consultants are put into on a weekly basis when it comes to the submitting their hours via the dreaded “time sheet.” You see, under the billable hour, while it’s best for the client to get the work done quickly, it’s best for an agency to take a long time. More time = More hours to bill = More money. This creates a very ethical conflict for the consultant which often results in consultants, let’s call it creatively rounding the numbers, submitting inaccurate billable hours. The stress created by this ethical conflict alone could send most decent people down the path of burnout.
These are just a few reasons why we at 33 Sticks hate the billable hour model. We think it’s bad for our clients. We know it’s bad for our employees. And so we have roundly rejected it, instead opting to bill for the value we create as either a flat rate project fee or a fixed monthly retainer fee.
If you are an agency that is selling hours, rather than value, it’s time to reassess your business model.
If you are a client that is buying work by the hour from an agency, it’s time for you to ask from very serious questions about the value you are receiving in return.
