Hourly Billing Won't Die Without a Fight

Photo by Julian Gentile on Unsplash

A recent 𝘞𝘢𝘭𝘭 𝘚𝘵𝘳𝘦𝘦𝘵 𝘑𝘰𝘶𝘳𝘯𝘢𝘭 article offers a restatement of the obvious: AI makes work faster, so charging by the hour doesn't make sense anymore. (Here's the link.)

This isn't just about law firms. Big accounting firms are taking private equity investments. Consulting firms are racing to figure out how AI changes their economics. The pressure is building across all of professional services.

 Here are some more complex questions with thornier answers:

𝗖𝗮𝗻 𝘁𝗵𝗲 𝗽𝗲𝗼𝗽𝗹𝗲 𝗿𝘂𝗻𝗻𝗶𝗻𝗴 𝘁𝗵𝗲𝘀𝗲 𝗳𝗶𝗿𝗺𝘀 𝗲𝘃𝗲𝗻 𝗵𝗮𝘃𝗲 𝘁𝗵𝗲 𝗰𝗼𝗻𝘃𝗲𝗿𝘀𝗮𝘁𝗶𝗼𝗻? Senior partners built their careers on "We're $800/hour (or way more) and we're worth it." They've never had to articulate client value because hourly billing didn't require it. Value-based pricing requires an entirely different skill set: diagnosing what outcomes clients actually need, understanding what those outcomes are worth to the client, and pricing based on that value instead of effort. Most senior partners don't know how to have that conversation because they've never had to, and they're the ones who control pricing policy and approve proposals. Do they think their brand and reputation are so strong that they don't need to change?

𝗪𝗵𝗼 𝗯𝗲𝗮𝗿𝘀 𝘁𝗵𝗲 𝗿𝗶𝘀𝗸? Right now hourly billing shifts almost all risk to clients. Firms that bill hourly don't want to frame it this way, but they get paid regardless of outcome, efficiency, or whether the work even needed doing in the first place. A move to value-based pricing means the firm owns execution efficiency risk instead of passing it to clients. You estimated 100 hours but it took 200? That's now the firm's problem, not a billing opportunity. How do partnership structures built on billable-hour certainty handle that shift? What happens when the financial engineers at PE firms that bought in expecting predictable cash flow discover your revenue model is now much more variable?

𝗪𝗵𝗮𝘁 𝗵𝗮𝗽𝗽𝗲𝗻𝘀 𝘁𝗼 𝗽𝗿𝗼𝗰𝘂𝗿𝗲𝗺𝗲𝗻𝘁? Hourly billing persists partly because it's easier for procurement to deal with. Procurement departments compare $450/hour vs. $400/hour on a spreadsheet. Value-based pricing destroys that playbook, as you can't reduce value to rate comparisons. Are they capable of handling that shift?

The "alternatives" proposed in the article do not effectively address any of these challenging questions. Subscription pricing and project fees are often just variations of hourly billing dressed differently. Until firms tackle these three dynamics, changing the packaging won't change the model.

The question isn't whether AI makes hourly billing obsolete. That pig is already moving through the python. The real question is whether firms have the courage and capability to handle the challenges of what comes next.

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I’m John, author of the five-star rated book, The Generosity Mindset. I show expert-service professionals how generosity creates the confidence, value, and relationships that grow a business and restore joy to your work. Generosity isn't about giving everything away; it means serving in ways that deepen value for clients. Want to start a conversation? Let's talk.