Most professionals (accountant, lawyers, designers, developers) charge by the hour because that is how it has always been done. Jon Lax has done the research to explain why.
In the early 1900s, an attorney at Boston Legal Aide asked MIT for assistance managing a backlog of cases. The result was the creation of the billable hour for professional services. Jon says it is a playbook designed for the wrong era.
- Why did Teehan+Lax switch to value pricing?
- Why is it important for a professional to know the history of the billable hour?
- How is hourly billing like monkey-behavior?
- What is the evolution of the billable hour?
- 1911 – Frederick Winslow Taylor published The Principles of Scientific Management, which is the scientific foundation for the billable hour.
- 1914 – Reginald Heber Smith, an attorney with the Boston Legal Aid, created the billable hour with help from students at MIT.
- 1940 – The American Bar Association published a collection of articles by Reginald Smith.
- Most lawyers found the accounting for their time beneath their station and dehumanizing.
- 1945 – Shearman & Sterling adopted timesheets for cost accounting, but not for pricing.
- 1950s – Law firms started moving to hourly rates to increase profits and transfer the risk of complex litigation to the client.
- 1962 – David Ogilvy of Ogilvy & Mather used hourly billing to win a pitch with Shell Oil. (Commissions & Fees from Mad Men)
- 1975 – US Supreme Court ruled in Goldfarb v. Virginia State Bar that using a fee schedule in the legal field is price-fixing, which is illegal.
- 1980s – American Lawyer magazine started publishing the Big Star List, which turned the hourly rate into a status symbol.
- What happened with procurement in the 1980s to add “fuel to the fire”?
- Which Fortune 1000 companies have a creative approach to procurement?
- What happened in the 1960s to bring hourly billing to the advertising industry?
- How has technology acted as an accelerant to hourly billing?
- Why is the history of the billable hour important?
- What is the “magic metric” and does it really exist?
About Jon Lax
- J@JLax (Twitter)