One sentence summary
- The history of money and hourly billing is about trust, and if you want to move away from hourly billing with clients, you need to show them an alternative way to trust you, by sharing your well-documented, empirical, creative process.
- Today we’re going to talk a bit about the history of money and where the idea of hourly billing comes from.
- There’s a lot of nuance to the history and theory of money, but my understanding is that while money and markets have become more complex, at its core, money is simply about trust between two or more people.
- How does this apply to us as designers and entrepreneurs?
- Clients need to trust you when they hire you. That’s why they always want to know your hourly rate; they want to know that they’re getting a fair price. And they think they can measure the effectiveness of your work by seeing a log of your hours.
- As designers, we know that more time doesn’t automatically mean better, more effective work. But that’s the only system that our clients know.
- So as a designers, if you want to move away from hourly billing into value based pricing, you need to gain your client’s trust not by showing them your hourly rate, but by showing them your well-documented, empirical creative process.
- I’m gonna show you 4 things today:
- Where hourly billing came from
- Why the idea has stuck and why clients like the idea so much
- How value based pricing is better for you and your client
- Examples of people and agencies who’ve already moved away from hourly billing
1. Where did commerce come from?
- Commerce as we know it is the activity of buying, selling and trading. That’s been around since before written history as far back as 30,000 thousand years ago in what is now the Middle East and Africa.
- Commerce was originally used in the interest of survival
- When humans first formed communities, they were small enough so that people would share the fruits of their labor for the good of their small community. Nobody owed anybody anything because they were all working together to just survive.
- Bigger civilization=need for more complex trade
- As civilizations became more advanced, people didn’t have to concern themselves with just surviving, they could focus on acquiring wealth for themselves.
- They still didn’t use coins though. Some societies accumulated livestock, others collected precious rocks, while people in other cultures collected clothing to display their power and wealth.
2. How did we exchange value prior to forming money?
So before we had coins and bills, cultures did a few different things to exchange goods and services.
- Grain and bread
- Workers in places like Mesopotamia were compensated for their work in grains and food to sustain themselves so they could continue working.
- People would trade livestock and grain which were very practical and useful. They would also trade items that didn’t serve much practical use, like beads and shells.
- Bartering became really inefficient.
- Example of inefficient bartering:
- I have a goat and I’m thinking about trading it for a large clay jar.