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Clients are less and less willing to simply pay for hours worked, especially when they know an agent is involved. The hourly model will stay important for some years because it is easy to measure. Still, I advise an IT services firm with 80% hourly work to move to packages and fixed prices: they create predictability on both sides. Time and materials stays more honest when the requirements only emerge during the project.
For some time now I have noticed that our clients are less willing to simply pay for hours worked. The ones who already know more about AI ask pointed questions: if an agent is doing this now, why should I still pay so much for it?
It is a fair question. And it hits a model that always had a design flaw.
The old flaw in hourly billing
Paradoxically, with hourly billing the client pays more when a weaker developer does the job. They take longer, so it costs more. The good developer who does the same thing in half the time brings in less revenue. That was always odd.
With agents the effect becomes extreme. When a routine task takes ten minutes instead of two hours, the invoice shrinks accordingly, even though the result for the client is the same or better. If you keep selling only hours, you hand the entire productivity gain to the client.
A worked example
An IT services firm supports a client for about 20 hours a month at €110. An agent takes over part of the routine and halves the effort.
| Per month | Hourly | As a package |
|---|---|---|
| Revenue before (20 h) | €2,200 | €1,900 |
| Revenue with agent (10 h) | €1,100 | €1,900 |
| Own effort with agent | 10 h | 10 h |
| Revenue per hour worked | €110 | €190 |
The package starts out below what hourly billing would have produced, so the client saves a little. In return, the gain from faster work stays with the provider instead of shrinking with every minute saved.
What I advise an IT services firm with 80% hourly work
Move to packages or fixed prices, definitely. The main reason is predictability, even ahead of margin. The client knows what they will pay. The provider gets secure, almost subscription-like income. Revenue may drop a little at first; you have to run the numbers. But recurring, predictable income is a goal worth pursuing for almost every service firm.
The key is being able to represent packages in your systems. If you sell a 20-hour retainer, you need to see at any moment how much is used, what an agent did and when the package will be exceeded. Otherwise it gets messy fast. That is exactly where Leadtime, the platform for IT service firms, agencies and consultancies, helps: retainers, time and agent work all run in the same process, and the invoice comes out of it.
When the client says: “But the AI does that now”
Then you need to agree a billing key with the client that fits each kind of work. In the end the client gains nothing if a person does the work and it simply takes longer. They are paying for a result and for responsibility for it.
There is also a sober fact: the client usually cannot rebuild the work themselves. If you maintain a client’s software and its source code, you hold the longer lever. That is especially true in industrial settings and larger B2B, where nobody switches providers overnight or has a system rewritten on a whim. That does not mean you should brush the question off. But you can answer it with confidence.
Where time and materials stays more honest
I believe the hourly model will stay highly relevant for some years, because it is so easy to measure. And there are cases where it is simply the more honest model: whenever you cannot pin down the requirements at the start. If the content of a project only emerges step by step through working together, time and materials is the right way.
What matters is the rate. If it is fair rather than greedy, time and materials remains a fully relevant model.
Packages for what can be planned, time and materials for what only emerges in the project.
Where willingness to pay is dropping is work that mainly consists of giving information. For some questions you once would have hired a consultant for, an agent today often gives a usable first answer. If that is how you make your living, now is the time to work out what your package is.
Frequently asked questions
When is a fixed price better than time and materials?
When the work can be described clearly up front: maintenance, support with a defined scope, recurring tasks, well-bounded projects. A fixed price or package then creates predictability for client and provider.
When is time and materials still the more honest choice?
When the content of a project only emerges through working together and the requirements are not fixed at the start. With a fair hourly rate, time and materials remains the right model.
Can a service firm bill for work an AI agent did?
Yes, if the billing key is agreed in advance. The client pays for the result and for responsibility for it, not for typing time. A key per type of service makes sense, for example a package price for routine tickets.
Why can revenue drop when switching to packages?
Because packages are often priced a little below what hourly billing would have produced. In return you get secure recurring income, and the time agents save stays with the provider.
Sources
- Worked example: retainer of 20 hours a month at €110, package price €1,900, agent halves the effort. All values are illustrative assumptions.
- Factor ten for routine work: Leadtime model, assumptions and method in the calculator.