Why Consulting Firms Are Moving to Hourly Billing

The Contract Structure Decision Most Firms Have Never Revisited

Time and materials now accounts for 43.5% of all professional services work globally, up from 39.6% the prior year. In EMEA the rise has been particularly sharp, from 33.6% to 47.5% in twelve months. For most consulting firms operating in Denmark and Sweden, that means the majority of active engagements are already running on this model. What many of those firms have not revisited is whether the way they apply it is actually working in their favor.

What Daily Rate Billing Actually Does to Your Numbers

Under a daily rate, a consultant who completes a piece of work in six hours bills one day. The remaining time goes unrecorded. The efficiency the team delivered benefits the client as unearned capacity rather than the firm as captured revenue. Under hourly billing, six hours of work is six hours of revenue, and every productive hour the team puts in is reflected in what gets invoiced.

The daily rate model trades some upside for simplicity. For short, well-scoped engagements that trade-off can be acceptable. For firms running twenty or thirty active time and materials projects simultaneously, the accumulated effect is material. It runs consistently in one direction, transferring value from the service provider to the client on every engagement where delivery is more efficient than the daily rate assumes.

Some firms have raised the question of whether AI changes this equation. If delivery teams become faster through AI tools, does hourly billing start working against the firm? The data does not support that concern at this point. Time and materials is growing, and firms moving to hourly billing are seeing improved margins rather than compressed ones. Efficiency gains are currently flowing to the firm rather than away from it.

Talent Scarcity Changed the Negotiating Dynamic

The reason time and materials has grown so sharply is not that clients have become more flexible. Specialist talent has become harder to find, and that scarcity has shifted the commercial balance. IT consultancies, engineering firms, and management consultancies with the right people are finding that clients have less room to push for fixed-fee terms when the alternative is not getting the expertise they need. Over half of all IT consulting work is now sold on a time and materials basis.

Fixed-fee still produces strong results where it fits the work. Management consultancies achieve 42.0% project margins on fixed-fee engagements, slightly ahead of their 38.8% on time and materials. IT consultancies run nearly identical margins across both. The model works well when scope is defined clearly and the firm has the estimating discipline and real-time cost visibility to hold to the price it quoted. Where those conditions do not exist, fixed-fee is where margin quietly disappears.

The Firms Holding the Best Contract Terms Have Built the Position to Do It

Across the 2026 SPI Professional Services Maturity Benchmark, the top 20% of firms sell 51% of their work as time and materials, compared to 41% for the rest. They carry a deal pipeline worth 224% of their quarterly bookings target and win 56.5% of bids against 45.1% for their peers. They grow revenue 2.7 times faster than the market average.

These firms are not holding firmer on billing structure because they negotiate better. Their pipeline depth means no single deal is make-or-break, which changes the character of every conversation about rates, billing frequency, and contract terms. Their billing mix reflects the commercial position they have built. It is the outcome, not the strategy.

The firms most likely to concede on contract structure tend to be the ones who can least afford to.

Making Hourly Billing Viable in Practice

Moving from daily to hourly billing is less a client management challenge than an internal readiness question. Most clients accept hourly billing when it is presented clearly and invoiced without friction. The requirement is on the firm's side. Hourly billing needs time tracking that consultants actually use consistently, not reconstructed at the end of the week from memory. It needs billing processes that close cleanly. It needs enough visibility into hours delivered versus hours planned that a project manager can see a discrepancy before it becomes a client conversation rather than after. Without that infrastructure, daily rates are not a choice. They are a necessity, because hourly billing requires a level of operational precision the firm has not yet built.

Firms in this market record the lowest average operational maturity of any region in the benchmark at 2.25, against a global average of 2.40. That gap shows up across multiple measures, but billing precision is one of the most direct. The firms closing it tend to find the same thing: the revenue left on the table through imprecise billing is larger than it looked before they measured it. TimeLog's revenue leakage calculator is a useful starting point for firms that want to put a number on it.

Recurring Revenue and What It Changes About Every Other Contract Conversation

Managed services and subscription contracts account for 13.8% of the market and are relevant here for a connected reason. A firm that re-wins its entire revenue base every quarter operates under conditions that make it harder to hold firm on billing structure. End-of-quarter pipeline pressure is exactly when daily rate defaults and fixed-fee concessions tend to get made. A firm with meaningful recurring committed revenue going into each quarter starts those conversations from a fundamentally different position.

Building recurring revenue and tightening billing precision are separate initiatives, but they share the same underlying logic: the more control a firm has over how its revenue is structured, the more of it tends to be retained.

Key Takeaways

• Time and materials accounts for 43.5% of all professional services work globally and 47.5% in EMEA. How it is structured, hourly or daily, determines how much of that revenue the firm actually keeps.
• Daily rate time and materials transfers efficiency gains to clients. Hourly billing captures them. Across a portfolio of active engagements the cumulative difference is material.
• The top 20% of firms in the benchmark sell 51% of their work as time and materials against 41% for the rest, a consequence of pipeline strength and delivery reputation rather than negotiating tactics.
• Fixed-fee delivers comparable or better margins for management consultancies and engineering firms when supported by accurate estimating and real-time cost visibility.
• Recurring revenue through managed services reduces the end-of-quarter pipeline pressure that leads to billing concessions.

If you want to understand what billing gaps are costing your firm, TimeLog's revenue leakage calculator gives you a useful starting estimate based on your own team and rates.