Accountants Break-Even Rate Calculator
Estimate the hourly rate an accounting practice needs to charge to cover compensation, overheads and a target annual profit.
Overview
Use this accountants break-even rate calculator to estimate the average hourly rate needed to cover annual compensation, practice overheads and a chosen profit target. It uses your available working time and expected billable percentage to calculate the rate your client work needs to achieve.
How it works
The calculator adds compensation, overheads and target profit to find the annual revenue requirement. It then estimates annual billable hours by multiplying weekly working hours by working weeks and by the billable-time percentage. Dividing the required annual revenue by billable hours gives the break-even hourly rate. A lower billable percentage or fewer working weeks will increase the rate required.
How to use this calculator
- 1Enter the annual compensation that the practice needs to support.
- 2Add annual operating overheads, including recurring business costs.
- 3Set the annual profit target you want to achieve.
- 4Enter your normal weekly hours and working weeks for the year.
- 5Estimate what percentage of your working time will be billable to clients.
- 6Review the minimum hourly rate and revenue targets.
Example Calculation
Annual compensation
$75,000
Annual business overheads
$25,000
Target annual profit
$20,000
Working hours per week
40
Working weeks per year
46
Billable time
70%
Break-even hourly rate
$93.17
With annual revenue required of $120,000 and 1,288 estimated billable hours, the minimum average billing rate is about $93.17 per hour.
Frequently asked questions
What is an accountant's break-even hourly rate?
It is the average hourly billing rate needed to generate enough revenue to cover compensation, business overheads and any selected profit target.
What should I include in annual overheads?
Include costs such as accounting software, professional indemnity insurance, office costs, subscriptions, marketing, professional fees, equipment and administrative support.
Why does billable time affect my hourly rate?
Only client-billable hours generate fee income. If more time is spent on administration, marketing or internal work, fewer hours are available to recover the same annual costs.
Should I include taxes in this calculation?
Include costs you expect the business to bear in overheads where appropriate. Personal and business tax treatment varies, so use the result as a planning estimate rather than a tax calculation.
Can I use this calculator for fixed-fee accounting services?
Yes. Use the hourly rate as a benchmark, then estimate the time required for each fixed-fee service to check whether its price is likely to support your target rate.
Is the break-even rate the same as the rate I should quote clients?
Not necessarily. It is a minimum average planning rate. Actual client prices may differ based on service complexity, value, market conditions, scope, risk and time required.
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Assumptions and warnings
Assumptions
- All entered compensation, overheads and profit targets are annual amounts.
- Billable time is assumed to be charged and collected at the calculated average rate.
- The result does not separately account for bad debts, discounts, unpaid invoices, taxes or financing costs unless included in overheads or the profit target.
- Revenue and workload are assumed to be broadly consistent across the year.
Warnings
- This calculator provides a planning estimate only and is not financial or business advice.
- Review your rate regularly if your costs, workload, collection rates or service mix change.