Accountants Break-Even Rate Formula
Learn how to calculate the hourly rate an accounting practice needs to cover annual costs and a target profit.
The break-even hourly rate estimates the average amount an accounting practice must earn for every billable hour to cover compensation, overheads and a chosen annual profit target. It helps turn annual financial goals and available client time into a practical rate benchmark.
- 100% Free
- No Sign-Up Required
- Private & Secure
- Mobile Friendly
Break-Even Hourly Rate
Where:
Add the annual amounts the practice needs to fund, then divide that total by the client-billable hours expected during the year.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| annualCompensation - Annual compensation | Annual salary, owner drawings or other compensation the practice must support. | currency |
| annualOverheads - Annual business overheads | Annual operating costs such as software, insurance, rent, subscriptions, marketing and administration. | currency |
| targetProfit - Target annual profit | The profit the practice aims to generate after compensation and overheads. | currency |
| hoursPerWeek - Working hours per week | Typical total working hours in a normal week before the billable-time allowance. | hours |
| workingWeeks - Working weeks per year | Weeks expected to be worked during the year after allowing for time off. | weeks |
| billablePercentage - Billable time | The percentage of working time expected to be billed to clients. | percent |
Step-by-Step Calculation
Calculate annual working hours
This gives total planned working hours before allowing for administration, marketing and other non-billable activities.
annualWorkingHours = hoursPerWeek * workingWeeks
Calculate annual billable hours
Apply the billable-time percentage to find the estimated hours available to charge to clients.
annualBillableHours = annualWorkingHours * (billablePercentage / 100)
Calculate required annual revenue
Add the compensation requirement, operating costs and desired profit.
requiredAnnualRevenue = annualCompensation + annualOverheads + targetProfit
Calculate the break-even hourly rate
Divide the annual revenue target by annual billable hours to estimate the minimum average hourly rate.
breakEvenHourlyRate = requiredAnnualRevenue / annualBillableHours
Calculate the monthly revenue target
Divide the annual revenue requirement by 12 to create a simple monthly tracking benchmark.
requiredMonthlyRevenue = requiredAnnualRevenue / 12
Worked example: sole-practitioner accounting practice
Annual working hours
40 * 46
1,840 hours
Annual billable hours
1,840 * (70 / 100)
1,288 hours
Required annual revenue
75,000 + 25,000 + 20,000
$120,000
Break-even hourly rate
120,000 / 1,288
$93.17 per hour
Required monthly revenue
120,000 / 12
$10,000 per month
Final Result
The estimated minimum average billing rate is $93.17 per billable hour, with an annual revenue target of $120,000.
Assumptions
- ✓Compensation, overheads and profit targets are entered as annual amounts.
- ✓Billable hours are assumed to be invoiced and collected at the calculated average rate.
- ✓The practice has broadly consistent revenue and workload across the year.
- ✓Taxes, bad debts, discounts, financing costs and unexpected expenses are excluded unless included in the entered amounts.
Limitations
- !The calculation is an estimate and does not predict actual demand, collections or cash flow.
- !Different services may require different prices because their complexity, risk and value can vary.
- !A single average hourly rate may not reflect partner, manager and staff billing rates in a larger firm.
- !The result does not account for capacity lost through client churn, delays or unplanned absence.
Common Mistakes to Avoid
Using all working hours as billable hours instead of allowing for administration, sales, training and internal work.
Leaving out irregular but material annual costs, such as renewals, equipment replacement or professional fees.
Treating owner compensation and target profit as the same item when both need to be funded.
Using 52 working weeks without allowing for holidays, public holidays, illness or training.
Using the result as a fixed quote for every job without estimating the scope and delivery time.
Related Formulas
Frequently Asked Questions
How do you calculate an accountant's break-even hourly rate?
Add annual compensation, annual overheads and target profit, then divide the total by expected annual billable hours.
What is a good billable percentage for an accountant?
It depends on the role, service mix and amount of non-client work. Use a realistic estimate based on actual time records or a conservative planning assumption.
Does the break-even rate include profit?
Yes, when a target annual profit is entered. Setting target profit to zero gives a cost-recovery rate before profit.
Why does the required hourly rate rise when billable time falls?
The annual revenue requirement is spread across fewer billable hours, so each available client hour must generate more revenue.
Should tax be included in the formula?
Tax treatment varies. Include business costs that the practice expects to bear where appropriate, but treat the result as a planning estimate rather than a tax calculation.
Ready to calculate your result?
Use the calculator to get instant results with your own inputs.