Accountants Break-Even Rate (Daily) Formula
Learn how to calculate an accountant's minimum daily charge-out rate from annual costs, billable days and a profit target.
A daily break-even rate shows the minimum amount an accountant or practice needs to invoice on each billable day to recover annual costs. Adding a profit target turns this into a target daily rate and an equivalent hourly rate, helping with practical pricing and capacity planning.
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Daily Rate Including Profit Target
Where:
Add all annual costs and the profit the business wants to make, then divide the total by the number of days expected to be billed to clients.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| annualOverheads - Annual business overheads | Recurring annual operating costs, such as premises, software, insurance, marketing and subscriptions. | currency |
| annualSalaryCost - Annual salary and owner cost | Annual pay required by the owner or the full employment cost of the accountant whose work is sold. | currency |
| otherAnnualCosts - Other annual costs | Additional expected costs, such as training, equipment, finance costs or an allowance for bad debts. | currency |
| targetAnnualProfit - Target annual profit | The additional annual profit the business aims to earn after the entered costs are covered. | currency |
| billableDays - Expected billable days | Days per year that can realistically be invoiced to clients. | days |
| billableHoursPerDay - Billable hours per day | Average client-chargeable hours delivered on a billable day. | hours |
Step-by-Step Calculation
Calculate total annual costs
Combine operating overheads, salary or owner costs, and all other annual costs that must be recovered.
totalAnnualCosts = annualOverheads + annualSalaryCost + otherAnnualCosts
Find the break-even daily rate
Divide annual costs by realistic billable capacity. This rate covers costs only and leaves no planned profit.
breakEvenDailyRate = totalAnnualCosts / billableDays
Calculate required annual revenue
Add the desired annual profit to the annual cost base.
requiredAnnualRevenue = totalAnnualCosts + targetAnnualProfit
Calculate the target daily rate
Spread the total annual revenue requirement across expected billable days.
targetDailyRate = requiredAnnualRevenue / billableDays
Calculate the hourly equivalent
Divide the target daily rate by average billable hours per day to create a comparable hourly figure.
targetHourlyRate = targetDailyRate / billableHoursPerDay
Worked example: sole practitioner with a profit target
Add annual costs
$30,000 + $70,000 + $10,000
$110,000
Calculate break-even daily rate
$110,000 / 180
$611.11 per day
Add target profit
$110,000 + $20,000
$130,000
Calculate target daily rate
$130,000 / 180
$722.22 per day
Calculate hourly equivalent
$722.22 / 7.5
$96.30 per hour
Final Result
The estimated break-even rate is $611.11 per billable day. To cover costs and make a $20,000 annual profit, the target rate is $722.22 per day, or $96.30 per billable hour.
Assumptions
- ✓All entered annual costs are expected to be paid during the year.
- ✓The billable-day estimate already accounts for holidays, administration, marketing, training and other unbillable work.
- ✓Annual costs and required revenue are spread evenly across billable days.
- ✓The profit target is additional to the cost figures entered.
- ✓VAT, corporation tax and personal tax are excluded unless they have been included within the cost inputs.
Limitations
- !Actual revenue can vary because client work, utilisation and payment timing may differ from the plan.
- !The formula does not separately model late payment, debt collection, write-offs or cash-flow reserves unless included in other annual costs.
- !A sustainable market price can be higher or lower than the calculated cost-based rate depending on scope, value and competition.
- !The calculation uses an average day and does not price individual assignments with different complexity or risk.
Common Mistakes to Avoid
Using all working days rather than only the days that can actually be invoiced.
Leaving out owner remuneration, employer costs or contractor costs from the annual cost base.
Treating a break-even rate as a rate that also provides a profit margin.
Using total hours worked rather than client-billable hours to derive an hourly equivalent.
Forgetting irregular annual costs such as professional development, equipment replacement or insurance renewals.
Related Formulas
Frequently Asked Questions
What is the formula for an accountant's break-even daily rate?
Add annual overheads, salary or owner costs and other annual costs, then divide the total by expected billable days.
How is a daily rate with a profit target calculated?
Add the target annual profit to total annual costs, then divide the result by expected billable days.
Why are billable days so important in the calculation?
Fewer billable days mean the same annual cost base must be recovered from fewer invoiced days, increasing the required rate.
How do I convert a target day rate to an hourly rate?
Divide the target daily rate by the average number of billable hours delivered per billable day.
Should the profit target include the owner's pay?
Usually no if owner pay is already included as annual salary and owner cost. The profit target is an additional business-profit amount in this calculation.
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