Accountants Break-Even Rate (Hourly) Calculator
Estimate the hourly billing rate an accounting practice needs to cover annual costs, compensation, employment costs and a target profit margin.
Overview
This Accountants Break-Even Rate (Hourly) Calculator estimates the hourly fee your practice needs to charge using desired compensation, annual overhead, employment costs, realistic billable hours and a target profit margin. It can help sole practitioners and accounting firms review whether their current charge-out rates support their cost base.
How it works
The calculator first adds desired compensation, annual overhead and compensation-related employment costs to estimate annual operating costs. It divides those costs by billable hours to show the minimum cost-recovery rate. To include a profit target, it increases required revenue so that the chosen profit margin remains after operating costs, then divides that revenue target by annual billable hours.
How to use this calculator
- 1Enter the annual compensation you want the practice to provide.
- 2Add all recurring annual overhead costs for the business.
- 3Estimate employment costs and benefits as a percentage of compensation.
- 4Enter the number of hours you realistically expect to bill during the year.
- 5Set a target operating profit margin and review the required hourly rate.
Example Calculation
Desired annual compensation
$80,000
Annual business overhead
$30,000
Employment costs and benefits
20%
Annual billable hours
1200
Target profit margin
15%
Required hourly billing rate
$123.53
With annual operating costs of $132,000, 1,200 billable hours and a 15% target margin, the estimated required hourly billing rate is $129.41 per hour.
Frequently asked questions
What is an hourly break-even rate for an accountant?
It is the hourly fee needed to recover the costs assigned to billable work. This calculator also shows a higher rate when you include a target profit margin.
How many billable hours should an accountant use?
Use a realistic annual estimate of invoiceable time. Exclude holidays, administration, internal meetings, marketing, training, proposals and other non-billable work.
Should owner pay be included in the calculation?
Usually, yes. Enter the annual compensation the owner needs the practice to provide, then add related payroll or benefit costs where applicable.
What should be included in annual overhead?
Typical items include office costs, software subscriptions, insurance, professional memberships, marketing, equipment, accounting support and administrative expenses.
Why is the required rate higher than the cost recovery rate?
The cost recovery rate only covers entered costs. The required billing rate also includes enough revenue to leave the target profit margin after those costs are paid.
Does this rate include taxes charged to clients?
No. The calculation is intended for your underlying service fee. Sales taxes, VAT or GST charged to clients should normally be handled separately where applicable.
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Assumptions and warnings
Assumptions
- All entered annual costs are expected to apply during the year.
- Billable hours reflect time that can actually be invoiced and collected.
- The target profit margin is calculated as profit divided by revenue.
- The calculation does not include sales taxes, bad debts, write-offs, financing costs or one-off capital spending unless you include them in overhead.
- Results are planning estimates and should be reviewed as costs, utilisation and pricing change.
Warnings
- This calculator provides a business planning estimate only and is not financial, tax or professional advice.
- Actual required rates may differ because of client mix, discounts, uncollected invoices, taxes and changes in workload.