Accountants Break-Even Rate (Monthly) Formula
Learn how to calculate the monthly hourly billing rate an accounting practice needs to cover overheads, owner pay and a target profit.
The monthly break-even rate estimates the average amount your accounting practice must invoice per billable hour to meet its monthly revenue target. It converts costs, planned owner pay, profit expectations and realistic billable capacity into one pricing benchmark.
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Break-Even Hourly Rate
Where:
Add the monthly amount the practice needs to bring in, estimate how many hours can actually be invoiced, then divide the revenue target by those billable hours.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| monthlyOverheads - Monthly business overheads | Recurring monthly operating costs, such as premises, software, insurance, marketing and staff costs. | currency |
| ownerPay - Monthly owner pay | The monthly amount the practice is expected to provide for the owner before target profit. | currency |
| targetProfit - Monthly target profit | The profit the practice aims to retain after overheads and owner pay are covered. | currency |
| availableHours - Available work hours per month | Total monthly working hours available for client work before allowing for non-billable activity. | hours |
| billableUtilisation - Billable utilisation | The percentage of available hours expected to be invoiced to clients. | percent |
Step-by-Step Calculation
Estimate monthly billable hours
Reduce total available work hours by the expected share of time that will be non-billable.
billableHours = availableHours * (billableUtilisation / 100)
Calculate required monthly revenue
Add operating costs, planned owner pay and the desired retained profit.
requiredMonthlyRevenue = monthlyOverheads + ownerPay + targetProfit
Calculate the break-even hourly rate
Divide the monthly revenue target by invoiceable hours to find the required average hourly fee.
breakEvenHourlyRate = requiredMonthlyRevenue / billableHours
Calculate the cost-only hourly rate
This shows the hourly rate required before adding the target profit.
costOnlyHourlyRate = (monthlyOverheads + ownerPay) / billableHours
Calculate the target profit margin
Express the planned profit as a percentage of the revenue target.
targetProfitMargin = (targetProfit / requiredMonthlyRevenue) * 100
Example: Small accounting practice monthly rate target
Estimate billable hours
140 × (70 ÷ 100)
98 billable hours
Calculate required monthly revenue
3,500 + 5,000 + 1,500
$10,000
Calculate break-even hourly rate
10,000 ÷ 98
$102.04 per billable hour
Calculate cost-only hourly rate
(3,500 + 5,000) ÷ 98
$86.73 per billable hour
Calculate target profit margin
1,500 ÷ 10,000 × 100
15.0%
Final Result
The practice needs to average at least $102.04 per billable hour across 98 billable hours to reach its $10,000 monthly revenue target.
Assumptions
- ✓All amounts represent one month and are entered in the same currency.
- ✓Billable utilisation is a realistic estimate of the percentage of available time that can be invoiced.
- ✓The calculated rate is an average across the practice's services and clients.
- ✓Monthly overheads include the recurring costs the practice wants the calculation to recover.
- ✓Target profit is added after overheads and planned owner pay.
Limitations
- !The calculation does not automatically include taxes, bad debts, financing costs, discounts or one-off expenses.
- !Actual invoiced hours can differ because of leave, client delays, scope changes and unplanned work.
- !An average hourly rate may not match the profitability of every service line or client.
- !Cash received in a month may differ from invoiced revenue because of payment timing and collection delays.
Common Mistakes to Avoid
Using total working hours as billable hours without allowing for administration, meetings, marketing and professional development.
Entering owner pay in both monthly overheads and the owner pay field.
Treating the cost-only hourly rate as a profit-inclusive target rate.
Leaving out recurring software, insurance, subcontractor or support costs from overheads.
Assuming every fixed-fee job will take the estimated number of hours.
Not updating the calculation when utilisation, staffing or recurring costs change.
Related Formulas
Frequently Asked Questions
What is the formula for an accountant's monthly break-even hourly rate?
Divide required monthly revenue by estimated monthly billable hours. Required revenue is monthly overheads plus owner pay plus target profit.
How are billable hours calculated?
Multiply available monthly work hours by billable utilisation expressed as a decimal. For example, 140 available hours at 70% utilisation equals 98 billable hours.
Why does lower utilisation increase the required hourly rate?
The same monthly revenue target must be recovered from fewer invoiceable hours, so each billable hour needs to generate more revenue.
What is the difference between break-even rate and cost-only rate?
The break-even rate in this calculator includes the target profit. The cost-only rate covers overheads and planned owner pay but excludes target profit.
Should owner pay be included in the formula?
Include it if the practice needs monthly revenue to support that planned pay. Do not also include the same amount within overheads.
Can the formula be used for fixed-fee accounting services?
Yes. Use the hourly result as a benchmark and multiply it by the expected billable time for a service when reviewing a fixed fee.
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