Accountants Day Rate Formula
Learn how to estimate an accountant day rate from income goals, business costs, available billable days and a target profit margin.
An accountant day rate needs to generate enough annual revenue to fund the income you want from the practice, cover operating costs and leave a chosen profit buffer. This calculation converts those annual requirements into a daily fee using the number of days you realistically expect to invoice.
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Recommended accountant day rate
Where:
First calculate the revenue needed to cover your target income, business costs and profit margin. Then divide that revenue by the number of days available for client billing.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| I - Target annual income | The annual personal income the practice is intended to provide before personal taxes. | currency |
| C - Annual business costs | Annual practice overheads, such as software, insurance, memberships, marketing and office costs. | currency |
| W - Working days per year | Potential working days before leave and non-billable activities are deducted. | days |
| L - Leave and public holiday days | Days not expected to be worked or billed because of leave, public holidays or similar absences. | days |
| N - Non-billable working days | Days used for administration, training, marketing, business development, sickness or gaps between assignments. | days |
| M - Target profit margin | The retained profit allowance expressed as a percentage of revenue. | percent |
| B - Estimated billable days | The number of days expected to be available for client work and invoicing. | days |
| R - Required annual revenue | Annual revenue needed to fund the income target, costs and selected profit margin. | currency |
| H - Billable hours per day | Typical number of hours invoiced on a billable day. | hours |
Step-by-Step Calculation
Estimate billable days
Deduct planned leave and time that cannot be charged to clients from potential working days. The minimum of 1 prevents division by zero.
billableDays = max(1, workingDaysPerYear - leaveDays - nonBillableDays)
Add income and operating costs
Combine the income the business needs to provide with annual practice overheads.
incomeAndCosts = targetAnnualIncome + annualBusinessCosts
Allow for the profit margin
Increase the income-and-cost requirement so the chosen share of revenue remains as retained profit.
requiredAnnualRevenue = incomeAndCosts / (1 - profitMargin / 100)
Calculate the daily fee
Divide annual revenue required by annual billable capacity.
recommendedDayRate = requiredAnnualRevenue / billableDays
Calculate the hourly equivalent
Divide the estimated day rate by the billable hours expected on a typical client day.
recommendedHourlyRate = recommendedDayRate / billableHoursPerDay
Calculate the profit allowance
This is the estimated amount remaining after the income target and annual business costs are funded.
annualProfit = requiredAnnualRevenue - incomeAndCosts
Example: sole accountant setting a daily fee
Estimate billable days
260 - 33 - 47
180 days
Add income and costs
60000 + 15000
£75,000
Calculate required annual revenue
75000 / (1 - 10 / 100)
£83,333.33
Calculate recommended day rate
83333.33 / 180
£462.96 per day
Calculate hourly equivalent
462.96 / 7
£66.14 per hour
Calculate annual profit allowance
83333.33 - 75000
£8,333.33 per year
Final Result
The estimated rate is £463 per day, or about £66 per billable hour, before considering any applicable sales taxes.
Assumptions
- ✓Target annual income is treated as a cost the business must fund before personal taxes.
- ✓Billable days equal potential working days less leave, public holidays and non-billable working time.
- ✓The profit margin is a percentage of revenue after the income target and business costs have been covered.
- ✓All expected invoices are assumed to be paid in full and on time.
- ✓Billable hours per day are assumed to be consistent across billable days.
Limitations
- !Actual utilisation can be lower than planned if client work is delayed, cancelled or unavailable.
- !The estimate does not separately model bad debts, financing costs, sales taxes or payment timing.
- !A single average rate may not reflect different service lines, client complexity or urgent work.
- !Personal taxes and the most suitable way to take income are outside this calculation.
- !Market conditions and contractual requirements may affect the rate a client accepts.
Common Mistakes to Avoid
Using all weekdays as billable days without allowing for administration, proposals, training and business development.
Leaving out recurring overheads such as subscriptions, insurance, professional fees and equipment replacement.
Treating a 10% profit margin as simply adding 10% to costs; the formula divides by 0.90 so profit is 10% of revenue.
Dividing the day rate by total working hours instead of hours that can actually be invoiced.
Forgetting to review the estimate when costs, availability or target income changes.
Related Formulas
Frequently Asked Questions
How is an accountant day rate calculated?
Estimate billable days, calculate the annual revenue needed for target income, business costs and profit, then divide that revenue by billable days.
Why does the formula divide by one minus the profit margin?
A margin is a share of revenue. Dividing by 1 minus the margin ensures the retained profit equals the selected percentage of total required revenue.
What is the formula for billable days?
Billable days are working days per year minus leave days and non-billable working days, with a minimum of one day in the calculator.
How do I turn an accountant day rate into an hourly rate?
Divide the estimated daily rate by the billable hours you expect to invoice on a typical billable day.
Should target annual income include personal tax?
This calculator treats the entered target as income the practice needs to provide before personal taxes. Personal tax planning is not included.
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