Accountants Hourly Rate Formula
Learn how to calculate an accountant's sustainable hourly rate from income targets, overheads, profit margin and billable hours.
The accountants hourly rate formula estimates the average charge-out rate needed to generate enough annual revenue for your target income, business costs and planned profit margin. It is useful for setting a pricing baseline when only part of each working week can be invoiced to clients.
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Recommended Hourly Rate
Where:
First calculate the revenue needed to cover income and overheads while leaving the desired profit margin. Then divide that revenue by the hours you expect to invoice during the year.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| targetAnnualIncome - Target annual income | Annual amount the business is intended to provide for pay before personal taxes and deductions. | currency |
| annualOverheads - Annual business overheads | Expected annual operating costs, such as software, insurance, memberships, marketing and administration. | currency |
| profitMargin - Target profit margin | The percentage of annual revenue intended to remain after income and overheads are covered. | percent |
| workingWeeks - Working weeks per year | Weeks expected to be worked after allowing for holidays, training, sickness and other non-working time. | weeks |
| billableHoursPerWeek - Billable hours per week | Hours per working week that can realistically be invoiced to clients. | hours |
Step-by-Step Calculation
Estimate annual billable hours
Multiply realistic working weeks by realistic invoiceable hours each week. This excludes non-billable administration, marketing and internal work.
annualBillableHours = workingWeeks * billableHoursPerWeek
Add income and overheads
Combine the amount needed for pay with the annual costs the business must recover.
incomeAndOverheads = targetAnnualIncome + annualOverheads
Convert the profit margin to a revenue target
Divide by the portion of revenue that remains after the target profit margin. For example, a 10% margin means 90% of revenue is available for income and overheads.
targetAnnualRevenue = incomeAndOverheads / (1 - profitMargin / 100)
Calculate the average hourly rate
Divide the required annual revenue by annual billable hours to find the average rate needed per invoiced hour.
recommendedHourlyRate = targetAnnualRevenue / annualBillableHours
Worked example: sole-practitioner accountant hourly rate
Annual billable hours
46 × 25
1,150 hours
Income and overheads
£60,000 + £15,000
£75,000
Revenue share available for costs
1 − 10 / 100
0.90
Target annual revenue
£75,000 ÷ 0.90
£83,333.33
Recommended hourly rate
£83,333.33 ÷ 1,150
£72.46 per hour
Final Result
The estimated average hourly rate is £72.46 per hour, based on £83,333.33 of annual revenue across 1,150 billable hours.
Assumptions
- ✓The target annual income is treated as a business cost before personal income taxes and personal deductions.
- ✓All listed annual overheads are expected to be funded by client revenue.
- ✓The profit margin is calculated after the income target and overheads have been covered.
- ✓Billable hours are hours that can actually be invoiced, rather than every hour spent working.
- ✓The resulting figure is an average charge-out rate across the year.
Limitations
- !The calculation does not test whether clients in a particular market will accept the estimated rate.
- !It does not include different rates for compliance work, advisory work, urgent work or specialist engagements.
- !Actual billable hours can vary because of client demand, workflow delays, write-offs and unpaid time.
- !The formula does not calculate personal tax, VAT treatment, financing costs or other circumstances not included in overheads.
- !A fixed-fee engagement may produce a different effective hourly rate from the baseline rate.
Common Mistakes to Avoid
Using total working hours rather than the smaller number of hours that can genuinely be invoiced.
Forgetting recurring costs such as software subscriptions, professional indemnity insurance, memberships and marketing.
Entering a profit margin as 10 when the intended value is 10%, but treating it as an additional 10% cost rather than a margin.
Using 52 working weeks without allowing for holidays, training, sickness or business development.
Treating the calculated average as the price for every client and every type of work.
Ignoring unbilled scope changes, write-offs or collection delays when estimating usable billable time.
Related Formulas
Frequently Asked Questions
How is an accountant's hourly rate calculated?
The calculation divides the annual revenue required to cover your income target, overheads and profit margin by your expected annual billable hours.
Why is the profit margin divided out rather than added on?
A margin is a percentage of final revenue. If the target margin is 10%, income and overheads must make up 90% of revenue, so the required amount is divided by 0.90.
What are annual billable hours?
They are working weeks multiplied by hours that can realistically be invoiced each week. They should exclude non-chargeable business time.
Can the profit margin be zero?
Yes. At 0%, the formula calculates a break-even revenue target for the income target and overheads, without a retained-profit allowance.
How do I convert an hourly rate into a fixed fee?
Use the hourly rate as a benchmark, multiply it by the estimated delivery time, and consider the engagement scope, risk and expected non-billable effort.
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