Accountants Hourly Rate Formula
Learn how to calculate an accountant's required hourly and daily charge-out rate from income goals, overheads, profit margin and billable time.
This formula estimates the revenue an accountant or accountancy practice needs each year, then spreads that revenue across realistic billable days and hours. It helps show why a charge-out rate needs to cover more than a personal income target alone.
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Recommended hourly rate
Where:
Add the income you want from the business to its annual costs, increase that total to allow for your desired profit margin, and divide by the hours you can realistically invoice.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| targetAnnualIncome - Target annual income | The annual income the business is intended to provide before personal taxes. | currency |
| annualOverheads - Annual business overheads | Expected yearly operating costs, such as software, insurance, subscriptions, equipment and marketing. | currency |
| desiredProfitMargin - Desired profit margin | The percentage of annual revenue intended to remain as business profit after the income target and overheads. | percent |
| billableDaysPerYear - Billable days per year | Days expected to generate client invoices after allowing for leave, administration, training and business development. | days |
| billableHoursPerDay - Billable hours per day | Average client-chargeable hours delivered on each billable day. | hours |
Step-by-Step Calculation
Convert the profit margin to a decimal
A percentage margin is converted into a decimal for the revenue calculation.
profitMarginRate = desiredProfitMargin / 100
Calculate the annual funding requirement
This is the amount that must be covered before allowing for retained business profit.
annualFundingRequirement = targetAnnualIncome + annualOverheads
Calculate required annual revenue
Dividing by the remaining share of revenue increases the target so the selected profit margin can remain after funding income and overheads.
requiredAnnualRevenue = annualFundingRequirement / (1 - profitMarginRate)
Calculate the daily rate
Required annual revenue is spread across the days you expect to invoice clients.
dailyRate = requiredAnnualRevenue / billableDaysPerYear
Calculate annual billable hours
This shows the total client-chargeable time available under the stated working assumptions.
annualBillableHours = billableDaysPerYear * billableHoursPerDay
Calculate the hourly rate
The daily rate is divided by average billable hours per day to estimate an hourly charge-out rate.
hourlyRate = dailyRate / billableHoursPerDay
Example: freelance accountant charge-out rate
Convert profit margin
20 ÷ 100
0.20
Add income target and overheads
£75,000 + £15,000
£90,000
Calculate required annual revenue
£90,000 ÷ (1 − 0.20)
£112,500
Calculate daily rate
£112,500 ÷ 210
£535.71 per day
Calculate annual billable hours
210 × 7.5
1,575 hours
Calculate hourly rate
£535.71 ÷ 7.5
£71.43 per hour
Final Result
Estimated minimum charge-out rate: £71.43 per hour, or about £536 per day, to target £112,500 of annual revenue.
Assumptions
- ✓Target annual income and annual overheads are both funded from client revenue.
- ✓The desired profit margin is calculated as a share of revenue after allowing for the income target and stated overheads.
- ✓Only the entered billable days and billable hours generate revenue.
- ✓All invoiced work is assumed to be collected in full.
Limitations
- !The estimate does not automatically include VAT, sales taxes, payment processing charges, bad debts or costs not entered as overheads.
- !Actual billable capacity can change because of client availability, scope changes, illness, administration or business development.
- !A market may not support the calculated rate without a clear service proposition, suitable clients and appropriate positioning.
- !Personal tax, pension contributions, financing costs and owner remuneration arrangements are outside this calculation.
Common Mistakes to Avoid
Using total working days instead of realistic invoiceable days.
Counting all time at work as billable time, including proposals, emails, bookkeeping and training.
Leaving out recurring costs such as professional insurance, software, memberships and equipment.
Treating the target annual income as the same as annual business revenue.
Entering a profit margin as 20 instead of understanding that it requires revenue above the income-and-cost total.
Comparing a self-employed charge-out rate directly with an employee salary without allowing for costs and non-billable time.
Related Formulas
Frequently Asked Questions
What is the formula for an accountant's hourly rate?
Divide required annual revenue by annual billable hours. Required annual revenue is calculated by adding the income target and overheads, then dividing by one minus the desired profit margin as a decimal.
How do I calculate an accountant's daily rate?
Divide required annual revenue by the number of billable days expected in the year. The result can then be divided by billable hours per day to find the hourly rate.
Why does a higher profit margin increase the required rate?
A higher margin means a smaller share of each pound of revenue is available to fund income and overheads, so total revenue and the required rate must increase.
How do billable hours affect the hourly rate?
For the same revenue target, fewer billable hours mean the target is spread over less chargeable time, producing a higher hourly rate.
Should I round the calculated accountant rate?
The calculation can provide a baseline. You may round it into a practical hourly or daily price while checking that the rounded rate still supports your revenue target.
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