Accountants Profit Target (Daily) Formula
Learn how to calculate the daily fee income and average realised hourly rate needed to meet an accounting practice profit target.
This calculation translates an annual profit goal into a practical daily fee-income target. It accounts for fixed overheads and variable costs before spreading the required revenue across realistic billable days and hours.
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Daily Fee Income Target
Where:
Add the profit you want to fixed annual overheads, adjust the total for revenue-linked costs, then divide by the billable days available in the year.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| annualProfitTarget - Annual profit target | The profit the practice aims to retain after the operating costs included in the calculation. | currency |
| annualFixedOverheads - Annual fixed overheads | Recurring annual costs that do not normally rise directly with revenue, such as salaries, premises and software. | currency |
| variableCostPercent - Variable cost percentage | The percentage of revenue used by costs that rise as revenue increases. | percent |
| billableDaysPerYear - Billable days per year | Days expected to be available for chargeable client work. | days |
| billableHoursPerDay - Average billable hours per day | Average chargeable hours delivered on a billable day. | hours |
Step-by-Step Calculation
Calculate the contribution margin
This is the share of each revenue unit remaining after variable costs to cover fixed overheads and profit.
contributionMargin = 1 - variableCostPercent / 100
Find the annual amount to recover
The practice must generate enough contribution to cover both its target profit and fixed overheads.
amountToRecover = annualProfitTarget + annualFixedOverheads
Calculate the annual revenue target
Dividing by the contribution margin grosss up the required revenue for variable costs.
annualRevenueTarget = amountToRecover / contributionMargin
Calculate the daily fee-income target
This spreads the annual revenue requirement over productive billable days.
dailyRevenueTarget = annualRevenueTarget / billableDaysPerYear
Calculate the required realised hourly rate
This converts the daily target into an average rate across all billed hours.
targetHourlyRate = dailyRevenueTarget / billableHoursPerDay
Example: small accounting practice daily target
Contribution margin
1 − 20 / 100
0.80 or 80%
Amount to recover
£100,000 + £150,000
£250,000
Annual revenue target
£250,000 ÷ 0.80
£312,500
Daily fee-income target
£312,500 ÷ 220
£1,420.45 per billable day
Required average hourly rate
£1,420.45 ÷ 6
£236.74 per billed hour
Final Result
The practice needs approximately £1,420 per billable day, £312,500 per year, and an average realised rate of £237 per billed hour.
Assumptions
- ✓The profit target is the amount remaining after the fixed and variable costs entered.
- ✓Fixed overheads are incurred across the year regardless of the revenue level.
- ✓Variable costs remain a consistent percentage of revenue.
- ✓Billable days and hours represent chargeable delivery time, not all working time.
- ✓Tax, financing costs and exceptional items are excluded unless reflected in the inputs.
Limitations
- !Actual revenue can vary because of client churn, delayed work, pricing changes and seasonal demand.
- !Write-offs, discounts and uncollected invoices can reduce the realised rate.
- !Variable costs may not move in a perfectly constant proportion to revenue.
- !A daily average does not mean every billable day must produce the same revenue.
Common Mistakes to Avoid
Using all weekdays as billable days without allowing for leave, training, administration and business development.
Entering total working hours instead of chargeable or billed hours.
Leaving subcontractor payments, referral fees or transaction fees out of variable costs.
Treating a headline charge-out rate as the realised rate after discounts and write-offs.
Including owner drawings or tax inconsistently in either the profit target or overheads.
Related Formulas
Frequently Asked Questions
What is the formula for an accounting firm's daily revenue target?
Divide the annual revenue target by billable days per year. The annual revenue target is the profit target plus fixed overheads, divided by one minus the variable cost rate.
Why are variable costs divided out of the calculation?
A portion of each pound of revenue is consumed by variable costs. Grossing up the required contribution ensures enough revenue remains to cover overheads and the profit target.
How is the required hourly rate calculated?
The calculator divides the daily fee-income target by average billable hours per day. It represents an average realised rate, not necessarily a published rate card.
What happens if variable costs are 0%?
The contribution margin is 100%, so annual revenue equals the profit target plus fixed overheads.
What happens when billable days are reduced?
The same annual revenue requirement is spread across fewer days, increasing the daily revenue target and, if hours stay unchanged, the required hourly rate.
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