Accountants Profit Target (Monthly) Formula
Learn how to calculate the monthly fee income an accounting practice needs to reach a chosen profit target.
This calculation estimates the monthly revenue required to cover fixed overheads, absorb variable delivery costs, and leave a target profit before business tax. It helps a practice translate a profit goal into a fee-income, daily-revenue, and equivalent-client target.
- 100% Free
- No Sign-Up Required
- Private & Secure
- Mobile Friendly
Required Monthly Revenue
Where:
First add the profit you want to make to your fixed monthly costs. Then divide that amount by the percentage of revenue left after variable costs.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| targetMonthlyProfit - Target monthly profit | The profit the practice aims to make in a typical month before business tax. | currency |
| monthlyFixedCosts - Monthly fixed costs | Regular overheads such as salaries, rent, core software, insurance, and recurring marketing. | currency |
| variableCostRate - Variable cost rate | The percentage of revenue expected to be spent on delivery-related costs that rise with revenue. | percent |
| currentMonthlyRevenue - Current monthly revenue | Current average monthly fee income, excluding taxes collected for clients. | currency |
| averageMonthlyClientFee - Average monthly client fee | Average recurring monthly fee per client used to express a revenue gap as equivalent clients. | currency |
| workingDaysPerMonth - Working days per month | Typical number of days the practice is available to work during the month. | days |
Step-by-Step Calculation
Calculate contribution margin
Contribution margin is the share of each revenue amount remaining after estimated variable costs.
contributionMargin = 1 - variableCostRate / 100
Find the profit and fixed-cost requirement
This is the amount needed after variable costs to pay fixed overheads and retain the target profit.
requiredGrossProfit = targetMonthlyProfit + monthlyFixedCosts
Calculate required monthly revenue
Divide the required gross profit by the contribution margin to allow for variable costs.
requiredMonthlyRevenue = requiredGrossProfit / contributionMargin
Measure the revenue gap
This shows the additional monthly fee income needed if current revenue is below the target.
monthlyRevenueShortfall = max(0, requiredMonthlyRevenue - currentMonthlyRevenue)
Convert the gap into equivalent clients
This expresses the revenue gap as equivalent clients at the stated average monthly fee.
equivalentNewClients = monthlyRevenueShortfall / averageMonthlyClientFee
Calculate the daily fee-income target
This spreads the required monthly revenue over the available working days.
requiredDailyRevenue = requiredMonthlyRevenue / workingDaysPerMonth
Example: monthly revenue required for a £15,000 profit target
Contribution margin
1 - 20 / 100
0.80 or 80%
Required gross profit
£15,000 + £30,000
£45,000
Required monthly revenue
£45,000 / 0.80
£56,250
Monthly revenue shortfall
max(0, £56,250 - £50,000)
£6,250
Equivalent new clients
£6,250 / £1,000
6.3 clients
Required daily revenue
£56,250 / 20
£2,812.50 per day
Final Result
The practice needs estimated monthly revenue of £56,250 to achieve its £15,000 profit target, leaving a £6,250 monthly gap from current revenue.
Assumptions
- ✓All inputs are monthly averages and use the same currency.
- ✓Target profit is treated as profit before business tax and before any excluded items.
- ✓The variable cost rate stays constant as revenue changes.
- ✓Current revenue and average client fee represent a normal trading month.
Limitations
- !Client churn, delayed payments, bad debts, and seasonal work can make actual results differ from the estimate.
- !Fixed costs may change when revenue growth requires more staff, capacity, or systems.
- !A single average client fee may not reflect a varied service mix or non-recurring work.
- !The calculation does not forecast cash flow, tax liabilities, or balance-sheet movements.
Common Mistakes to Avoid
Entering an owner salary in both fixed costs and the profit target.
Using total cash received rather than fee income after excluding client taxes or pass-through amounts.
Setting the variable cost rate to zero when subcontractors, commissions, or payment fees apply.
Using annual costs or annual profit with monthly revenue inputs.
Treating equivalent client numbers as a precise headcount rather than a revenue equivalent.
Related Formulas
Frequently Asked Questions
What is the formula for required monthly revenue to hit a profit target?
Required monthly revenue equals target monthly profit plus fixed costs, divided by one minus the variable cost rate expressed as a decimal.
Why is the variable cost rate deducted before calculating revenue?
Not all new revenue is available for overheads and profit. The variable cost rate allows for the portion spent delivering additional work.
What is contribution margin in an accounting practice?
It is the share of fee income remaining after estimated variable costs, before fixed overheads are paid.
How is the monthly revenue shortfall calculated?
It is required monthly revenue minus current monthly revenue, with negative results shown as zero.
How are equivalent new clients calculated?
The calculator divides the monthly revenue shortfall by the average recurring monthly client fee.
Ready to calculate your result?
Use the calculator to get instant results with your own inputs.