Accountants Project Cost (Daily) Formula
Learn how to calculate an accountant's daily delivery cost, target charge-out rate, revenue target and profit from annual costs and billable days.
This calculation converts annual people costs and allocated practice overheads into a cost per billable day. It then adjusts that cost for a target profit margin, helping you set a daily charge-out rate that is consistent with the capacity and costs included in the estimate.
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Target Daily Charge-Out Rate
Where:
First calculate the total annual cost of delivering work. Divide it by realistic billable days to find the daily cost. Then divide by the share of revenue left after the target margin, such as 75% for a 25% margin.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| annualSalary - Annual salary or owner draw | Annual pay cost for the person delivering the client work. | currency |
| employmentCostRate - Employment costs | Employment-related costs as a percentage of annual pay, such as employer contributions, benefits and payroll costs. | percent |
| annualOverheads - Annual business overheads | Annual share of practice overheads allocated to the work. | currency |
| billableDays - Billable days per year | Days expected to be invoiced to clients during the year. | days |
| targetProfitMargin - Target profit margin | Desired profit as a percentage of revenue after included costs. | percent |
| annualCost - Total annual delivery cost | Combined annual pay, employment costs and allocated overheads. | currency |
| dailyCost - Daily delivery cost | Included delivery cost for each billable day before profit. | currency |
Step-by-Step Calculation
Calculate annual employment costs
Multiply annual pay by the employment-cost percentage.
annualEmploymentCosts = annualSalary * (employmentCostRate / 100)
Calculate total annual delivery cost
Add pay, employment costs and the overhead share attributable to the work.
annualCost = annualSalary + annualEmploymentCosts + annualOverheads
Calculate daily delivery cost
Spread the annual delivery cost across days that can realistically be billed.
dailyCost = annualCost / billableDays
Convert the margin to a revenue share
A 25% profit margin means costs can represent 75% of the selling price.
costShare = 1 - targetProfitMargin / 100
Calculate the target daily rate
Divide the daily cost by the cost share of revenue to leave the required profit margin.
targetDailyRate = dailyCost / costShare
Calculate annual revenue and profit
These estimates show revenue at the target rate and the amount remaining after the included annual costs.
annualRevenueTarget = targetDailyRate * billableDays; annualProfit = annualRevenueTarget - annualCost
Example: Daily rate for an accounting professional
Annual employment costs
£60,000 × 20%
£12,000
Total annual delivery cost
£60,000 + £12,000 + £18,000
£90,000
Daily delivery cost
£90,000 ÷ 210
£428.57 per day
Cost share at a 25% margin
1 − 25%
75%
Target daily charge-out rate
£428.57 ÷ 0.75
£571.43 per day
Annual revenue and profit
£571.43 × 210 = £120,000; £120,000 − £90,000
£120,000 revenue; £30,000 profit
Final Result
The estimated target daily charge-out rate is £571.43 per day, producing estimated annual revenue of £120,000 and profit of £30,000 before costs not included in the calculation.
Assumptions
- ✓The annual salary or owner draw reflects the cost assigned to the person delivering the work.
- ✓Employment costs are correctly represented by the percentage entered.
- ✓Allocated overheads relate to the capacity and work being priced.
- ✓Billable days already account for non-chargeable time such as leave, administration, training and business development.
- ✓Profit margin means profit divided by revenue, rather than profit divided by cost.
Limitations
- !The estimate does not include costs that have not been entered, including taxes, financing, exceptional project costs or project-specific travel.
- !Actual billable days can vary because of client demand, delays, sickness and unplanned internal work.
- !A single daily rate may not reflect differences in project complexity, risk, urgency or required expertise.
- !Owner draws and salaries can have different accounting and tax treatment, which this calculation does not assess.
Common Mistakes to Avoid
Using all working days rather than only days that can realistically be invoiced.
Entering a markup percentage when the intended input is a profit margin.
Leaving out employer costs, benefits or practice overheads from the annual cost.
Treating project-specific expenses as general overheads without adding them to the quote.
Rounding the daily rate down without checking whether the rounded figure still achieves the intended margin.
Related Formulas
Frequently Asked Questions
How is an accountant's target daily rate calculated?
Add annual pay, employment costs and allocated overheads, divide by billable days, then divide the daily cost by one minus the target profit margin expressed as a decimal.
Why does a 25% margin require more than a 25% markup?
A 25% margin means profit is 25% of revenue, so cost can be only 75% of the final price. A 25% markup instead adds 25% of cost and produces a lower margin.
What is the daily cost before profit?
It is the included annual delivery cost divided by planned billable days. It is a break-even cost estimate before any profit is added.
How do billable days affect the charge-out rate?
Fewer billable days spread the same annual cost over fewer invoiced days, increasing both the daily cost and the rate needed to meet the margin.
Can I use the formula for fixed-fee accounting work?
Yes. The daily rate can be used as a pricing benchmark. Estimate delivery days, multiply by the benchmark rate, and account separately for direct project expenses and scope risk.
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