Accountants Revenue Target (Hourly) Formula
Learn how to calculate the annual invoiced revenue and average hourly billing rate an accounting practice needs to meet its targets.
This calculation turns compensation, overhead, profit, collection performance and realistic billable capacity into a practical pricing benchmark. It helps show the average fee per billable hour required to fund the practice plan.
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Required hourly billing rate
Where:
Add the annual funding requirements, increase the amount for fees that are not expected to be collected, then divide by the hours you can realistically bill during the year.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| ownerCompensation - Target owner compensation | Annual compensation the owner or principal expects the practice to fund before personal taxes. | currency |
| annualOverheads - Annual business overheads | Recurring annual operating costs, such as staff, software, insurance, office costs and marketing. | currency |
| targetProfit - Target annual profit | Profit the practice aims to retain after owner compensation and overheads. | currency |
| collectionRate - Expected collection rate | Percentage of invoiced fees expected to be collected after discounts, write-offs and bad debts. | percent |
| billableHoursPerWeek - Billable hours per week | Client work hours that can realistically be charged each working week. | hours |
| billableWeeksPerYear - Billable weeks per year | Working weeks available for billable client work after allowing for non-billable time. | weeks |
Step-by-Step Calculation
Calculate required collected revenue
This is the cash revenue needed to cover the owner's target compensation, operating costs and retained profit.
requiredCollectedRevenue = ownerCompensation + annualOverheads + targetProfit
Convert the collection percentage
The collection percentage is converted to a decimal so it can be used in the revenue adjustment.
collectionRateDecimal = collectionRate / 100
Allow for uncollected invoiced fees
Dividing by the collection rate increases the invoiced revenue target when some fees may be discounted, written off or not collected.
annualRevenueTarget = requiredCollectedRevenue / collectionRateDecimal
Calculate annual billable capacity
This estimates the total number of client-chargeable hours available in the year.
annualBillableHours = billableHoursPerWeek * billableWeeksPerYear
Calculate the required hourly rate
The annual invoiced revenue target is spread across realistic billable capacity to find the average hourly rate needed.
requiredHourlyRate = annualRevenueTarget / annualBillableHours
Create tracking benchmarks
Monthly and billable-week targets can be used to monitor progress through the year.
monthlyRevenueTarget = annualRevenueTarget / 12; weeklyRevenueTarget = annualRevenueTarget / billableWeeksPerYear
Example: small accounting practice hourly revenue target
Required collected revenue
£120,000 + £80,000 + £20,000
£220,000
Annual billable hours
25 × 46
1,150 hours
Annual invoiced revenue target
£220,000 ÷ 0.90
£244,444.44
Required hourly billing rate
£244,444.44 ÷ 1,150
£212.56 per hour
Monthly revenue target
£244,444.44 ÷ 12
£20,370.37 per month
Weekly revenue target
£244,444.44 ÷ 46
£5,314.01 per billable week
Final Result
The practice would need to invoice about £244,444 per year, averaging £212.56 for each billable hour.
Assumptions
- ✓Owner compensation, business overheads and target profit are separate annual funding requirements.
- ✓The collection rate represents the share of invoiced service fees ultimately collected.
- ✓Billable hours exclude administration, sales, training, leave, internal meetings and other non-chargeable work.
- ✓The hourly result is an average across the practice's work, even if individual services have different prices.
- ✓Revenue is treated as net service revenue and excludes taxes collected on behalf of a tax authority.
Limitations
- !Actual collections can vary with client payment behaviour, disputes, credit notes and fee changes.
- !Costs may change during the year because of staffing, subscriptions, rent or unexpected expenses.
- !A blended hourly target does not by itself determine whether each fixed-fee engagement is profitable.
- !The calculation does not include personal taxes, financing costs or cash-flow timing.
- !Billable capacity may be lower than planned during busy periods, illness or changes in client demand.
Common Mistakes to Avoid
Using total working hours rather than hours that can actually be billed to clients.
Entering a collection rate of 100% despite regular discounts, write-offs or slow-paying clients.
Leaving out recurring costs such as software, professional insurance, marketing or support staff.
Treating owner compensation and retained profit as the same target when both need to be funded.
Comparing gross fees including VAT or sales tax with net practice costs.
Assuming every service must be billed at the calculated average hourly rate rather than reviewing its expected time and margin.
Related Formulas
Frequently Asked Questions
How is an accountant's required hourly billing rate calculated?
The calculation divides the annual invoiced revenue target by annual billable hours. The revenue target covers owner compensation, overheads and profit, adjusted for the expected collection rate.
Why is the annual revenue target higher than collected revenue needed?
If less than 100% of invoiced fees are expected to be collected, the practice must invoice more than it needs to receive. The collection-rate adjustment accounts for that gap.
How do I calculate annual billable hours for an accounting practice?
Multiply realistic billable hours per week by realistic billable weeks per year. Exclude leave, administration, business development, training and other non-chargeable time.
Can this formula be used for fixed-fee accounting services?
Yes. Treat the hourly result as a blended revenue-per-billable-hour benchmark, then compare each fixed fee with the estimated delivery time for that service.
Should VAT or sales tax be included in the revenue target?
Usually no. Use net service revenue because taxes collected for a tax authority are generally not income available to pay practice costs or profit.
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