Accountants Revenue Target Formula
Learn how to calculate the monthly revenue an accounting practice needs for owner compensation, overheads and a target profit margin.
This formula estimates the monthly revenue required for an accounting practice to cover planned owner compensation and operating overheads while retaining a chosen profit margin. It can then translate that revenue goal into a weekly pace, realised hourly rate and estimated client count.
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Monthly Revenue Target
Where:
Add owner compensation and monthly overheads, then divide the total by the share of revenue that remains after the desired profit margin.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| ownerCompensation - Target monthly owner compensation | The monthly amount the owner or partners plan to receive before personal taxes. | currency |
| monthlyOverheads - Monthly business overheads | Regular practice costs such as payroll, rent, software, insurance and marketing. | currency |
| targetProfitMargin - Target profit margin | The percentage of monthly revenue intended to remain as business profit after owner compensation and overheads. | percent |
| billableHours - Available billable hours | Realistic hours expected to be invoiced during the month. | hours |
| averageMonthlyClientFee - Average monthly client fee | Typical recurring monthly revenue per client. | currency |
Step-by-Step Calculation
Convert the profit margin to a decimal
A percentage such as 20% becomes 0.20 for use in the revenue formula.
profitMarginDecimal = targetProfitMargin / 100
Calculate planned monthly cost coverage
This combines the owner compensation target with recurring practice overheads.
plannedCostCoverage = ownerCompensation + monthlyOverheads
Calculate the monthly revenue target
The denominator is the portion of revenue available to cover compensation and overheads after the planned profit share.
monthlyRevenueTarget = plannedCostCoverage / (1 - profitMarginDecimal)
Calculate the monthly profit target
This shows the currency amount represented by the selected profit margin.
monthlyProfitTarget = monthlyRevenueTarget * profitMarginDecimal
Calculate the weekly revenue pace
Dividing by 4.33 spreads a monthly target across the average number of weeks in a month.
weeklyRevenueTarget = monthlyRevenueTarget / 4.33
Calculate the realised hourly rate required
This is the average revenue required per available billable hour.
targetHourlyRate = monthlyRevenueTarget / billableHours
Estimate the client count required
The result is rounded up because a fraction of a typical monthly client cannot fully meet the target.
clientsNeeded = ceil(monthlyRevenueTarget / averageMonthlyClientFee)
Example: Monthly target for a small accounting practice
Convert margin
20 / 100
0.20
Add compensation and overheads
8,000 + 6,000
$14,000
Calculate monthly revenue target
14,000 / (1 - 0.20)
$17,500
Calculate profit target
17,500 × 0.20
$3,500
Calculate weekly pace
17,500 / 4.33
$4,042 per week
Calculate hourly rate
17,500 / 100
$175 per hour
Estimate client count
ceil(17,500 / 1,750)
10 clients
Final Result
The practice needs a monthly revenue target of $17,500, equal to about $4,042 per week, $175 per billable hour or 10 clients at $1,750 each.
Assumptions
- ✓Owner compensation is treated as a business cost and is entered separately from overheads.
- ✓The selected profit margin is calculated after the owner compensation and overheads entered.
- ✓Billable hours are realistically billable and collectible within the month.
- ✓Each client in the client-count estimate is assumed to pay the stated average monthly fee.
- ✓The calculation uses 4.33 weeks as an average month length.
Limitations
- !The estimate does not automatically include unentered costs, debt repayments, taxes, refunds or late payments.
- !Averages can hide major differences in client fees, service mix, write-downs and payment timing.
- !The required hourly rate is a realised revenue rate, not necessarily a published hourly price.
- !A monthly target does not guarantee that revenue will be collected in the same month.
Common Mistakes to Avoid
Entering owner compensation again within monthly overheads, which double counts it.
Using total working hours rather than the smaller number of hours that can actually be billed.
Treating the required hourly rate as a list price without allowing for discounts, write-downs or non-billable work.
Using an average monthly client fee that does not reflect the current client mix.
Choosing a profit margin of 100% or more, which makes the formula invalid.
Rounding the client estimate down instead of up when planning capacity.
Related Formulas
Frequently Asked Questions
What is the formula for a monthly accounting practice revenue target?
Monthly revenue target = (owner compensation + monthly overheads) ÷ (1 − target profit margin as a decimal).
Why do you divide by one minus the profit margin?
The remaining share of revenue after profit must fund owner compensation and overheads. For a 20% margin, that share is 80%, or 0.80.
How is the target hourly rate calculated?
It is the monthly revenue target divided by the available billable hours for the month.
How is the number of clients needed calculated?
The calculator divides the revenue target by the average monthly client fee and rounds up to the next whole client.
Should owner pay be included in overheads?
Enter it once only. This calculator has a separate owner compensation input so it can be planned separately from operating overheads.
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