What is realization rate for accounting firms?

Realization rate is a key performance indicator (KPI) that measures the percentage of billable work an accounting firm converts into actual revenue.

This important metric is essential for data-driven decision-making within professional services firms, like accounting firms and law firms. 

Here’s everything you need to know about it.

What is realization rate?

For accounting firms, where time directly translates to revenue, your realization rate is an important insight that plays a pivotal role in financial decision-making.

It essentially measures what percentage of the work you do actually translates into client payments, compared to the total billable hours you accumulate.

For example, a realization rate of 80% means that for every 100 hours of billable work, 80 hours are invoiced and paid for by clients.

That’s important because it acts as a window into the inner workings of your firm, revealing valuable insights beyond just revenue generation. By analyzing your average realization rate, you can identify areas for improvement across various aspects of your business.

Calculating realization rate

To calculate realization rate, identify the total billable hours worked during a specific period and the corresponding billing rate for these hours. To determine the potential revenue, multiply the total billable hours by the standard billing rate.

Next, identify the actual revenue billed to clients for those hours. The realization rate is then calculated by dividing the actual revenue by the potential revenue and multiplying the result by 100 to express it as a percentage.

For example, if an accountant works 100 billable hours at an hourly rate of $200, the potential revenue would be $20,000.

But if the consultant only bills $18,000 for those hours due to discounts, write-offs, or other adjustments, the realization rate would be ($18,000 / $20,000) x 100, resulting in a 90% realization rate. This indicates that the firm effectively captured 90% of the value of the accountant’s work.

A higher realization rate signifies better efficiency and profitability, while a low realization rate suggests areas where revenue might be slipping through the cracks. 

Business intelligence tools can help streamline the process by collecting, interpreting, and presenting the relevant data for you.

What is a good realization rate?

While a higher realization rate is generally desirable, there isn't a universally accepted ‘ideal’ threshold. It can vary depending on factors like the size and structure of your firm, the services you offer, the complexity of client projects, and even your geographic location.

A realization rate above 90% typically indicates that a firm is efficiently converting its billable work into revenue. However, these are just benchmarks; your firm's optimal rate might fall outside that range.

It’s important to note that aiming for a 100% firm realization rate is unfeasible.

Good accounting is about more than billables. It’s about building relationships, adapting to the unexpected, and dissolving complex problem-solving into digestible information that your clients can understand and act on. 

Your pricing strategy should balance the need for efficiency and profit with the need to be human in successful client relationships.

Firms like Linford Grey are a great example of how you can use modern software to increase efficiency with automation, without sacrificing the human quality of your services.

“I want regular client relationships. I want people invested in us and the value that we add and I want to be invested in them, contribute, and deliver great work,” says Adam Pritchard, Founder and Managing Director at Linford Grey.

Why does realization rate drop?

There are several factors that can cause a decrease in your firm’s realization rate:

• Internal errors: Mistakes on invoices or inaccurate time tracking can result in incorrect hourly rates, missed billable hours, and under- or over-billing. An effective billing and payments tool with time-tracking capabilities can help to avoid these kinds of errors.

• Offering discounts: Frequent discounts or fee concessions can erode your realization rate over time. It’s important to balance client satisfaction with profitability.

• Excessive write-offs: Sometimes, you may need to write off some of your time due to unforeseen circumstances, human error, or issues with a client. While inevitable in some cases, excessive write-offs can be a sign that your internal systems and processes may need updating.

• Scope creep with long-term clients: Long-standing client relationships can blur the lines between billable and non-billable work. Clearly defined project scopes and effective communication are essential to prevent scope creep from eating into your billable hours.

• Inefficient workflows: Manual processes can hurt your efficiency, which ultimately hurts your team's ability to log billable hours. Streamlining workflows with automation tools can free up valuable time, and increase your realization rate.

• Employee training: Inexperienced staff might struggle to estimate project timelines accurately or differentiate between billable and non-billable tasks. Investing in training can improve efficiency and boost realization rates. 

• Resistance to A: Firms that use and train their teams on AI save up to seven weeks per employee, according to The State of AI in Accounting Report 2025. Embracing AI can increase your realization rate over time, and keep it competitive.

Realization rate vs. utilization rate vs. collection rate

While realization rate, utilization rate, and collection rate are interrelated, they each offer a distinct insight into your firm's performance.

Here’s what they measure:

• Utilization rate focuses on how productively your team uses their time. It measures the percentage of total work hours actually spent on billable activities.

• Realization rate measures the effectiveness of your firm in converting those billed hours into actual revenue.

• Collection rate indicates your success in collecting payment for your billed services. It tells you what percentage of billed revenue is collected from clients.

The difference between realization, utilization, and collection rate

Here's how they connect:

• A high utilization rate creates a larger pool of billable hours, potentially leading to a higher realization rate if those hours are accurately captured and billed effectively.

• A strong realization rate indicates you're successfully converting billable hours into revenue, but it doesn't guarantee collection.

• A high collection rate ensures you receive payment for the value you deliver, even if your utilization rate isn't perfect.

The ideal situation involves a healthy balance of all three. Where there’s an imbalance, there’s an opportunity to improve. For example, a high utilization rate with a poor realization rate might indicate inefficiencies in billing or project management. 

On the other hand, a high realization rate with a low utilization rate might indicate that while the hours your team bills are highly effective, there aren’t enough of them. This signals underutilization, capacity issues, or inefficient internal processes.

Improve realization rate and reduce billing errors in accounting firms

If you want to increase your revenue and reduce inefficiencies, one of the first places to look should be your realization rate. 

If it’s lower than you’d like it to be (or the number of billing errors is higher than you’d like it to be), there are a few ways you can make sure the full value of your work is being captured. 

Try these strategies.

Automated billing software for accountants

Manual billing processes are prone to errors and delays. Automation “reduces the risk of things slipping through the cracks” and “saves countless hours in admin work,” increasing your team’s capacity for billable work.  

Automated billing and payments software can help you achieve this by streamlining repetitive tasks, such as generating invoices, calculating fees, and securing online payments. 

The ability to accurately track billable hours in real-time is also important, and ensures that no billable time is lost or forgotten, helping you to “determine how profitable your services were in a given work period, and where you could have spent time unnecessarily.”

It’s not just faster; it’s easier, safer, and ultimately smarter.

Track past-due accounts

Implement a systematic approach to monitoring and managing overdue invoices, including reminder emails, to reduce the impact of unpaid bills on realization rates.

Here's what you can do to track and improve overdue invoices:

• Implement a clear collections policy. Set expectations with your team and your clients about payment terms, late fees, and follow-up procedures for past-due accounts.

• Prioritize collections. Actively track unpaid or urgent invoices and prioritize collections efforts to ensure timely payments. Using auto-pay can help prevent this in the long run.

• Analyze late-paying customers. Identify clients with frequent late payments and develop strategies to address them, such as automated client reminders and recurring billing plans.

Set goals across the firm

Establish firm-wide and individual goals for realization rate. Aligning your team around a shared mission fosters a culture of accountability, efficiency, and collaboration.

At the same time, make it clear that there are valid reasons for realization rates to drop. It’s all about communication and setting expectations.

Reduce billing errors with automated billing software

Imagine your accounting team laser-focused on delivering exceptional client service, free from the burden of manual billing and payment tasks.

Karbon's automated billing and payments features can achieve exactly that, streamlining everything from invoice creation to time tracking to payment collection, so your firm gets compensated correctly and promptly.

In fact, accounting firms using Karbon’s Billing & Payments get paid nine days earlier on average than other firms.

Book a demo to learn more.