The Therapy Business Podcast
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The Therapy Business Podcast
How to Price Your Services
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*Intro/outro song credit:
King Around Here by Alex Grohl
How do you feel about your pricing? Do you feel like you are hitting the mark, that you're charging what you and your team are worth? Do you feel like you're undervaluing yourself? Or do you often worry that maybe you're overcharging and that could be the cause of people not signing up as much as you would like them to? Well, today I'm gonna guide you through a process for pricing your services that you can sell it confidently and know that you are right in the wheelhouse of what you can charge. That is providing value to both the clients and to your company.
Speaker 1:My name is Craig and I'm the owner of Daisy Financial Coaching. Our team is on a mission to make your therapy practice permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money and serves more people. This is the Therapy Business Podcast. If you offer private pay therapy or physical therapy, then you have the luxury of getting to set your own pricing. Now, if you are taking insurance, then obviously you are at the mercy of whatever they choose to charge. We do have a full episode on how to try to get your reimbursement rates increased, so be sure to go back and check that one out. If you are primarily taking insurance but even if you are majority insurance and just a small part of your business is private pay then what I'm going to go through today is going to be incredibly valuable. Or if you have the goal of one day shifting to a larger percentage of private pay clients than insurance, then this is going to be really important to hone in on and just see where do you land as far as your pricing goes. Now, for those of you who are full private pay, you know what I'm talking about. That.
Speaker 1:Coming down to pricing your services, there's a lot of uncertainty. We may look around and see other therapists charging differently. We may hit a price point that causes people to turn away or people to not sign up with us, and we're wondering okay, am I charging way too much? Then we have the invert, which is we're trying to scale the business and it just feels like it's going going so slow and we're struggling to hire and we're struggling to make ends meet. We're going am I just not charging enough? What is going on? So let's talk through some of the ways to really hone in and see am I pricing my services correctly and if not, what can we do about it?
Speaker 1:So the first thing we need to do is understand our costs. We're going to break down our costs. We're going to go through our expenses. Now, if you're using QuickBooks, you can export in reports. There's something called a vendor list that you can pull and that's going to show pretty much everything you're spending money on Everything else besides employees that you're spending money on, whether it's subscriptions, whether it's rent, whether it's Amazon. Whatever you're sending money to is going to be in that list.
Speaker 1:We want to look at both fixed and variable costs. So those are things like rent and utilities. We're going to be looking at staff wages. So if you have an admin on your team, if you're paying a clinician to do the work to work with the client, or if you're paying a PT to do the work with the client, we need to take that into account. We want to find what is our baseline expense.
Speaker 1:So for my solo practice owners, it's just you. So you are looking at do I have an office space? What is my rent? What does it cost every month for me to do business? Then we're going to take again your team members. So there's a difference between me. Let's say I'm meeting with a client and one of my team members meeting with a client. The main difference is I'm paying that team member to work with that client, so that means the profitability on that is going to be different. Does that mean that we need to price it differently? Probably not. In fact, I'm going to wager to say that, as the business owner, I could probably charge more than what my team members are, and the same is true for you. So, but it's just something to bear in mind as we are looking at the scope of our business. Are you in a place where you are trying to offload yourself and say I want other people doing the client-facing work so I have more freedom and more time to do other things? Then we want to take that employee cost into account. What would I pay a clinician or a PT to do this work so that I don't have to? That needs to come into into the equation Now.
Speaker 1:Once we have a good baseline of what that looks like, then we can see what are we spending. And now let's just say we were to take and say I'm just going to use very simple numbers. Depending on your business it's going to vary, but let's just say that it's your solo therapist and you're seeing a hundred clients, a hundred sessions a month, 25 a week. Okay, so what we can do is we can say you know, maybe you're charging $200 for for those sessions. So 100 sessions at $200. Then we're going to take our costs and we're going to divide it across each of those sessions. Now let's just say you have $10,000 a month in overhead expenses. So it's just you. You have these overhead expenses that equal about $10,000 a month. So if we were to divide that across the 100 sessions, that's about $100 per session, right? So you're charging 200, you have $100 in expenses, which leaves 100 for to go to you as the business owner. Now we also have to remember taxes and all those pieces too.
Speaker 1:But just for simplicity sake, half is going to expenses, half is going to you. This is a pretty good margin and a pretty good breakdown. I mean, getting to keep 50% of your sessions is not too bad at that price point. Now where that can become sticky is if you're only charging $100 per session, and now you're, even if you're paying $50, half going out, that just means you're only charging $100 per session, and now you're, even if you're paying $50, half going out. That just means you're not making nearly as much as you would. So you can see, finding that fine line of where how much is left over after I pay my expenses.
Speaker 1:With this nature of work, it's not as simple as saying a percentage point is going to be ideal Because, again, just depending on what you're charging can affect what the amount is left over. Now, when we get to the point of wanting to hire people and this is kind of where some people can get stuck is, let's just say that you don't have a whole lot of money left over and then you want to go hire somebody and you got to make sure that they're compensated. So we're charging $200 per session. 100 is going to overhead costs. Now we need to pay this clinician something that is fair and reasonable to them Industry standards.
Speaker 1:There's a lot of different ways that clinicians are paid. We have a full episode breaking that down as well. But let's just say you're doing a percentage split, right? So let's say you're giving them 50% of what comes in. Now we're giving them 50% off the top. Then we have our overhead costs. As you can see, if they get a hundred dollars of the session fee and you add in the overhead costs on top of that, there's nothing left for you. So this is where it becomes a struggle. It becomes really frustrating for practice owners.
Speaker 1:Now again, these are examples. The likelihood that your overhead costs are going to be half of what you're charging is not. It's not very likely. But even if it was 25%, even if it was $50 per session was going out to your overhead, and then you pay a clinician half, which is a hundred. Still there's not a whole. It just squishes down what is actually left over for you to run the business, to pay yourself, to do all these things.
Speaker 1:So pricing ourselves is very, very, very important, and understanding what our costs are to do that. It's not unusual that we just kind of fall backwards into this. We maybe you were providing therapy with another practice, you were working for somebody else, you were charging a certain amount, and so when you started your own thing, you're like I'm just gonna keep charging that same amount, and then you didn't have all the expenses and all those different things mixed in. And then here we are just kind of trying to figure it out as we go. No one really explains these things when we actually start our practice. So that's step one is figuring out your pricing, what you're spending, where your money's going, what is your expenses no-transcript, but we do want to know you know what's we don't.
Speaker 1:Depending on where you live, a lot of different factors can come into play on what people can afford. So you know, for example, a therapist in New York City might be able to charge more than somebody in rural Iowa. So just depending on what the cost of living is, what the average income is in those areas, it's going to weigh drastically, very drastically, on what can actually be charged. So if you don't know, then do some market research. Look around your area to see what other therapists are charging.
Speaker 1:Once again, don't use this as what you have to be charging or what you have to beat or any of those things. It's just approaching it with the mode of curiosity. I'm going to be curious about what's the range that people are charging. Where do I think I could fall If you have certain areas of expertise? Look at that too. What could I really be If you have certain areas of expertise? Look at that too. What? What could I really be? What are those people charging and could I charge more? Are there other people in this area who focus on this one specific need or this one specific demographic? Do they have these certain licenses or certifications? If there aren't a lot, then you could probably charge more. If there are a bunch, you can look and see what are they charging. And is that in the realm of where I'm at right now? Do I need to raise my rates?
Speaker 1:If you find that you are undercharging you're charging less than the people, as you're being curious and looking at this, you're going, wow, I'm the cheapest person then that is a sign that you probably need to raise your rates. If you find that you are the most expensive person, that does not mean you need to drop your rates necessarily, unless you are just not closing anybody. You're just struggling to get clients, period, and you're worried that you're going to be shutting the doors soon. That might be an indication that maybe we roll our prices down a little bit. There's also times that maybe you're just not selling confidently because there's there's this mental breakdown when it comes to valuing ourselves and pricing ourselves.
Speaker 1:Sometimes, when we're trying to sell and we don't believe in what we're charging, we think it's too much, we're worried it's too much. The client can kind of pick up on that the prospect can pick up on it and they might think it's too much. And then all of a sudden they're not signing up and it's a cycle of we're not getting anybody to close. So sometimes, if that's the case, we might temporarily roll your prices back. I don't not necessarily recommending that. In fact, if you're unsure, that's stuff we can help you with.
Speaker 1:So, as always, in the description below is a link to talk to one of our coaches. We're happy to help, ask some questions and see are you overpricing yourself? Should you roll your prices back, or is it just? We need to do some work on understanding that you are worth what you're charging, and maybe it's just in how you're articulating it to prospects. It's not coming across and so it's making them wonder, even just subconsciously, whether you are worth the price or not too. All right, so we're gonna be looking at the competitive rating, then we're gonna look at your undervaluing yourself.
Speaker 1:So, like we've been talking about, there's a lot of danger to setting your prices too low. One is it's really hard to scale. It is very, very challenging to scale. If your prices are too low. It's going to just drastically slow things down. It's with the nature of this industry. For the most part, I know there's group therapy and there's intense and different things you can do with more than one person at a time, but for the most part, whether you're a physical therapist or a mental health therapist, it's a one-on-one interaction most of the time.
Speaker 1:Now again, pts I know physical therapists. Sometimes you might be working with two clients at once, two or three, but pretty much it's a. You are limited on this hour. I can earn this much, and there's only so many hours in a day, only so many clients I can see, and that's going to cap, put a ceiling on what I can earn. And as a practice owner, that's where you're left saying, okay, now I need to get some other therapists under me, but they're also going to be capped when we don't charge enough. It's going to take longer and longer your hours are going to get filled before you can do that.
Speaker 1:And what we find is solo therapists might be undercharging. They get to their capacity, their max, and they can't afford to bring somebody on because they're barely charging enough to run the business with just themselves. So we need to be charging enough, thinking future in mind, not only so that I can hire people, but also with the idea of once kind of going back to what we talked about with our costs. When I do start hiring people, that's going to be an added expense. I need to be pricing in a way that I can pay a clinician or a PT to work with clients. I need to be charging in a way that we could add an admin on board down the road so that they can help with billing and they can help with scheduling and they can help with all the other pieces so that my clinicians can focus on what they do best. They can help with all the other pieces so that my clinicians can focus on what they do best.
Speaker 1:So, thinking end in mind, I always say when you're making decisions it's easy to get bogged down in this month, next month, this year. Think ahead. What does it look like five years from now? What would I need to be when I'm a $5 million company or $1 million company, when I have five employees? What would need to be true for our pricing, for our margins, for our expenses? What kind of expenses? So, even just kind of forecasting and thinking ahead what does that look like? And then working backward and making sure that we're pricing in a way that can easily get us from here to there.
Speaker 1:So undervaluing is the most common common thing we see when it comes to pricing. Odds are you got into this because you care about people, you want to help people, you want to serve people. Almost every therapist and physical therapist I meet has a huge heart for people and wanting to serve and wanting to help, and so that in turn creates this stigma that we shouldn't be charging a certain amount because that's not helping people. And what about those people who can't afford it or who are already in a situation where maybe just life has got them down and things are not going their way? And then here we are, we're going to come in and just start charging them a bunch of money to get the help they need. But undervaluing it hurts not only your business, it can affect a lot of different things. It can bring in the wrong clientele.
Speaker 1:I'm not saying that people who can't afford therapy or who struggle to afford therapy are bad clients, but sometimes and there's just a difference in engagement depending on what we're paying, and so that can be true. I'm not saying always. I've worked with a lot of clients who we've either done pro bono work with or somebody has sponsored them by paying their coaching fee and they've been amazing and they've gotten amazing results. Them and they ended up being terrible clients. They didn't have enough skin in the game, they didn't show up, they didn't do the work, they didn't, they didn't really care or put the effort in.
Speaker 1:And what I found is in that situation again, it's not a blanket rule, it's not across the board but in that situation when you're paying money, when you are paying money, a premium so let's just say $200 to meet with this person, this mental health therapist you're going to probably show up ready to do the work because that money probably stings a little bit. It's not like you just have that laying around. Most people don't Now, some do, but most don't. And so by them investing that in you and if it's weekly or twice a month, that's a good chunk of change, that they are investing in themselves and in working with you, and that means they're going to show up. Most likely, they're going to show up ready to do the work, ready to engage, ready to put forth the effort.
Speaker 1:If it comes across too cheap, if it is just like a, if it feels like the Netflix subscription that you forget about, that you just don't. Or the gym membership that you forget about. You have it, it's not worth canceling, but you don't go to the gym, right? That's what we want to avoid, and so sometimes that can happen by undervaluing ourselves and not charging enough, and I found this in the music industry. This chain reaction can sometimes happen.
Speaker 1:So I'm a musician and a cover band. We charge a premium for what we do because we put on a pretty good production. We're putting a lot of work in what we do with our show, our performance, our music, so we charge a lot. But what we found is there's a lot of bands who don't charge nearly enough and that can have this trickle effect that can start making it to where venues don't want to pay a premium for music because they can find just somebody to play some music. And these bands are actually really good and could be charging a lot more. I've talked to a lot of them and told them as much. I'm like you could probably triple what you're charging, and in fact, by charging not enough, it's hurting the industry, and so that can sometimes be the case too. If we're not charging enough, we're undervaluing not only what you do, but what you as a professional do. We're setting the expectation that this is what it costs and all of a sudden it can start putting this stigma across. So we want to charge what we are worth.
Speaker 1:Now there are different ways. If you truly want to support people who can't fully afford a premium so if $200 is out of their realm then maybe you do still take some insurance clients to help support that Maybe you have what we would call a sliding scale, which is depending on their income range. Maybe it drops down, and so if they're making X dollars per year, they pay less. You know what I mean. So what I would just recommend with that is we cap it, so don't make it a blanket. Hey, if you make less than $50,000, now you're only paying $100 a month or $100 a session. If that's the case, we need to put some kind of restriction, because otherwise you're going to turn around and one of your clinicians is going to have a full caseload of of reduced rate clients and we're back to that whole problem of undervaluing, undercharging and now it's eating up our costs. So maybe capping it to, each clinician gets three, three sessions a week that are on the sliding scale, and so, and if they hit their max.
Speaker 1:Then you create a waiting list for those. It's either you can come in now and get some help at this rate we can refer you out or we can put you on a waiting list until one of the reduced rate slots opens up. I've also using the profit first system. We've had clients open up a scholarship account and that's where we put x percent of every dollar you earn goes into this account, and so that when somebody comes that you feel like you know what we want to. We want to give them some help and they don't have the funds, then you have cash on hand to pay the clinician to work with them. So maybe the clinician is they're only charging them a hundred dollars per session. Then you're taking a hundred out of that scholarship fund to cover the cost. So the clinician's getting paid their full amount, the company's getting taken care of, and then this person, for a few months, is going to get some support at a at a rate they can afford and you're leaning in and helping them out too.
Speaker 1:So there's a few different ways you can go about it Now when it comes to raising your rates. So, again, most people this is one of the last point I'm going to talk about, because I think this is going to help reverse the problem that a lot of people are facing, which is I'm not charging enough. I doubt, most likely. Hopefully. Maybe you did do this exercise and you find I'm charging more and I'm overcharging, and I'm charging exactly the right amount. Most people find that they're undercharging. I would say 99.9% of the time it's we're not charging enough. So what can we do? Here's a very quick, easy exercise. I just learned this at a conference I went to this past week and it really resonated. I think it's a great idea and a great simple way to go about it.
Speaker 1:I want you to think through your clients, just think about them. And then I want to think through a price increase. Who would leave if I raised my rates by 1%? 1%, so if you're charging $150, that's $1.50. Who would leave if I raised my rates by $1.50? Nobody right. And if they did, they probably weren't good clients. No one's going to bat an eye at $1.50. Okay, what about 3%? Okay, that's 450. So instead of 150 a session, it's now 154, we could say 155.
Speaker 1:Would people leave at a $5 rate increase? Okay, what about 5%? And you start moving that percentage up and you can do it with dollar amounts too, if it's easier. If percentages is, you're like Craig, that's a lot of math, you can do dollar amounts. What would if they? If I raised a dollar $3, $5, $10, would people leave.
Speaker 1:When you reach the point that you're like, okay, $10, maybe some people would leave, okay, that's what we're going to raise our rates to, because maybe you have one or two people out of the hundred that you're working with, one or two people say I can't do that, I can't afford the five or $10 raise. And then you have a choice you can either let them go and open space for somebody who can, or you can, if you want to honor the rate they're on for X period of time, you can. But we're going to say, out of the hundred of one or two, leave, you still have 98. And they all just raise the rates by $10. So there's an extra $980 per month that you just recouped and you lost two clients who were paying you what, whatever it was. So depending on how often they're coming to see you, let's say they were seeing you once a week and were paying 150. So you know that's what $600 a month. So you can see it offsets, you will likely be pretty close to the same place you were before, if not ahead anyway, even if people would jump ship. And also, they're not going to $10.
Speaker 1:We all know the process of finding a new therapist is a pain. It's so much easier to say okay, 150 to 160. Great, yeah, that's no big deal. So do that exercise and then go raise your rates. So think through what can I raise my rate to? When do I reach that point where maybe some people will leave and start there and send out that letter? Give them a 30, 60 day notice, effective this date, your rate will be increasing to this much per session and then go for it.
Speaker 1:Talk to your team about doing the exact same thing and then, right there, that's going to give you a little bit more headroom immediately. Again, if nobody leaves, you got an extra thousand dollars a month in our example, and without having to do change anything. All we did was we're continuing to provide exceptional service and now we're just getting a little bit more wiggle room to afford to be able to do more of the things that we want to do. Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review and share it with a practice owner that you may know. If your practice needs help getting organized with its finances or just growing your practice, head to therapybusinesspodcom to learn how we can help.
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