This blog is not financial or tax advice and is for educational purposes only. Representatives of Evaspare Inc. are not and do not proclaim to be financial advisers or experts. For financial or tax advice, reach out to a Chartered Professional Accountant.
One of the most challenging parts of starting a private practice is knowing how much to charge clients and to set your fee. In this article we’ll take the guess-work out of setting your private practice fee and guide you through the 9 simple steps for setting a private practice fee.
Before we dive in, let’s tackle one of the biggest myths to setting your fee: that once you commit to your private practice fee, it cannot be changed.
The fear of not choosing the ‘right’ rate can get some therapists stuck and keep them from opening their private practices – or at least slow them down.
The best part of running a business is that you are your own boss which means you have complete control over changing your fee whenever you want.
You’ll want provide existing clients ample notice of any rate changes you make (I like to give 3-4 months’ notice) but for new clients, you can essentially charge your new rate immediately.
So, remember whatever rate you settle on today doesn’t have to be the fee you stick with and if you try the rate out in your private practice and it doesn’t feel right, you can always change it!
Now that we’ve debunked the myth, let’s dive into the 9 steps.
9 Steps for Setting Your Private Practice Fee
To determine your fee, you’ll need to:
(1) Do your research
Before you set your fee, you’ll want to know the average cost-per-session in your area. Fee ranges differ depending where you live. Researching the average rate in your area can help you set your fee with confidence.
It’s important to know that you do not have to set your fee based on the rates of others but it’s helpful to understand what other therapists, with similar credentials to yours, are charging to ensure you’re in the right ballpark and not undercharging your services.
(2) Tally or predict your private practice expenses
When you’re starting a private practice, it’s important to know the predicted monthly expenses, as these expenses are important when determining your private practice fee. Your expenses may include office rental costs, equipment, website and email, therapist directory profiles, electronic health systems (EHRs), supervision costs, advertisement, business supplies, and printing costs, to name a few.
(3) Set an Emergency Contingency Amount
Throughout the year you’ll have one-off purchases, that you might not be able to account for in the monthly expenses. It’s important plan for these one-off purchases in advance and include it in your private practice fee determination. Pick a realistic amount that would cover any unplanned, one-off expenses that might show up throughout the year.
(4) Determine how many weeks vacation you intend to take each year
Whether you intend to take vacation or time for educational pursuits, you’ll want to know how many weeks you intend to take off each year from your private practice. This is important in order to determine how many clients you’ll need see each week to cover missed revenue during your time off.
Again, the number you choose is not static and you can change how many weeks you take off in the future. But by including vacation into your fee-setting formula, you are ensuring that you rate supports the time away from your business.
(5) Determine your desired annual personal income
Your desired annual personal income is the amount of money you want to make annually. It’s your net earnings and does not include expenses (Step 1) or taxes (Step 6).
(6) Determine your annual tax percentage
In business, you’ll need to pay annual taxes. If you have an accountant, your accountant may give you the exact percentage to budget and save for year-end taxes. In the fee-setting formula, use the percentage that your accountant provides you.
However, if you do not have an accountant or you don’t know your annual tax percentage, you’ll want to include a realistic percentage as a part of the fee-setting formula so that your rate takes taxes into consideration. For the purpose of the fee-setting formula only, I suggest adding 30% to your desired annual personal income.
The fee-setting formula does not consider sales or VAT taxes as sales and VATs typically are added onto invoices separately and on top of fee-for-service.
(7) Determine how many clients you want to work with each week
To accurately determine your fee, you’ll want to determine how many clients you’ll want work with each week.
(8) Identify your values
Honestly, I believe values guide everything in our lives, and especially in our business. If you’re values align with providing special services in your private practice such as providing a sliding scale or pro bono services, you’ll want to include this in the fee-setting formula.
Contrary to popular belief, you don’t have to give up services that truly matter to you in your private practice, but you do need to plan for them and factor them into your business income and fee structure.
If you intend to provide a sliding scale or pro bono services, create a policy for yourself so that you can keep yourself accountable with regards to how many sliding scale and pro bono clients you can realistically accept in your private practice without impacting your revenue and vision.
9. Do the math
Now, if you’re anything like me you probably do not love math but lastly, we are going to go through some basic math to determine your private practice fee:
The Private Practice Fee-Setting Formula
1. Weeks Worked Per Year
52 (Weeks in a Year) – Weeks of Vacation = Work Weeks Per Year
Example: 52 – 4 (Weeks of Vacation) = 48 (Weeks to Work)
2. Total Annual Expenses
(12 Months in a Year x Total Monthly Expenses) + Emergency Bank Amount = Total Annual Expenses
Example: (12 x $1000) + $5000 = $17,000
3. Total Annual Business Revenue
Desired Personal Income + Total Annual Expenses + Predicted Tax (30%) = Total Annual Business Revenue
Example: $70,000 + $17,000 + 21,000 = $108,000
4. Total Weekly Revenue
Total Annual Business Revenue / Work Weeks Per Year = Total Weekly Revenue
Example: $108,000 / 48 = $2250
5. Minimum Cost Per Session
Total Weekly Income / Weekly Number of Clients = Minimum Cost Per Session
Example: $2250 / 20 = $112.50 per session minimum.
This means that you’ll work with 20 full-paying clients per week and charge a minimum of $112.50 per session to cover expenses, taxes and to receive a $70,000 salary.
6. Offering Sliding Scale or Pro bono Services (Optional)
If you intend to provide a sliding scale and/or provide pro bono services, you’ll want to also include this in your business fee structure.
There are two ways to do this:
A. Increase the Number of Clients Your See Per Week
After you’ve determined your minimum cost per session, increase the number of clients that you intend to work with each week by the number of clients you intend to provide sliding or pro bono services each week. So, if you intend to provide 5 clients per week with a sliding scale or pro bono service, add 5 clients to the existing 20 clients that you want to work with each week.
Continuing with our example, this means you’ll work with 25 full-paying clients per week and charge a minimum of $112.50 per session to cover expenses, taxes and to receive a $70,000 salary.
B. Decrease the Number of Clients Before Minimum Cost Per Session
Before you’ve determined your minimum cost per session, subtract the number of sliding scale or pro bono clients you intend to work with each week from your weekly client number. Going back to our example, if you want to provide 5 clients a week with a sliding scale or pro bono services, subtract 5 clients from the existing 20 clients that you want to work with each week to determine your minimum cost per session rate.
Example: $2250 / 15 = $150 per session minimum
Continuing with our example, this means you’ll work with 15 full-paying clients & 5 sliding scale/pro bono clients per week and charge a minimum of $150 per session to cover expenses, taxes and to receive a $70,000 salary.
That’s it. You have your minimum fee per session.
Still have some fee-setting questions?
Here are some frequently asked questions about fee setting and the fee setting formula:
Frequently Asked Questions
“Do I have to Provide Sliding Scale or Pro Bono Services?”
Absolutely not. As a private practice owner, you have full control over your services and what you charge in your business. In my private practice, I don’t provide sliding scale or pro bono services.
Now, I always like to leave room for a little disclaimer: if you’re a therapist who’s governed by a regulatory body, I encourage you to review your standards of practices to ensure that your private practice policies and procedures align with your regulatory bodies regulations. Each regulatory body has its own rules, regulations and expectations for their members, so it’s always best to review these beforehand.
“Am I required to only charge the minimum cost per session?”
Again, the answer’s no. That’s why I call it a minimum cost per session, it essentially just covers what you’ve predicted. However, I actually encourage charging more than the minimum cost per session, if that feels right for you. Like any business, private practices can and do have inevitable ebbs and flows with respect to client referrals, finances, and expenses. In the end, the final decision is your choice!
“Do I have to charge what everyone else is charging in my area?”
Nope, you do not have to set your fee within the average. Actually, many therapists choose to aim higher than the average – which I totally support. Why it’s important to know your area’s cost-per-session average, is because you want to know you’re in the right ballpark and ultimately not under-charging your services.
Remember, like I said at the beginning, you can always change your price after-the-fact, with ample notice to your clients, of course.
What next?
Join our free Boosting Business: Therapists Private Practice Community on Facebook so that you’re a part of a like-minded therapist community that provides resources, networking opportunities, and a community who is always there to cheer you on at every stage of private practice growth!