When you think about it, water can be a good metaphor for money in your practice. It flows in and out, once you use it it’s gone, and without it your business withers and dies. Unless you’re a business mega-star (I’m not), your business has a bunch of money leaks that leave your practice thirstier than it needs to be. Knowing where these money leaks are is the first step in plugging them and making your business thrive.
From our experience, money leaks mostly show up in five areas:
- Session rates set too low.
- Giving too many discounts.
- Poor client retention.
- Insufficient or inefficient marketing.
- Spending too much on line items that don’t bring in revenue.
Notice that only the last area relates to what most of us automatically think of when speaking of money leaks – excessive spending. The first three relate to your revenue, and the fourth deals with shifting or even increasing your marketing spend. The point is that in most cases it’s more productive to increase the incoming flow than to find leaks on the spending side. Let’s dig into the five typical leak areas.
If you haven’t already done so, get my free rate-setting sheet and use it to assess what your rates should be to provide you with the income you want. From my experience, most therapists charge far less than they can or should. When my wife started her private practice, she charged just $110 per session. It took some time, work on her confidence, and a real exploration of what was needed for the practice to be financially viable and not operating at a loss, before she was comfortable charging $185. Assuming a full caseload of 20 sessions per week, the annual difference is $75,000!
Setting your rate right is just the first step. The second is actually charging that rate for most clients. If you’re not comfortable with your rates, you’ll find yourself apologizing to clients, using sliding scales for everyone who walks through your door, and in general sabotaging your shiny new rate. Don’t.
Not everyone who needs therapy can afford top-dollar rates, but it’s up to you to decide how many discounts you give. Remember that you can’t help everyone, even if you gave away all your sessions. I recommend limiting the number of sliding scale slots to no more than 10-20% of your caseload, and increasing your standard rate to compensate for the lost income. Also, reevaluate monthly with clients receiving discounts if they still need them. If they don’t, make them available for the next client who needs them.
In addition, find resources in your area for pro bono counseling or other low-cost options that you can provide as referrals to people who call you but for whom you’re not a good fit financially. In Baltimore, we have the Pro Bono Counseling Project and the University of Maryland Center for Healthy Families (where Risa was trained as an MFT many moons ago :)) that we refer people to whenever appropriate. It’s important to let people know about these local services. Not only do they serve clients who need lower fees than we can offer, it also helps keep the programs in operation when they have clients to serve.
Different types of therapy have different “typical” lengths for a standard course of treatment. However, no matter the issue you specialize in, it’s not likely that clients get all better in a single session, or even three or four. The problem is that clients get a sense of relief soon after they start therapy, simply because they no longer feel stuck and have taken some action (you know...flight into health). If you don’t educate them about what to expect, many clients will leave before you can make a lasting difference for them. This hurts them, obviously, but also hurts you. First, obviously, if clients leave early you lose the revenue of clinically appropriate sessions they forgo. Second, if clients leave early and don’t get lasting results, your reputation as an effective therapist will suffer.
Insufficient or Inefficient Marketing
I’ll cover this in a future article, but the metrics you need to consider here are your “cost of client acquisition” vs. your “client lifetime value.” It’s intuitively obvious that if you spend more to get a client to sit in front of you than the total session fees that client pays, you lose money rather than making it. Another possible problem is if you don’t invest enough resources in (efficient) marketing, and have fewer clients than you need and want.
Notice how I talk about marketing as an investment? That’s because money spent on marketing is an investment that leads to new revenue. However, you may be buying many things that don’t bring in revenue. If you spend too much on those, you let your hard-earned money leak out and water other people’s businesses. You’re the only one who knows what you may be wasting money on, but it could include major items such as renting a space that’s larger and/or fancier than you need, and/or minor ones such as buying lots of books you never read, online courses you never get to, or an ever-increasing stock of decorations you don’t need.
Just look through your transactions over the past year, and for each one ask yourself, “Has this purchase brought in new business or supported my ability to provide therapy?” If not, it’s part of your money leak problem. If yes, ask yourself, “Could I have done as well had I replaced this purchase with a lower-cost one?” If yes, make that change from this point on.
What You Should Do Now
Identifying the money leaks in your practice is a critical first step in plugging them and making your business prosper. Next, decide how to plug each leak. Finally, you have to do the hard work of executing those financial course corrections. That’s where having someone to talk with is crucial – it gives you an accountability support structure to avoid falling back into old patterns. This someone could be a spouse, a colleague you trust and admire, or a coach. Which one you choose matters, but making that choice and acting on it is what makes the most difference. If you do decide to hire a coach, I’d be honored if you trust me enough to include me in your search for the best coach for you.