March 1, 2013 Columns

In Private Practice: Am I Charging Too Much? Not Enough?

How much should I charge? Just about every speech-language pathologist and audiologist in private practice has grappled with this age-old question. Charge too much, and potential clients may be pushed away. Charge too little, and you won't break even, much less earn a profit.

What's the magic formula?

Just to be clear—private practitioners who accept private health insurance, Medicare, Medicaid or payment from other third parties receive payment determined by fee schedules set by the payers, although sometimes rates can be negotiated. So what do you need to consider when you set rates, and how do you determine whether you can afford to accept third-party fees?

Spreadsheets and math

Remember that many of your responsibilities are nonbillable—for example, the time you spend on travel, billing, scheduling, phone calls, documentation, preparation, cleaning, organizing and marketing. Expect this time to be at least equivalent to your targeted number of billable, or direct client contact, hours.

If you plan to spend eight hours working per workday, it is reasonable to expect four hours of client/billable time and four hours of nonbillable time.

Determine your desired number of client contact (billable) hours per workday and multiply by the number of work days per year. Be sure to figure in holidays and other nonrevenue days per year, including your vacations. This number gives you your billable hours per year and forms the basis for determining your hourly rate.

Here's where the math comes in: Consider all expenses, including ongoing and one-time, and consider adding a cushion for unexpected expenses. Divide your total by the number of anticipated treatment hours (that you just calculated). The number that results is how much you need to charge clients to break even.

But you probably want to make a profit (in private practice, this means what you get paid after everything else is paid)! So go back to your expense number and add the profit you hope to make over the course of the year. Divide that new sum by your number of anticipated treatment hours to calculate an hourly rate that will yield your hoped-for profit (see the sidebar below).

Expenses and more

Your overhead expenses might be ongoing or one-time, and some items may or may not apply to your particular situation.

This list is not exhaustive, but you probably need to consider:

  • Ongoing: Professional consultants (attorney, accountant, insurance, etc.), rent or mortgage, utilities, taxes (business, property, state, federal, personal, estimated, payroll, disability), employee benefits and retirement, payroll processing, website maintenance, marketing/advertising, continuing education, travel/auto, parking, gas, bank fees, supplies (office, patient expendables, refreshments, toilet paper), insurance (general business, workers compensation, auto, liability, malpractice, disability, life, medical, location-specific), cell phones, licenses and dues, janitor/maintenance.
  • One-time or occasional: Equipment (copier, fax, computers, printer, phones), storage, furniture for waiting and treatment rooms and offices, professional materials (tests, protocols, workbooks, software), business software, camera, video and audio equipment.
  • Unexpected costs/expenses: What about hurricanes, earthquakes, floods, snow days? There will undoubtedly be cancellations, illnesses and injuries.

Other considerations

In setting your fees, also consider the community you are serving. What will the market bear? What does the competition charge? What is the reasonable range for similar services within your community?

Each potential private practitioner has different profit needs and goals. The bottom line question is this: When you look at your math, can you afford to do it? Will people pay what you need to charge?

I have never regretted my private practice choice, but being in business carries risks and challenges we never discussed in grad school! Educate yourself in business, find a support system, and good luck!

Mindy Newhouse, MS, CCC-SLP, is co-founder and co-director of Communication Matters, a private speech-language pathology group practice in Newbury Park, Calif. She is a past president and active member of the American Academy of Private Practice in Speech Pathology and Audiology. mbnew@aol.com

cite as: Newhouse, M. (2013, March 01). In Private Practice: Am I Charging Too Much? Not Enough?. The ASHA Leader.

Crunch These Numbers to Set Your Fees

  1. Compute your billable hours per year:
    4 hours/day x 5 days/week x 48 weeks/year (4 weeks of vacation) = 960 hours per year
  2. Compute your expenses and hoped-for profit:
    Expenses = $42,000 per year; desired profit = $54,000 per year; Total = $96,000
  3. Divide expenses+profit (from step 2) by billable hours (from step 1) to determine an hourly rate:
    $96,000/960 = $100


  

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