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How Do I Break Even in my Therapy Practice
How Many Clients Do I Need Or How Much Do I Need To Charge
In Order To Breakeven
Your total income from your practice is affected by 2 main factors: the price you charge, and the number of hours you work for which you get paid. A change in one factor leads to a higher or lower total income. If you increase your price, and work the same number of hours, your total income over a period (say a year) goes up. If you work fewer hours but keep the price the same, your income goes down.
“Breakeven” is the point at which your income equals your expenses. If I earn more than the breakeven I make a profit, or net income. If I earn €100 in fees, and it costs me €80 in expenses, the difference (100-80=20) is profit or money I can spend. If I earn less than breakeven I make a loss, or net expenses. If I earn €100 in fees, and it costs me €120 in expenses, I need to find the difference from somewhere, in order to ensure all my expenses are paid.
Why is breakeven important? Breakeven gives a benchmark for the minimum you need to earn in order to cover your costs.
The breakeven point is usually expressed in terms of income. In the case of a therapy practice, we can express it in two ways. The first is the number of client hours we need to work, given a known fee rate. The second is the level of fee we need to charge given a known number of hours. Which of these measures you choose to use will depend on which is the greater limiting factor for you, the price you charge, or the number of hours you have available to work.
Let’s look at an example of each of these methods of looking at breakeven, and you can then use the example to calculate the figures for your own practice.
Example 1: The Number Of Paid Hours I Need To Work In Order To Breakeven
Let’s say Pat charges €60 an hour.
Pat has two types of expenses related to her practice, expenses that vary according to the number of hours she works, and those that don’t. Pat’s practice expenses that vary according to her working hours are as follows:
Rent of room €13 per hour
Supervision €80 per 20 client hours, or €4 per client hour
Total variable expenses €17 per client hour
Pat’s practice expenses that don’t vary according to her working hours are as follows:
Annual subscription to IACP or IAHIP €400
CPD Courses €1500
Other practice expenses €900
Total non-variable expenses €2800 per year
She also needs to have €500 per week to live on and takes four weeks holidays in the year.
So in an average year Pat’s outgoings look like this:
Living expenses (500 x 52) €26,000
Fixed practice expenses €2,800
Total €28,800
Since for every client hour she works, Pat earns €43 (€60 less the variable cost of €17), Pat needs to work 672 hours (€28,900 ÷ €43 per hour) in order to make ends meet.
If she takes 4 weeks holidays, she has 48 weeks (52 weeks less 4) in which to work these hours, so she needs to see 14 paying clients every week that she is working (672 hours ÷ 48). In order to cover the probability that not all clients will come every week for lots of reasons, she will in reality need to have 15 or more regular paying clients in order to earn enough.
Example 2: The Amount I Need To Charge In Order To Breakeven
Using the same details as above for expenses and outgoings, let’s assume Pat can only work (or only wants to work) 12 client hours a week. In a year, therefore, she will be working 576 hours (12 hours × 48 weeks). So using the same total outgoings figure of €28,800, Pat will need to earn €50 AFTER VARIABLE EXPENSES, or a fee of €67 per hour or more (50+17) in order to cover her costs.
If you struggle with the numbers in your practice, or having worked them out, need to make changes, maybe I can help. You can leave your comments or questions in the box below, or email me here for your free 20 minute consultation.