“A cynic is someone who knows the price of everything and the value of nothing.” – Oscar Wilde
For many therapists and other business owners, the subject of setting prices and fees is a source of much consternation – if not outright fear.
Fear is a powerful thing. And, in business, as in much of life, fear-based decisions usually turn out badly. Fear-driven behavior weakens and ultimately destroys. (Just think of the business owners that have closed their doors simply upon hearing Walmart is coming to town.)
This is not to say that you can or should skip, dance, and prance along whistling a happy tune while pricing your products or services as you please with no regard for your clients’ abilities and willingness to pay or for competitive factors. But you also shouldn’t let “prudent paranoia” grow to govern your business decisions.
Unfortunately, far too many therapists let their fears about price determine the rates they charge, whether or not those fears are conscious or have any basis in reality.
Although I am generally regarded as a marketing consultant, strategist, and coach, I believe I may well have helped more therapists by influencing their decisions about price than with anything else I teach or any other services I provide.
As an example, a couple of years back a therapist came to me averaging 20 client hours per week, 48 weeks per year, with a couple of two-week vacations to travel and enjoy the holidays. When asked, she admitted she had no process in place to raise her fees annually and was worried that she would offend and/or lose clients by doing so. After no small amount of arm-twisting, I was able to convince and help her put a process and policy in place by which she raised her fees $5 per hour at the end of each and every year. Did any clients leave her practice because of this modest fee increase? Not a one. And she increased her annual income that year alone by almost $5,000, without having to add one additional client hour to her practice! Could you use an extra $5,000 this year?
Similarly, another therapist came to me who was charging her clients $120 per session. How did she arrive at that figure? By briefly reviewing and averaging what other therapists in her area were charging and then using that average for her hourly rate. Over the course of a couple of months, we worked together to position her as an expert in a specific niche, raised her fees for new clients to $150 per session, put in place a process for increasing her hourly rate for new and current clients by $5 at the end of each and every year, and ended up not only growing her practice from an average of 15 to 20 clients per week, but increased her practice’s gross income from $86,000 to $129,000 in a little over a year. Almost all of that increase was due to how she priced her services and presented that price to current and prospective clients.
That is the power of price!
Price = Profit = Prosperity
Believe it or not, the prosperity of your practice begins with your price strategy.
The decisions you make about, and your presentation of, price affect a great many things in your business. These include how you position yourself, the types of clients you attract, your own pride, and your profitability. And your profitability, in turn, absolutely determines the strength or weakness of your practice.
Profit determines how bold and assertive or timid and constrained you are in reaching out to acquire new clients, as well as how well your practice can withstand temporary adversity.
Your financial prosperity is created by the amount of money you can take out of your business day to day to meet your lifestyle needs, live free of debt, and accumulate goods and investments without leaving your business too thinly capitalized. And this is governed by profit.
It’s a closed loop. The prices you charge determine your profit and your profit determines your prosperity.
You choose your prosperity by the choices you make about price.
Unfortunately, what most therapists and other business owners don’t know or understand about price could fill a book, or several…
So, what do you need to know about setting fees and determining the prices you charge?
1. Price Is Elastic
Only a small percentage of your prospective clients – or buyers of anything for that matter – base their decisions solely on the cheapest price.
Think about it, if most people based their purchase decisions solely on cheapest price, you’d see a heck of a lot more Hyundais or Kias on the road.
For example, I know of a gentleman who’s in the foreign or mail-order bride business, introducing single American men to foreign women longing to be American brides. At the urging of one of his business consultants, he raised the fee for his service from $395 to $3,995 in one leap – and the same percentage of prospects continued to buy. Note: this isn’t to say the same prospects continued to buy, just the same percentage of prospects.
This is similar to the example above in which my client actually grew her practice by charging higher fees. The prospective clients for both businesses “stretched” with the price.
2. Different People Buy at Different Prices
Yes, there is a Walmart customer – probably in every business and industry category. But there is also a Neiman Marcus customer. You can get a steak dinner at Denny’s and you can get a steak dinner at Wolfgang Puck’s CUT in Beverly Hills. You can sleep at a Motel 6 or at the Ritz-Carlton. In other words, there are many customers for whom price is low on their decision tree.
I’ve worked with mental health professionals in the same city, with the same size practices, seeing clients with the same presenting problems, yet one charges $100 per hour and the other closer to $200 per hour. I also have a couple of clients who routinely get calls and appointments because their PsychologyToday.com profiles list them as the most expensive practitioners in their area!
It’s up to you to pick your target market.
3. Don’t Compete on Price
If you can’t be THE cheapest, there’s no benefit in being almost the cheapest. Find another way to compete.
A mentor of mine, Dan Kennedy, who consults with business owners in a myriad of industries shares a story about a gourmet pizza restaurant he’s worked with. They’re in a small city, in which they compete with 127 other pizzerias. 127! They have the highest prices of all of them, they do no 2-for-1 deals – and yet they doubled their sales and more than doubled their profits last year. Key word: Gourmet.
Establish and present yourself as an expert and charge fees accordingly.
4. Don’t Pay Too Much Attention to Industry Norms
As in the earlier example of the therapist who determined her hourly rate based on averaging the rates of other practitioners in her area, many mental health professionals look at what others are charging and pick something between the high and the low. Phooey!
One problem with this is everybody else has arrived at their prices by going through the same foolish process… it becomes more and more meaningless over time.
As Dan Kennedy would say, you need to understand that there’s “price,” and then there’s “presentation of price.” You should strive to package, present, and deliver your products and services differently from the way everybody else does it, so you can price them differently and make direct comparison impossible.
5. Any Business Decision Made Out of Fear Is a Bad Decision
This gets us back to the beginning…
Out of fear, most mental health professionals needlessly underprice, raise prices too little too late, and ignore opportunities to sell premium-priced versions of their products and services.
The prices and fees your clients pay are a result of the target market you select, the value you create and deliver, how you present that value, your credibility, your expert and celebrity status, your branding, your clients’ experiences, and many other factors. It actually has very little to do with objectively measured intrinsic value (if such a thing even exists). Otherwise, diamonds would command no greater price than glass or coal.
I know of a cosmetic dentist who routinely gives prospective patients estimates of $40,000 to $70,000 for work they want to have done – and he enjoys an 80%+ acceptance rate. He’s probably a pretty good dentist. But I seriously doubt he’s 400% better than his competitor down the street… even though his fees are 400% higher.
This is the same as with the therapists in the same city with the same size practices charging $100 and $200 per session. It’s possible one is 100% better than the other… but I doubt it.
The difference between intrinsic value and perceived value exists in every business, industry, and profession. There’s always somebody successfully selling a product or service at a price that’s dramatically higher than everyone else’s… even though the quality being delivered may be only slightly (if at all) better.
No matter what your product or service is intrinsically worth, your prospective clients will pay a premium for it if they perceive it to be worth more than all the others.
Because you can create and build value and control how that value is presented, you should approach price courageously and creatively. Build your courage by making yourself very aware of the goods and services your clients and prospective clients spend money on, and how much they spend.
The value of the psychotherapy services you provide are almost beyond compare. How are you presenting that value? Are you getting paid what you’re worth? If not, why not?
Ask yourself these questions with an open mind and re-examine every belief you have about the fees and prices you charge. If you want to create the abundant practice and lifestyle you desire, today must be a new day, not a stubborn re-living of the ones that have come before.
As success coach and Napoelon Hill associate, Foster Hibbard, said, “Go to the ocean with teaspoon or bucket; the ocean doesn’t care.”
Please be sure to leave your questions and comments below and we’ll do our best to answer them all as quickly as possible. Better yet, let us know how you determine the fees you set… Do you raise your fees annually? Are you happy with the fees you receive? What can you do differently?