Inflation and Your Counseling Practice

Inflation and Your Counseling Practice | Association for Mental Health ProfessionalsI want you to think for a moment about the economy at large and what you're charging in your practice. We've always recommended, and still do, that a practice should be accepting clients from a number of sources (hedging your bets) but we'd like to make that case again in light of the current economic climate. Let's paint the background first then we'll jump in to your business options.

Framing the Problem

The Federal Reserve creates the problem by printing too much worthless money. Then when things (prices) get out of control they raise interest rates to try and reign it in but that tends to slow (or cripple) economic growth.

That leaves us with the dual problem of ever-escalating prices compounded by a slowing economy; higher prices and fewer customers. You know of any business model, including ours, where that's a good recipe for success?

The Real Inflation Rate

The MSM is telling you that the current rate of inflation is 3.7%. What they're not telling you is that the current formula for determining that rate does not include food or energy.

That's right. They're not taking into account what you and your clients are spending every month on food and your electric, gas, and gasoline bills. The real number is somewhere between 15-18%, maybe more. You see it at the check-out, feel it when the electric bill shows up, and so do your clients.

What That Means

In a perfect world of 18% inflation rates, every business would raise their prices a corresponding 18% AND raise their employee salaries 18% across the board. That way all boats (prices and salaries) are rising with the tide (inflation). But that's not what happens.

Business owners do a frenzied dance between raising their prices to maintain margins at the risk of losing customers and clientele, doing nothing and hoping for the best, or lowering their prices in an effort to maintain traffic and shrinking revenue.

Business owners are trying to stay in business and the last thing they want to do is increase their #1 expense, payroll. Historically, inflation has far outpaced any advances in employee take-home pay (prices have gone up faster than salaries have). That means your clients are going to have less discretionary money to spend with you no matter how you bill for it.

Your Business Options

You need to realize that we're in a damned-if-you-do, damned-if-you-don't scenario and the objective is to minimize the guaranteed damage and stay in business. View this as an "airline emergency situation" in which you need to put your oxygen mask on first as a practice owner in order to save anyone else.

As a business owner you have to balance the need to cover your expenses and stay in business (by possibly raising prices), with your clients' diminishing ability to pay (by maintaining or lowering prices). In order to do this effectively you have to know your numbers. Let me repeat that, please. You MUST KNOW YOUR NUMBERS.

Should you raise your self-pay rate, lower it, or leave it alone? I can't answer that for you because it depends on your numbers. I can tell you that raising or lowering your self-pay rate based on feelings is not a wise business decision. Luck is not a reliable option and hope is not a business strategy.

One more point I want to drive home and you'll need to remember this when making your decisions about pricing. If you raise your rates there is a line out there which you dare not cross. Too much and you'll run everyone off. If you lower your rates there is yet another line to consider, beyond which you're giving away the farm and business closure cannot be far off. Cross that line and you'll say, "but I'm full!", as you turn the lights off for the last time.

Don't cross those lines!

Your self-pay traffic will depend on your local market. If it suffers you're going to need to replace it with clients from somewhere else. That usually means insurance and EAP referrals. No, they don't pay as well and you don't like the paperwork but you'll have to fill those slots with something. Your middle-class, flat-line salaried clients are going to want to use their benefits and you need to be prepared to put their mental health needs and payment options ahead of your preferred business model.

Which is better, an insurance referral that only pays 65-80% of your self-pay rate, or an empty slot on your calendar that pays nothing? I think the answer to that is obvious but here's the additional rub with these two have little to no control over the rates they pay you.

You get what they give you until such a time as they raise their rates annually on their clients. Then you'll have to dust off your negotiating skills and squeeze a correspondingly higher rate out of them just to maintain your status quo. I do it and so can you.

What I'm Doing

I know my numbers. I know my expenses, margins, and revenue sources. I know what percentage of my clientele comes from self-pay, insurance and EAP and what each one pays. I know how many counselors I have and what their future revenue streams will be based on their individual histories. Their splits are based on my overall expenses not Facebook guidelines.

I have also done what-if calculations in an escalating (18%) economic scenario. With that in mind here's how I have Life Tree Counseling positioned for the next few months.

I've lowered my self-pay rates a bit in an effort to meet our clients somewhere in the middle, remain "above the line", and still remain profitable. This will change. I don't know when, how much, or which direction but I know it will change and that requires me to be diligent with my numbers.

I'm also accepting clients from a variety of insurance panels and EAP providers and I'm squeezing them for better hourly rates as often as I need to. Frankly, I want to eventually get away from panels and EAPs and focus my entire practice on holistic counseling but for now I'm keeping them both.

DO NOT copy/paste what I'm doing into your practice. Your numbers are different. Make decisions based on your numbers not mine.

Where Do We Go From Here?

It looks like we have at least another year of this stuff ahead of us before any positive reversal in the trend even begins and I want to stress that the economic pointers indicate it'll probably get worse before it gets better.

So how do we prepare for this as mental health providers? I told you what I'm doing. Do you know your numbers? Begin there if you don't. How have you readied your practice for the inflationary time we're in? And what are you doing to weather the next 12-15 months? Let us know in the comments.

Scary stuff but we can do this.

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About the Author

Inflation and Your Counseling Practice | Association for Mental Health ProfessionalsKathleen Mills is a fire-breathing, 32+ year veteran of the counseling world. People react in one of two ways when evil touches their lives: some retreat in fear, and some advance without pause to engage it. Kathleen falls firmly in the latter group. She owns and operates Life Tree Counseling in Frisco, TX, possesses a tireless work-ethic, and eagerly awaits your arrival into her growing army of warriors.

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