Calculating psychotherapist pay

I have seen many wild estimates regarding how much a therapist makes in private practice. But here I am going to be realistic. Fooling ourselves only hurts us. Calculating psychotherapist pay is genuinely not that complex. The factors are well known. With some reasonable assumptions, we can put together a formula that will give us a ballpark calculation of therapist pay in private practice.

The basic formula for calculating psychotherapist pay

The basic formula for calculating psychotherapist pay is this:

(No of Sessions) x (Collections Rate) x (No of Work Weeks) = (Gross Receipts) – (Expenses) = (Gross Pay) – (taxes & benefits) = (Paycheck)

(Below is the actual calculator. You can play with the numbers there. See where you come out!!)

Let’s take each component of the formula. First, we will look at what each element is and then determine a reasonable figure. Along the way, we will look at constraining factors, as well.

I also provide a range of what I believe to be real numbers that can be plugged into the formula. And then, at the end of this post, we put it together with some other data to see how close we are.

Sessions (Range: 20 to 35 per week)

Psychotherapists in private practice derive most of our income from providing psychotherapy sessions. In general, the more sessions we provide, the more our income. And yet the size of caseloads varies quite a bit.

As a general rule, a fulltime caseload is between 20 to 35 sessions per week. When starting, caseloads will be smaller. As demand increases, caseload size increases as well. But of course, there are other limitations to bear in mind.

Constraints limiting sessions

Emotional labor

Psychotherapy is emotional labor. As such, different personalities and lifestyles will have an impact. Some therapists have a higher capacity for doing this work. (I mention some in this post: “Wealth in mental health: Where are the good-paying jobs?) Others will choose to see fewer clients for their own sanity’s sake. Knowing one’s limits and capacities is one of the most important factors in doing this work for the long haul.

Burnout

Repetitively doing any task risks burnout. And this is especially true in positions requiring emotional labor. We are vulnerable to compassion fatigue. One way to manage this risk is to increase the variety of tasks that we do. But of course, that competes with putting in the psychotherapy sessions which pay the bills. This tension between wanting to earn and the fatigue it causes is ongoing. We do well to monitor and make adjustments as needed to stay healthy.

Demand for primetime slots

We only have so many evening and weekend hours (primetime hours) that we are willing to give to our work. The struggle over how many primetime hours we allocate to work never goes away. Indeed, this concern constrains the number of sessions we provide. Eventually, some may be able to find a work schedule that allows all your evenings and weekends at home. Yet more often, to accommodate the client’s scheduling limitations, therapists see clients a minimum of two evenings per week. And many offer more primetime slots, especially when beginning.

Overall demand for one’s services

Elsewhere I have talked about the importance of demand in bringing all good things. (See “Increasing therapist pay in private practice” and “Creating demand by marketing.”) And clearly, the lack of demand can constrain the number of sessions we provide. If we are not a highly desired therapist, we will have many holes in our schedules. It will be hard to keep a full caseload.

Collections rate (Range: $75 to $125 per session)

Several factors are affecting what our average rate of collection is for a single hour of psychotherapy. I have seen practices with quite a wide range of collection rates that vary from clinician to clinician. The range can be quite large. What are the factors influencing collection rates?

Setting

Where you work is the most significant factor in determining your hourly rate. Why is this so? Because, as I have written about in my post “Wealth in mental health: Why isn’t there more,” we do not control our fees. Insurance companies do. So if you want a higher hourly collection rate, you need to practice in a community that has enough people willing to pay out-of-pocket and with more flexible schedules to accommodate your needs. In contrast, Medicaid and insurance companies pay for the therapy delivered in more impoverished neighborhoods. There are limited out-of-pocket clients there.

But in my view, living on the fees collected solely from Medicaid and insurance companies is sufficient. We may not get rich. But we can live well.

This discussion is to make the point that we need to realistic about the collection rate. We may want to collect the maximum amount, but where your practice is located may require an adjustment to your expectations.

Distribution of payers

In most of the country, Blue Cross/Blue Shield pays the highest hourly rate for psychotherapy. So, of course, all providers prefer working with cash clients first and with BCBS clients coming in a close second. All prefer collecting the highest fees possible for their work.

Yet, most find that accepting only cash- and BCBS-clients limits growth and may mean far more holes in one’s schedule. Especially in the beginning. So taking clients who have insurance companies with a discounted fee schedule may be the wisest. (See Why join insurance panels for my argument on this point.) Doing so means that the mix of payers will have a significant effect on your average collection rate.

And there are reasons why accepting lower-paying clients may be the better choice, even if doing so reduces your collection rate. For example, it may be your best move if your community has a large employer that uses insurance with a lesser reimbursement rate. One never is wrong to go where the market is for your services. So accepting more low-fee clients reduces your collection rate but will keep you busier.

The collections process itself

Efficiency and effectiveness are the “name of the game” with collections. We want to collect as soon after the date of service as possible both from clients and insurance companies. (See Weekly business demand #4: Collecting for more on this topic.) And we need to be diligent in pursuing the collections due to us. Leaving money on the table will reduce your collection rate. A regular, consistent collections process for both client and insurance payments will increase your collections rate.

Number of weeks worked (Range: 46 to 50 weeks per year)

Obviously, the more weeks we work, the more income we collect. And yet, we need to take some time off. For most therapists, even if we stayed chained to our office chairs, we will lose two weeks minimum. And when we take any time off, say a week in the Spring and a week or two in the summer, we see the effects in income.

For most of my career, I took days off here and there, a week or two in the summer, most of Thanksgiving week, and most of the time between Christmas and New Year’s Day. That meant I was seeing clients for about 47 or 48 weeks a year. You might be surprised at how much calculating psychotherapist pay is affected by your willingness to be at work.

Expenses (Range: 40% to 20% of revenue)

This area also has quite a bit of variability. This variability is due to the range of work settings and how they vary in costs. Once one gets beyond salary expense, the next largest expense category will be the costs for an office. 

Of course, the least expensive space is one’s home. Indeed many therapists do designate an area in their home for their psychotherapy practice. This approach is very efficient and inexpensive, but, of course, lacks much privacy and may diminish a sense of professionalism. Still, it works in some communities.

More often, therapists rent or lease space in professional buildings. This setting more readily provides the privacy and professionalism many clients desire. But there is an increased cost. I have written about space issues in this post – Finding your community: The location and space

Most find 35% of income going to expenses is pretty close, no matter how large or small your practice is.

Benefit costs and taxes

The cost of benefits is a tricky area. We all want and need benefits. Yet the reality in private practice is that profitability comes first. Without profit, there is no money to pay for benefits. But with profits, benefits can become quite generous. It is all up to you as the owner. I’ll leave the estimating of these costs up to you.

And likewise, one’s tax obligation is going to depend on many factors. Here is one website that calculates pay that state, federal, and some local taxes into account: SmartAsset.com. You would have to calculate the cost of benefits separately. Take-home pay will, of course, have taxes and benefits taken out.

Calculating Psychotherapist Pay: Putting it together

Below is a calculator for you to use. You can play with the numbers and see where you come out. Have fun!!

As a reminder here are the ranges I suggest for each variable:

  • 20 to 35 Sessions
  • $75 to $125 per hour as an Ave Collection rate
  • 46 to 50 Weeks of Work per year
  • 20% to 40% of income for Expenses
  • 25% to 35% for benefits and taxes

Calculator

X X

Gross Recepts:

Gross Pay:

Paycheck:

Gross pay (Range: $41,400 to $175,000 )

If we assume the worst conditions for a full-time therapist, i.e., 20 sessions per week x $75 per session x 46 weeks = $69,000 income – Expenses (40% of income or $27,600), we take home $41,400 minus tax and benefit costs.

If we assume the best conditions, i.e., 35 sessions per week x $125 per session x 50 weeks = $218,750 income – Expenses (20% of income or $43,750), we take home $175,000. That is a very excellent salary. And yet . . . .

Comparing our formula to the National Occupational Employment Data

As a point of comparison, we can look at National Occupational Employment Data collected by the United States Department of Labor, Bureau of Labor Statistics. Here we see a more realistic picture. In round numbers, salaries for mental health clinicians are these:

Psychologists: median annual income = $85,000, with 90% making < $130,000

Social Workers: median annual income = $55,000, with 90% making < $82,000

Counselors: median annual income = $50,000, with 90% making < $82,000

Marriage and Family Therapists: median annual income = $50,000, with 90% making < $82,000

So what does this mean? So when we look at real salaries among psychotherapists, few earn above $100,000 per year. Psychologists, more than the other mental health disciplines, are likely to see that sort of salary. It means that very few are maximizing each of the variables in our formula for reasons I have listed above.

You can find the details by looking at the May 2018 National Occupational Employment and Wage Estimates. There are several job titles in this survey and that is why I summarized as I have above.

Calculating psychotherapist pay

So we can approach the question of therapist pay by calculating psychotherapist pay using the formula above or we look at labor statistics. Preferably both. Yet it is often helpful to know the elements that influence pay.

Leave a Reply

Your email address will not be published. Required fields are marked *