KPI #1: Average fee per session
Let’s start with a simple one. Do you know your average fee per session? It’s always a little surprising how often practice owners don’t know this number!
So here it is: take the income from an entire month and divide it by the number of sessions completed. Easy peasy! This number tells you how much 1 hour of your time is worth, on average.
As you consider outsourcing tasks in your business, this is number can help you know how much it makes sense to spend on new hires.
KPI #2: Average overhead per session
This is another great starter KPI. Find your overhead expenses per month, and then divide by the number of sessions per month.
Here’s an example: $1500 in overhead / 80 sessions = $18.75/session.
This number is so useful! Here is what it can help you understand:
- How much profit you’re making on each session.
- How much to pay yourself.
- How much to pay a clinician you are hiring.
For Solo practice, no more than 50%, preferably 25%
For Group practice, no more than 40%, preferably 20%
When you’re hiring, you need to cover the overhead, the clinician’s pay, AND room for profit. By the way, if you’re not going to leave room for profit you shouldn’t hire someone!
KPI #3: Net Profit Margin
Most owners don’t know their net profit margin, either. Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. It’s simple enough and great information to have!
So take the time to calculate it: Take your profit and divide by gross income. If you’re an S-Corporation add your profit to your salary (if you aren’t paying yourself, we need to talk...)Take your profit and divide by gross income.
If you’re in solo practice, your profit margin should be at 50-80%. For group practices your net profit should be 10-40%. Preferably much higher than 10%.
Remember that profit is what keeps you in business!
KPI #4: Burn rate
Have you heard of burn rate? Burn rate measures the amount of money your business needs in a certain period to cover expenses.
Formula: (Starting Cash – Ending Cash) / Number of Months = Monthly Burn Rate
Here is when this information comes in handy:
- When you are starting your business and have a finite amount of cash to put in! The burn rate can help you see how much runway you have.
- If the owner is taking money out whenever they need it, this KPI can indicate personal or business overspending.
- If you notice that you have a slow season each year, this information can help make sure you have enough in reserves.
- The burn rate answers the question: “Am I adding cash to the business or losing cash in the business?”
If you look at a 3 or a 6 month period, your business should be accumulating more cash so your ratio should be negative. If your ratio is positive then you are spending more than you are making. Which if that’s the case, it would be good to know!
Take a deep breath. You’ve made it through a lot of formulas!
It is my hope that this information is empowering and not overwhelming. I know it’s a lot–but learning how to calculate these KPIs is an essential investment in your business. You’ve taken the first steps to understand where your practice stands and where it’s headed.
If you want more support you have a friend in GreenOak Accounting. We’re rooting for you! Feel free to schedule a free consultation with me here.
Hungry for more KPIs? Check out our Advanced KPIs article (link) for more tips and tricks!
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances.
GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit https://www.greenoakaccounting.com/our-specialized-services-for-therap