Disclaimer: I am not an accountant, and nothing in this post should be viewed as formal accounting advice. The purpose of this post is for general information only – please consult an accountant if you need more detailed help with your finances.
One of the first things a new massage therapist – or one opening a new practice – has to figure out is a fee schedule for their services. There are several things you’ll want to consider when creating your fees, to make sure you’ve covered all your bases.
Billable Working Hours
The first thing you’ll want to figure out is how many hours per day you can comfortably work, and then figure out how many of those hours are billable and non-billable. Billable hours make up only part of the hours you’ll actually work… the remaining hours are non-billable hours.
Billable hours are the hours you work in which you are generating income. For massage therapists (and most service providers), this means the hours which you are treating a client.
Non-billable hours are the hours you work during which no income is being generated. This includes your time spent cleaning up between clients, doing administrative work, and other business tasks no one is paying you for directly.
The average work day for a massage therapist is made up of both billable and non-billable hours. Let’s say the RMT take clients from 9am to 5pm on a given day. For the sake of this example, let’s also assume the therapist’s schedule is full of 60 minute appointments. Most RMTs say they need 15 minutes between clients to reset the room, charge the client leaving and welcoming the client coming in. In the 8 hours the therapist has available, they can only work an approximate 6 billable hours. About 25% of their scheduled time is spent on tasks that don’t generate income directly.
The time spent on billable vs non-billable activities will vary depending on the length of the treatment. A 30 minute treatment requires the same amount of cleanup and administrative time as a 60 minute treatment. If the above therapist has a full day of 30 minute treatments, they will only have 5 billable hours total for the day. About 37% of their scheduled time is spent on tasks that don’t generate income directly.
If your billable hours don’t make up a majority of the scheduled hours that you have, you should probably adjust your schedule a bit to decrease your non-billable time. Sometimes it’s a matter of changing your process – for instance, using an online scheduling system that sends out reminder emails automatically instead of manually emailing or texting clients remindrs every day.
Expenses (Business and Personal)
The next thing you’ll want to do is add up all of your expenses. Most business plans suggest that you add up all your regular business expenses, but I’d actually suggest including your personal expenses too (separately). Try to be as accurate as you can when figuring out your expenses – if the cost for something fluctuates from month to month, I’d recommend the higher cost in your estimates. That way if your estimates are off and it ends up costing less, you have some extra money instead of coming up short.
Some common monthly business expenses include:
- Meals and Entertainment
- Bank / point of sale charges
- Office supplies
- Professional and accounting fees
- Phone and internet
- Postage and delivery
Some common yearly business expenses include:
- CMTO Membership
- RMTAO Membership
- CEU Courses
Some common monthly personal expenses include:
- Mortgage / Rent
- Phone & Internet
- Banking fees
- Car payments
- Debt repayment
You can likely think of a few more, but that’s a good place to get started.
Now that you have all of your expenses figured out, you’ll want to do a ‘break-even analysis’. For a single-client service-based business like massage therapy (we can only treat 1 client at a time), this means figuring out the minimum amount of money we need to charge per hour to cover our expenses. We are essentially dividing our total expenses by the number of scheduled available hours we have per month.
Once we have that figured out, we can convert that into how much we need to charge per service (based on what % of an hour that service uses) in order to just cover expenses and break-even. In addition to covering your regular expenses, you’ll want to figure out how much the cost is for the supplies required to offer that service (laundry for the sheets, cleaner for the table, lotion / oil / gel, etc.) and add that the break-even amount for the service too.
A real break-even analysis is usually only focused on covering business expenses. However, as sole proprietors, it’s often helpful to consider how much we need to make in order to break-even with personal expenses too, to make sure we can cover all of our monthly bills.
We also have to consider how “full” our schedule is. If we work fewer hours, then more of our income goes toward expenses, so the break-even number for a less-full schedule is higher than if the schedule was fully booked.
Once you have an estimate of how much you need to charge at minimum, it’s time to consider what’s appropriate as a maximum, and what is a sustainable fee structure for your area. This is done by checking out your competition.
Knowing who your competition is can be more difficult than it sounds. While many locations offer massage therapy, each clinic might offer services or perks that are different from yours. To get a true sense of your competition, you’ll want to get the fee schedules from clinics in your area who offer services that are very similar to yours. This doesn’t just mean the same time denominations – it also means that any ‘add-ons’ for those services are similar to yours. If a spa down the street offers a 30 minute massage therapy treatment, but it’s part of a larger spa service that includes a stream-room period or something similar, than it’s not really the same service as a 30 minute massage therapy treatment by itself.
Once you have identified 5 (or more) businesses nearby that offer comparable services to yours, find out what their fee schedule is by visiting their website, contacting them by phone, or making a stop at their location. This can also be a great networking and referral building activity too, as you each might offer services the other doesn’t. You should also find out if their posted fees are inclusive of HST not not, and only compare the prices without HST added.
Once you have the pricing from each competitor, you can figure out what the average cost for services are in your area. As a general rule, you don’t want to price yourself too high – even being exceptionally good at massage won’t bring clients back if you’re charging way more than everyone else. You definitely don’t need to undercut your competition (offering a lower price as an incentive to see you instead of them) either. Since price can effect people’s perception of quality, being known as the “cheap” massage therapy clinic isn’t ideal. Aiming for somewhere in the middle is usually safe to attract clients, and keeps the market in the area healthy for everyone. If you do want to charge more than your competitors, you’ll want to make sure your marketing reinforces why your services have more value (do you have add-ons that others don’t? Treat a specific niche market primarily? Etc).
Of course, covering your expenses and making sure you’re not priced out of your market is important, but so is having some disposal income and saving for the future! Using the average cost for services in your area, you’ll want to figure out how much gross income you can expect to make in a year. I’d recommend figuring out the maximum gross income (assuming your billable hours are completely booked), and then again using a very conservative number of billable hours booked. Remember that your tax bracket (what percentage of your income you are taxed) is calculated based on your gross income (before write offs). It’s also used to determine whether or not you need to collect HST. You can use these projections and estimates to plan a bit ahead of time for tax season.
Once you’ve figured out the gross income, subtract the break-even amounts (regular expenses + (costs per treatment x number of treatments)) for the year. That will leave you with your net income. If you decided to include personal expenses in your break-even numbers, it will give you an idea of your disposable / saving income (before taxes).
If the number seems uncomfortably low, you know you’ll need to increase your service fees , find a way to reduce your expenses a bit, or increase your billable hours.
Hate doing math? You’re not alone.
It’s pretty intimidating trying to do all the necessarily math to figure out your break-even numbers, compare your prices, cover all your expenses and estimate how much money you’ll make. For the non number-lovers out there, we’ve put together a free spreadsheet document that does most of the math for you. It was designed to help you figure out a price that makes sense for the four most common services an RMT clinic offers: 30, 45, 60 and 90 minute massage therapy treatments.
This spreadsheet document has multiple pages, which can be accessed by using the tabs at the bottom of the page:
Each page includes boxes for you to enter numbers (like your expenses and competitor’s prices), and some boxes hat are calculated automatically with formulas. Only the boxes you can enter information (the ones with yellow backgrounds) are editable, so you can play around without worrying about accidentally deleting an important formula. It’s pretty easy to use.
There is some example information entered into each box already. Once you’ve replaced it with your actual expenses, test prices, and so on, it’ll will give you an idea of what to expect. When you’ve entered your information into each page, return back to the Summary page and adjust your prices to see how the change will affect your business!
Keep in mind that this spreadsheet is no substitute for a real accountant, but it may help to give you a rough estimate of what to expect and help you figure out what is reasonable to charge given your situation.
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