What's Your Profit Margin?

How much do you really make per session?

By Les Sweeney and Kristin Coverly
[Business Side]

A regular topic of conversation in our field is income, with comments coming from those who are employed by others and those who are independents. Many times, hourly pay is used as a means of comparison when considering jobs (or attacking employers). The US Department of Labor’s Bureau of Labor Statistics provides an estimate on pay, but it doesn’t account for independent professionals.
Associated Bodywork & Massage Professionals (ABMP) shares member survey data about therapist income. There are lots of numbers bandied about. But do you know how much money you make per hour, per session, per month, per year? Do you know your profit margin? How much of your income is left after all taxes and other expenses are accounted for?
For this exercise, let’s look at how to calculate hourly net profit for both work situations rather than per-session net profit, since session lengths vary.
Grab your calculator—we’re doing some math!
Employees can calculate a few different categories of hourly net profit: current, year-to-date, and annual.
Current Hourly Net Profit
To calculate the hourly net profit for your most recent pay period, divide the total net amount of your current paycheck (after taxes and all other deductions are taken) by the number of session hours you worked during that pay period. Done.

Year-to-Date Hourly Net Profit
Calculate your year-to-date hourly net profit using figures from your current paycheck. Subtract your year-to-date taxes withheld from your year-to-date gross income. This is your year-to-date net income. Divide this figure by your year-to-date session hours to get your final year-to-date hourly net profit. The session hours figure will probably not be on your pay stub; you’ll need to track that on your own, or get the information from your employer’s records.

Annual Hourly Net Profit
Use your IRS W-2 form for the previous year to calculate your annual hourly net profit. First, take the “wages, tips, other compensation” amount in Box 1 and subtract all of the “taxes withheld” amounts from Boxes 2, 4, 6, 17, and 19: federal income tax, Social Security tax, Medicare tax, state income tax, and local income tax. This gives you your net income for the year. Divide this figure by your total session hours for the year to get your annual hourly net profit.

Sole Proprietors
First, here’s a quick quiz: Do you know the total amount of gross income and business expenses you claimed on last year’s taxes without having to look it up? You should know all the important data for your practice off the top of your head. Or at least have that information handy for you to reference easily.

Annual Hourly Net Profit
While you can calculate weekly and year-to-date hourly net profit for your practice, you’ll get a more accurate figure if you calculate your annual figure. Why? Expenses aren’t consistent and can fluctuate quite a bit from month-to-month, so if you have a month where expenses are low, your profit figure will look a whole lot better than the month you paid your state license renewal fee, had to buy more lotion and sheets, or purchased a massage chair.
Most of you will actually find it fairly easy to calculate this figure on an annual basis since you’ve already done most of the math for your taxes (thanks, Uncle Sam).
What was your gross income—total income before any taxes or expenses were taken out—last year? Pull this figure from your income tracking system or your Schedule C tax form.
Next, let’s calculate your total costs. We’ll do this by adding your expenses and self-employment tax.
Start with the total amount of business expenses you claimed on last year’s Schedule C tax form. This figure includes every operating expense you incurred for your business: office rent, phone, association dues, continuing education, equipment, Internet, laundry, licensing fees, supplies, etc.
Add the amount you paid in self-employment tax last year; this figure is on your Schedule SE tax form.
Subtract the total of your operating expenses and taxes from your gross income. This gives you your net income for the year.
Calculate the total number of session hours you worked last year. If you’re not already tracking the length of each session you give, it’s a helpful and easy figure to add to your income spreadsheet. If you don’t have the exact number for last year, take the number of sessions you gave and multiply that figure by your average session length to get your total session hours.
For this exercise, we’re going to vary from the classic profit margin equation and have you also account for the time you spent marketing and managing your practice. Determine how many hours you spent doing these tasks last year. If you didn’t track the hours you spent marketing and managing your practice throughout the year, estimate how many hours you typically spend doing this each week and multiply that figure by the number of weeks you worked last year. Add these hours to your total session hours.
To calculate your annual hourly net profit, divide your net income by total hours.
We encourage you to calculate your annual hourly net profit twice for comparison; with the practice management hours and without. But if you’re trying to provide an accurate assessment of how much you make from practicing, you should include your practice management hours. You wouldn’t have the revenue without those hours, after all.
Now, you have your annual hourly net profit! Is it what you expected? More? Less? Are you disappointed? Let’s think about this:
• If it’s more than you thought it would be—awesome. So, if you’re thinking like a capitalist, you’re saying to yourself, “Can I grow this?” Think about your hours: can you squeeze in a few more sessions per month? If so, that’s one way to make it grow.
• If it’s less than you thought—read on, my friend.

How Can You Make More?
Since the two parts of the net income equation are income and expenses, it makes sense that you increase your profit margin figure by either lowering your expenses, raising your income, or—ideally—doing both. You lower expenses by tracking them carefully and looking for opportunities to cut or reduce each of your line items. Can you save money by ordering products using your ABMP member discounts? Do it. Can you reduce your rent by subleasing your massage room when you’re not using it? Do it.
How do you increase your income? Step one, of course, is to increase your client numbers and fill your schedule by getting new clients, increasing client retention, and increasing clients’ session frequency.
Next, evaluate your rates. Are they competitive with the other rates in the area? Is it time to raise your rates because of increased years of experience or new modalities?
Employees, do you think your earning potential rests solely in the hands of your employer? Not true! There are a number of marketing strategies you can implement as an employee to fill your schedule and increase your income. At the top of the list are client retention strategies to encourage clients to rebook with you specifically and not just with whichever therapist is available at the time. As you’re talking with the client after the session, ask if they’d like to schedule another session with you before they leave. If they can’t rebook in the moment, give them a business card with the days and times you work written on it.
Hopefully, you were able to go through this exercise in a relatively quick fashion. Don’t recycle this magazine—keep it! You should perform a checkup every six months to see if your numbers have changed. But remember: data just sits there unless you use it to act. Take the time to run your calculations, and then reflect on what they tell you. It’s like getting on the scale—it’s just a number. How you choose to use that number is up to you.

Les Sweeney is ABMP’s president. Contact him at les@abmp.com and read his blog Expect More, With Les, on
www.abmp.com. Kristin Coverly, kristin@abmp.com, is the manager of professional development at ABMP and creates resources and teaches workshops for therapists across the country. Both are massage therapists with business degrees who care about you and your practice.