March/April 2008

Recession-Proof Your Practice
By Lynn Grodzki, LCSW, MCC
Social Work Today
Vol. 8 No. 2 P. 28

Survive the downsliding dollar. Protect your practice with innovative strategies that strengthen your professional power to attract clients.

More than one half of social workers deliver services within a private practice at some point during their careers (Center for Health Workforce Studies, 2004). So what happens when the therapy market is hit by a recession? This is the bleak prospect with which many social workers across the United States have already begun to struggle.

Although the country may only now be headed into a recession, the financial problems for those in private practice started a few years earlier. In January 2006, Psychotherapy Finances, a newsletter for behavioral health providers, released an industry-wide survey of psychotherapists in private practice indicating that after 20 years of relative income stability, the financial picture for psychotherapists across professions looked dismal. The newsletter surveys all psychotherapy providers every one to two years and in this recent survey, social workers fared worst: Those in private practice reported a 26% decline in overall income since 2000 [when adjusted for inflation].

This decline was based on several factors, the most significant being that social workers in full-time private practice are fighting a losing battle against managed care. The 2006 survey shows that social workers rely heavily on managed care as an income source rather than self-pay. Other professions seem to have an easier time attracting private pay clients. For example, marriage and family therapists report that 44% of their caseload is self-pay and psychologists report 27%, but social workers report that only 22% of their clients pay out of pocket and that 52% of their practice income is derived from managed care.

To add to the economic challenges, the survey confirms that the cost of doing business in a private practice remains unchanged from previous years, ringing in at a hefty 30% to 45% of a social worker’s total income. The 2006 median gross income for social workers was $58,000. Feeling the squeeze between lower income and higher expenses, many social workers make a “salary” or profit of only $30,000 per year after deducting operating expenses.

John Klein, editor of Psychotherapy Finances, suggests that the survey’s bottom line can’t be overstated: Therapists in private practice must increase the nonmanaged care portion of their professional income by finding more private pay clients, contracting work with schools or industry, or diversifying a practice with teaching, writing, coaching, or consulting.

Dana C. Ackley, author of Breaking Free of Managed Care: A Step-by-Step Guide to Regaining Control of Your Practice, sees the current situation as a potential blessing. “This might be the best thing that could happen to those in private practice,” Ackley says, “if it forces psychotherapists to redo their relationships with the insurance companies and rethink their way of interacting with the public. Those who tied themselves to the medical model have now reaped what they sowed. Private practitioners have become dependent upon insurance companies. This relationship has become abusive. Just as in abusive marriages, dependency relationships are maintained out of the false belief that ‘I can’t get along with him or her.’ Therapists need to think about what they would tell an abused spouse about giving up dependency relationships and then take their own advice.”

Radical Rethinking
Breaking the codependency cycle that social workers have developed with managed care may require something more akin to major surgery than to applying a bandage. For starters, those in private practice could take steps to move from a medical model toward a consumer model when approaching the public. To do this, they would eliminate medical jargon when talking about services and learn to use ordinary language that the lay public understands when articulating the benefits of psychotherapy.

Social workers could work together in professional meetings to find the words to explain who they are, what they do, and why sessions with a social worker can create specific results. Then they would find new ways, including using the Internet, to deliver that message to the public. Rather than ask each individual social worker to carry the burden of promoting himself or herself and his or her business, they may ask state and national social work associations—long ambivalent about the role of private practice within the field—to help them define and target new markets to build market share. These professional associations, as well as university social work programs, may be lobbied to offer business courses as part of education.

Social workers with private practices wear two hats: They are clinicians and business owners, helpers and entrepreneurs. These roles, seemingly oppositional, must become successfully reconciled. If social workers lack business experience, are disorganized, have money issues, or routinely fail to clear policies with clients, they need ongoing education as business owners. Being in a private practice and staying unqualified in business can harm one’s clients, just as being deliberately inexpert in regard to clinical methods is uncaring and unethical.

Learning to love the business of therapy is essential. It allows social workers in private practice to stay autonomous, profitable, and creative. In coaching social workers across the country to build their practices, I see that with the right information and business support, therapists can become competent, ethical, empowered business owners without losing any therapeutic skills or integrity.

Future Business Models
A recession-proof private practice of the future—one that’s consumer driven, free of managed care, and highly marketable—may look quite different from the ones that social workers occupy today. There are many possible business models for a future-oriented practice, but here are four generic business structures which I have seen used in the field, all of which seem resilient enough to ride out the coming economic ups and downs. All four relate to a matrix of business development strategies developed by Igor Ansoff, considered the father of strategic development. The Ansoff Growth Matrix has four levels, and each of my proposed business models builds on one specific strategy:

The matrix is built along the integration of markets and products, existing and new. As you approach the models that require newness, your investment and your risk increases but so does the potential profitability. You may consider each of these distinct models, as well as others, in order to determine one that is a good fit in terms of your business vision, business plan, comfort with risk, and desired degree of business growth.

1) Business Model: Market Penetration
Expansion Criteria: Existing markets, existing products
Application: Boutique Practice
Focus on: The “who” of the practice (therapist)
Target Market: Those who want you
Business Risk: Low

The boutique practice is one that you may already operate; it is the aspiration of many therapists in private practice because it signals a high level of attraction. Clients come into your practice not just seeking counseling or therapy—they seek you. This type of practice is fueled primarily by referrals from existing clients or solid referral sources.

This business model is a growing trend with some physicians: For an additional fee, sometimes in the form of a yearly retainer, they limit their caseload and offer immediate access, longer appointment times, and a high level of medical care. The idea of a yearly retainer in addition to session fees seems to challenge the ethics of a social work practice, but the concept of specialized services for a specialized clientele is sound.

To develop a boutique practice, it’s important that you openly articulate the value of your services to help clients understand the expertise, access, and care they’ll receive. This model works best when you offer niche services targeting a specific market. You have to know your market and understand its critical features in terms of services, location, and results.

2) Business Model: Product Development
Expansion Criteria: Existing markets, new products
Application: Brand Recognition
Focus on: The “what” of the practice (method)
Target Market: Educated consumers
Business Risk: Moderate

This next business model entails more risk for you as a business owner because you base your practice on a single method. The method requires investment in terms of training, certification, and affiliation. It becomes your brand, the reason clients seek out your practice. You still stay within your existing market of clients while showcasing the brand.

With a brand recognition business model, you sell the “what” (the method and services) instead of the “who” (the therapist’s reputation). With this business model, developing brand loyalty is the ultimate goal of marketing. You must believe completely in the efficacy of the brand (e.g., Eye Movement Desensitization and Reprocessing, Imago Therapy) so you have congruence when promoting it to your clients.

This practice is not for social workers who consider themselves eclectic but for those who are comfortable tying themselves and their work primarily to a single method. If the method has “legs”—media attention, a book associated with it, a charismatic spokesperson—then you get referrals by association. Your best clients may be educated to the value you offer and, if they have a good experience, will generate a buzz about your practice, creating word of mouth advocacy. As they spread the word, they become part of your marketing plan, referring others to experience the same positive outcomes.

3) Business Model: Market Development
Expansion Criteria: New markets, existing products
Application: Retail Clinic
Focus on: The “where” of the practice (accessibility)
Target Market: Those who need services right now
Business Risk: Moderate to high

An example of market development for therapists is the retail clinic, a bare-bones operation set up to cast a wider net than a boutique practice and serve less affluent clients. We can see this model already in operation in the medical field. QuickHealth has opened retail medical clinics in northern California, offering primary care, pay-as-you-go clinics for working families. Drugstore giant CVS has followed suit.

A retail clinic focuses on the affordability of sessions (no insurance involved) and ease of access. This model requires therapists who can counsel families and individuals for a range of generic mental health care issues. In a single day, a therapist may treat depression, anxiety, couples problems, parenting issues, and addiction concerns.

Market share is critical because in a retail clinic, a constant flow means the difference between feast and famine. Twenty-five percent of total expenses is often spent on advertising. One psychotherapist outside Chicago finds clients primarily through a large ad in the yellow pages that costs her $10,000 each year but effectively promotes her reasonable flat fee of $49.95—cash only, no insurance accepted—for a 35-minute counseling session.

Her office is in a retail strip mall. It isn’t fancy, and she returns calls within 24 hours by using a low-cost answering service that also schedules her sessions. She has a waiting list and employs two associates. All are trained in cognitive-behavioral therapy, which makes managing the shorter sessions possible. The clinic can accommodate 30 or more clients each day because shorter session times allows for increased volume. She asks each client to fill out a pretherapy and posttherapy survey loaded on a computer in the waiting room to track client satisfaction session by session. So far, the clients resoundingly approve of this easy, consumer-based, affordable approach. Last year, her clinic grossed $325,000.

4) Business Model: Diversification
Expansion Criteria: New markets, new products
Application: Career Components
Focus on: The “how” of the practice (multiple roles)
Target Market: Separate market for each service
Business Risk: High

This is the boldest and riskiest of the strategies because you develop a new service and target a new market. The services that social workers add often revolve around what’s needed in a nontherapy setting; executive coaching, management consulting, expert witness, teaching, mediation, and training seem to be popular and profitable roles for therapists who retool their clinical skills. Diversifying into alternative services intrigues some therapists, who may have become part-time acupuncturists, meditation instructors, personal trainers, or life and spiritual coaches.

The most profitable way to operate a career component practice is to separate your multiple roles on multiple tracks. Imagine each role as a train on its own track able to chart its own direction. For example, clinical services are on one track with their own budget, marketing plan, and client base. Consulting services are on another with a separate Web site, network, and expense budget.

The most profitable diversification strategies involve finding at least one role that puts you outside of a clinical setting. Executive coaching, management consulting, leadership training, or team building can be popular and profitable for those therapists who can adapt their clinical skills to corporate culture, while diversifying into “softer” services interests other therapists.

Recession Proofing
To stay recession-proof, social workers need to recognize that the market is changing and take action to find new ways to operate profitably and ethically. Social workers offer important, sometimes essential services via private practice, and our practices need to stay viable.

As we hold on to values that define us professionally and stay true to our core philosophy to help clients, we still need to earn a living. Continuing to receive a fair fee for our services may require a willingness to let go of old practice models that are better suited to past decades.

Some of the business changes proposed here may take years for the individual practitioner to put into place. That’s why social workers need to start today as we look ahead. Either we will be victims of the changing market or be proactive and astute. I hope that together we can stay informed, support each other in our professional development, and endure.

— Lynn Grodzki, LCSW, MCC (master certified coach), is a therapist in private practice, the author of several best-selling books on practice building, and the developer of the Private Practice Success Program.