A successful and profitable health coaching business, like most things, must be built. Many health coaches struggle when it comes to pricing their services due to their deep, meaningful passion to help people in need. After all, people need health coaching—and the resulting improvements in their overall health and wellness—now more than ever. Rather than view pricing as a barrier to your passionate pursuit, choose to view it as a propellent. Profit is a necessary condition for existence and a means to a health coach’s purposeful end. Profit is like oxygen, food, water and blood for the body; they are not the point of life, but without them, there is no life (Collins & Porras, 2005).
Follow these steps to discover your optimum pricing and profit.
Step 1: Identify Your Annual Financial Goal
Setting a financial goal is the first step of creating a business plan. When setting your financial goal, it important to recognize the difference between revenue and profit
Revenue is the amount of money you generate from selling services and/or products.
Profit is the amount left over once you subtract expenses you pay to operate your business from the revenue. This is the amount of money that you actually earn.
The goal you want to identify is how much you want to make each year year that is your proft
Step 2: Calculate Your Baseline Expenses
While topline revenue, or how much you earn before expenses, can be an exciting number, it’s your profit that matters. Because your baseline informs the minimum revenue you must earn to reach your first dollar of profit, the next step is to calculate that value.
Your baseline is simply the sum of all of your fixed and variable costs when it comes to creating, marketing, selling and delivering services to clients. Some items to consider include internet and mobile phone access, website hosting, apps, scheduling and billing software, maintenance of current certifications, educational conferences and/or video camera and associated equipment.
- Annual fixed cost example: Business utilities $3,000 + Education $3,000 + Equipment $1000 + Miscellaneous $500 = $7,500 total
- Monthly expenses: $7500 / 12 = $625
In this example, your profit will be everything you earn above $7,500 per year, or $625 per month. Understanding and accurately projecting your baseline costs empowers you to define and structure how much you will charge for your health coaching services.
Step 3: Calculate How Much to Charge Per Billable Hour
Once you have calculated how much money you want to earn and have identified basic expenses, you need to determine how much money you will need to charge per hour with clients to earn the profit you desire.
To calculate how much to charge per billable hour, start with your annual profit goal (from Step 1) and divide by 12 to determine your monthly profit goal.
- Example: $100,000 per year/12 = $8,333 per month
Then, use your estimated costs to calculate your monthly expenses.
- Example:Monthly expenses, as calculated in Step 2, equal $625 per month
Add the monthly costs to the profit goal to determine how much money you will have to earn each month (in total revenue, not profit).
- Example: $8,333 + $625 = $8,958
Next, you’ll need to determine the number of billable hours you’ll have each month. Start by determining how many hours per week you would like to work and subtract 10 to 15% from the total number. The 10 to 15% buffer is to account for non-revenue-generating functions like marketing, scheduling and record keeping.
- Example: If you plan to work full-time, you would multiply 40 hours per week by 15% and subtract that number from 40 to determine pricing based on 34 billable hours per week.Then, multiple 34 x 4 = 136 for total number of billable hours per month.
To determine how much you need to charge per contact hour to meet your annual profit goal, divide monthly revenue by the number of monthly billable hours.
- Example:$8,958/136 = $65.87/hour*
This health coach could expect to generate approximately $107,500 per year ($8,958 x 12) in revenue—for a profit of approximately $100,000—by charging an average of approximately $66.00 per billable hour.
A couple of important notes: First, you may want to allow yourself at least a couple of weeks of paid vacation each year, meaning that your revenue calculations would account for 50 weeks per year instead of 52. For example, instead of calculating your monthly revenue as one-twelfth of your annual revenue, you may want to calculate weekly revenue as one-fiftieth of your annual revenue. Second, $100,000 of annual income may seem like a lofty goal, particularly at the outset. Remember that while you are determining your monthly rate to hit your profit goals, it may take some time to acquire the number of clients needed to fill all of your billable hours.
*One additional consideration will be taxes; both sales and self-employment tax. You’ll want to consult with an attorney regarding sales tax and self-employment tax implications in your state. When reviewing your pricing strategy, you will want to estimate the amount you’ll need to set aside for taxes and subtract that number from your revenue generation estimations to ensure you are reaching the financial goals you have set for yourself.
How to Beat This Common Profit Trap
Beware of the cancelation/rescheduling trap, which diminishes profit and increases frustration. While reported cancellation/rescheduling rates vary greatly, even very conservative estimates are around 15%.
To beat this trap, rather than rely on contractual cancelation penalty fees, which may at best create an awkward conversation and at worst an adversarial one, consider designing the offering to include “up to four sessions a month” rather than “four sessions a month.” This small adjustment to your client agreement will not only prevent potential future issues but add dramatically to your profitability.
Consider a Thinking Shift
Theodore Levitt, Harvard Business School professor of economics, famously stated, “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.” In other words, people pay for the results, not the process.
People working in service industries often fall into the trap of simply trading their time for money, when they really should be charging clients for the results they can achieve. It’s important to expand your thinking about time beyond simply blocks of minutes, hours and days that you exchange for money.
Remember, your client is hiring you to help them achieve their intentional change as a path to build their best future self. Viewing your health coaching practice and pricing model through the lens of what your client is really purchasing may lead to more effective cost, pricing and profit outcomes.
Embracing the need for profit to fuel your unique calling to serve others, and creating ways to determine your value beyond the exchange of money for time, allows you to price your services so that you are in a position to thrive and prosper as a health coach.
Collins, J. & Porras, J.I. (2005).Built to Last: Successful Habits of Visionary Companies. New York: Random House.