If you set your private pay rate a while ago and haven't changed it since, the number on your website and intake paperwork may no longer cover what a session costs you to deliver. The way to find out is to calculate that cost, build your rate on top of it, and give current clients written notice before the new rate takes effect.
This post covers all three. You can do the math this week with the last 12 months of practice expenses and your billing records.
What does a therapy session cost you to deliver?
Your cost per session is your total annual practice expenses divided by the number of sessions you held in a year. Not the number you scheduled. The number that happened and got paid.
Cost per session = total annual practice expenses / sessions held in a year
This is the floor. Any session billed below it loses money before you've paid yourself anything.
What counts as a practice expense
Pull 12 months of expenses from your bookkeeping software or business bank account. If you run your practice budget in YNAB, your category totals for the last 12 months give you most of this in one view.
Include:
Rent or office share, including any coworking or sublet fees
Software: EHR, telehealth platform, scheduling, payment processing fees, bookkeeping tools
Insurance: professional liability and any general business policy
Licensing: renewal fees, board fees, and memberships you keep for the practice
Continuing education: course fees, plus travel if you attend in person
Admin help: virtual assistant, biller, intake support, bookkeeper, CPA
Marketing: website hosting, directory listings
Phone, internet, and office supplies
Two costs need separate handling.
Taxes set aside. Taxes are a real cost of running the practice, but they depend on how much the practice earns and what you pay yourself. They get added in the next step, alongside owner pay, so you don't count them twice.
Time off. Vacation, holidays, sick days, and CE days don't show up as an expense line, but they cost you. Rent and software keep billing during weeks you aren't seeing clients. That cost is captured in the session count below.
Why sessions held is different from sessions scheduled
Your calendar shows what you booked. Your revenue comes from sessions that took place, plus any late cancellation or no show fees you charged and collected.
Sessions held is lower than sessions scheduled because of:
Cancellations you didn't charge for
No shows you didn't charge for, or charged and never collected
Weeks off for vacation, holidays, illness, and CE
Clients pausing treatment
Open slots you didn't fill
Get this number from your EHR or billing report for the last 12 months: paid sessions, not appointments.
Most annual income and profit goals I see are built on a full year: a full caseload, 52 weeks. Almost no one works that year. Vacations, holidays, sick days, CE, and cancellations take a real share of it, so a goal built on 52 full weeks was out of reach before January started. Building from sessions held gives you a goal you can hit.
How do you set your rate from your cost per session?
Start with cost per session as the floor. Then add what you need to pay yourself, the taxes on that pay, and a profit amount the practice keeps. Divide those by sessions held and add the result to the floor. Then check whether the session count behind that rate is one you can hold. It answers "how much should a therapist charge per session" with your own costs and targets instead of a directory average.
Put together:
Rate = (practice expenses + owner pay + taxes set aside + profit) / sessions held
The pieces on top of the floor:
Owner pay: the annual amount you pay yourself before tax.
Taxes set aside: use the figure from your CPA or what you set aside for quarterly estimates last year. Don't guess a percentage from a blog post, including this one.
Profit: money the practice keeps after paying you. It covers slow months, equipment, and next year's cost increases. It is separate from your pay.
Worked example
The numbers below are hypothetical and rounded for easy math. They are not averages or benchmarks.
For a real reference point, Heard's 2026 Financial State of Private Practice report found median practice expenses of about $18,000 in 2025, on median revenue of about $80,000.
A solo therapist's annual practice expenses:
Rent: $12,000
Software: $1,200
Payment processing: $3,600
Liability and business insurance: $1,200
Licensing, board fees, and CE: $1,500
Admin help and billing support: $3,600
Bookkeeping, CPA, and tax prep: $2,400
Website and directory listings: $1,500
Phone, internet, and supplies: $1,000
Total practice expenses: $28,000
She sees 25 clients a week and takes 4 weeks off, so she books 25 x 48 = 1,200 sessions. About 100 of those are cancellations and no shows she didn't charge for. Sessions held: 1,100.
Cost per session: $28,000 / 1,100 = about $25.50.
If she had used 25 x 52 = 1,300 sessions, her cost per session would look like $21.50. Overcounting sessions makes every number after this one look better than it is.
Now the targets on top:
Owner pay: $90,000
Taxes set aside: $27,000
Profit: $9,000
That's $126,000. Divided by 1,100 sessions, it's about $114.50 per session.
Rate: $25.50 + $114.50 = $140 per session.
If her current rate is $125, she brings in $137,500 on 1,100 sessions. That's $16,500 short of the $154,000 the practice needs. Expenses get paid first, so the shortfall comes out of her pay or her profit.
Check the rate against sessions you can realistically hold
A rate only works at the session count behind it. If 1,100 held sessions means a schedule you can't keep for a full year, run the math with the number you can.
At 1,000 sessions held, the same $154,000 needs a rate of $154.
That leaves you three levers: the rate, the number of sessions, and the targets. Change one and the other two move. The point is to choose on purpose instead of letting the old rate decide for you.
To compare scenarios quickly, use the Income Goal Calculator. Enter the take home pay you want, your tax rate, and the weeks you work after time off. Then switch between solving for your rate and solving for sessions per week.
The calculator leaves out practice expenses, cancellations, and no shows, so the rate it shows will come in lower than the method above. Use it to see how the levers trade off. Before you settle on a number, add your cost per session and your profit target back in.
Your local private pay market tells you about demand. It doesn't tell you what your practice costs to run. Look at both, but build from your own numbers.
Why is raising rates on current clients so uncomfortable?
Because most rates were set by feel. When the only thing behind a number is your own judgment, explaining an increase feels like defending what you think you're worth.
A rate built from cost per session changes what the conversation is about. Costs went up, so the rate follows. The conversation stops being about your worth and becomes about what the work costs to deliver.
The number also tells you what you can flex. If you know your floor and your targets, you know whether you can hold a reduced rate for a specific client, and what it costs you if you do. That's a business decision you can make once, in advance, instead of in the moment when a client asks.
Therapists are trained to lead with empathy, and that training doesn't switch off when the topic turns to fees. Going from a session to a conversation about your rate can feel like changing professions mid-hour. Setting the rate from your numbers handles the business side before the conversation happens. The written notice explains the cost, so you don't have to make that case in the room.
How do you give clients notice of a rate increase?
Give current private pay clients 30 to 60 days of written notice. State the new rate, the effective date, and a one sentence reason. Send the same notice to all affected clients at once.
Timeline for a January 1 increase
Sixty days before January 1 is early November. Thirty days is early December. Sending in November covers both ends of that range.
You can change your rate in any month. If you're past the window for January, pick a new effective date and count back from it.
Before the notice goes out:
Decide the new rate and the effective date
Update the fee section of your intake paperwork and informed consent documents
Set the new rate in your EHR or billing system with the effective date
Update your website and directory listings (new clients can start at the new rate right away)
Prepare updated Good Faith Estimates for self pay clients (see below)
Put it in writing, once
Send the notice by email or through your client portal, on the same day, to every current private pay client. Save a copy with the date sent.
Doing it once keeps it a single business decision: one rate, one date, applied to everyone. No client finds out late, and you don't end up handling the same conversation fifteen separate times.
Some clients will bring it up in session. Have a one or two sentence answer ready that matches what the notice says.
What to include in a therapist rate increase letter
The current rate and the new rate
The effective date
A brief reason
What isn't changing
Who to contact with billing questions
Sample therapist rate increase letter:
Subject: Session rate update effective January 1, 2027
Hi [Client name],
Starting January 1, 2027, my private pay session rate will change from $[current rate] to $[new rate] per session.
Practice costs, including rent, software, insurance, and licensing, have increased. This change keeps my rate in line with what it costs to provide your sessions.
Your appointment time, cancellation policy, and payment method on file will stay the same. If you have questions about billing or your Good Faith Estimate, reply to this message or bring it up at your next appointment.
[Your name]
[Practice name]
Which clients does a rate increase apply to?
Private pay and self pay clients. These are the clients whose rate you set.
Insurance clients are a different calculation. Your contracted rate with each payer is set by the payer, and changing your private pay rate doesn't change what an insurer reimburses. If you're out of network and clients pay you directly and submit superbills, they're private pay for this purpose.
Sliding scale clients. Decide before you send notice whether reduced rate clients move too, and by how much. Make that decision once, for the whole group.
Good Faith Estimates. Under the No Surprises Act, uninsured and self pay clients are generally entitled to a Good Faith Estimate of expected charges, and a change in your rate may mean issuing an updated one. Requirements have changed since the rule took effect, so confirm the current rules with CMS guidance or your own legal or compliance resource before your notice goes out. This post is not legal advice.
Your next step this week
Pull your last 12 months of practice expenses and your count of paid sessions from your billing report. Divide one by the other. Compare that cost per session, plus your owner pay, tax, and profit targets, to the rate you're charging now.
If there's a gap, choose your new rate and effective date, and get the notice out in November.
If you want to work through your own numbers with someone who does this with practice owners, that's what The Business Hour is for.
Set your 2027 rate with your own numbers
Bring your last 12 months of expenses and your session count. In The Business Hour, we work through your cost per session, set a rate built from your targets, and map out when your notice needs to go out.
Frequently asked questions
How much notice should a therapist give before raising rates?
Give current clients 30 to 60 days of written notice before the new rate takes effect. For a January 1 increase, that means sending notice in November. Check your own informed consent paperwork in case you've committed to a specific notice period there.
Should I raise rates for current clients or only new clients?
Your cost per session applies to every session you hold, not just sessions with new clients. Raising rates only for new clients leaves your current caseload billing below what the practice needs. If you phase an increase for current clients, decide the schedule once and put it in writing.
How do I calculate my cost per session in private practice?
Divide your total annual practice expenses by the number of sessions you held and were paid for in the same 12 months. Use your billing report, not your calendar, so cancellations, no shows, and weeks off are reflected in the count.
