The Private Practice Success Podcast

43. What is a Realistic Profit Margin in Allied Health Private Practice?

• Gerda Muller • Episode 43

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In episode 43, Gerda dives into one of the most misunderstood (and often controversial) topics in allied health private practice: Profit Margins. 

With honesty and practical insight, Gerda unpacks why talking about money isn’t just important for your business, but absolutely essential for your ability to help more people, build a sustainable team, and create long-term impact.

From defining what a profit margin actually is, to explaining why percentages matter more than dollar amounts, Gerda walks you through the benchmarks, realities, and mindset shifts every practice owner needs to understand. 

You’ll learn how to assess your current margins, what’s realistic for group practices (versus solo), and why aiming for 'just breaking even' puts your whole business at risk.

In this Episode, you will learn (among others):

  • What a profit margin really is (and why so many practice owners get it wrong).
  • The four levels of profit margin health and how to move from surviving to thriving.
  • How to benchmark your business, set realistic goals, and avoid the common traps that keep allied health owners from building profitable, future-proof practices.

Special Bonus (FREE Resource):

Download the Net Profit Margin Calculation HERE to you can be fully empowered with where your margins are at. 

Who This Episode Is For:

  • Allied health practice owners ready to move beyond money shame and build a business that’s both impactful and financially healthy.
  • Leaders who want to understand their numbers, make informed decisions, and create a practice that’s sellable and sustainable.
  • Anyone tired of being judged for wanting more and determined to run a business that supports their team, clients, and their own wellbeing.

Want Gerda's Help with your Business?

Gerda helps allied health group practice owners go from overwhelmed, overworked, and underpaid to fully empowered and financially thriving. If this is you, then make today the day you reach out. Complete this super short Triage Form here bit.ly/triageformpps and Gerda will personally reach out to you. 

Here to help you build a practice you can't stop smiling about :)

Connect with Private Practice Success & Gerda here:

 Well, hello there amazing private practice owner. My name is Gerda Muller, and you are listening to the Private Practice Success Podcast, and this is episode number 43.  

Today we are going to talk about a really touchy subject, and that is: What is a realistic profit margin within Allied Health Private Practice. So why is this a touchy subject? Well, it's touchy across multiple levels.

Money Shame

The first thing is that I'm most probably recording this topic at the very significant risk of once again being dubbed - and I'm saying this in air quotes - “being that business coach, that's all about the money.”  I can't tell you how many times I've been in Facebook groups for particularly psychologists, and a lovely practice owner will be asking in that group for recommendations for a business coach.

And I can tell you it takes a lot of guts putting your hand up in a large group, full of your peers and going - “Hey guys, I need help with my business. Can you recommend someone?” And then generally there would be a lovely person that goes, “Hey, I can highly recommend Gerda Muller from Private Practice Success.” And I always take that as such a humongous compliment - that is so big. 

And then invariably, there's this person that can't help themselves. They have to do this -  it is like their social responsibility towards everybody else in the group to put out this warning:  I don't think you need to work with Gerda, because you know what? She's all about the money. Rather work with A, B, and C because they've got way better values. They're not all about the money.” 

This has happened so often and I often think like, okay, that's ballsy because you most probably know that I could be in this group and you just don't care. Right. Which is fine. And when that happens, I normally have a couple of thoughts. On the one hand, my fast reaction always is or is always, “Well, hell yes. You are so freaking right. I'm all about the money. Because you know what? Without money, you cannot have a freaking business.” That's just how it is.

Money is the most important resource within your business. Because without it, you cannot hire team members. Without it, you cannot keep your doors open. And therefore, without it, you cannot help clients. So when you are actually open about talking about money and making money in a business - which is a private business, where you don't get any government funding or grants - you have a responsibility to look at the money. Because without it, you aren’t going to have a business. So maybe what you should do before judging somebody else on the interwebs, is go and look up the definition of business. 

Or are you saying that just because I'm a psychologist, a helping professional that I need to live and work in poverty for the rest of my life after having spent six years at university, delaying my earning capacity, spending a lot of money, getting my qualifications, maintaining my qualifications - that I now need to continue to live in poverty and just like bulk bill or work for free. I'm sorry, I'm not going to do that. You might have a sugar daddy paying all your bills and expenses. But I don't. Never have had one, never will have one, because I'm not freaking prepared to do what I need to do to have a sugar daddy.

So I need to live in reality. I do live in reality, and reality tells me that if I want to help people as a psychologist, as an allied health professional, I need to be really clever with the money I have. I need to make money resourcefully and use it resourcefully because when we have a profitable business, we can help more people in better and more effective ways.

So if you want to continue shaming me for doing that, well then go ahead. I don't want to work with people that don't get that. So really what you are doing, when you are making that comment in a Facebook group, you are doing me a humongous favour. Because the practice owners that I end up working with are reading your comment they are thinking you are ridiculous. You've probably never run a business in your life. 

Maybe you've tried and you've failed miserably, and therefore you are now just so miserable because other people might actually be doing it in the right way. Yeah. So that's what I think. And now all of you know what I think when that happens. So even though you might think you're shaming me, you are not.

Now that all being said, I do know that that often puts a lot of practice owners aback where they go, Oh my goodness, does that mean that I'm all about the money? And then this might trigger money issues, because our money issues really come from childhood, from growing up - whether you've grown up with abundance or with scarcity.

There's so much stuff that goes into our own money issues, and I often think that when people make comments like that, they're just revealing their own money issues.  If somebody makes a comment and that triggers something in you, that's you know, just a little whisper for us to go, Hey, maybe there's something that we still need to address.

But this podcast episode is not about our money issues and our money blocks. But I just wanted to raise the fact that this might come up for you even just reading the title of today's topic. What is a realistic profit margin? The word profit margin might be bringing stuff up for you. If it does, that's okay. It's perfectly fine. Just go with the flow and let's see what it reveals for you as I continue to share with you my thoughts on a profit margin in Allied Health Private Practice.

Defining your Profit Margin

So I guess we should probably start with: what is a profit margin? Often when I ask people when they start working with me - so maybe let's just backtrack. When somebody signs up for my PPS Academy, or they come and work with me in my Founder's Club, I give them what I refer to as a diagnostic assessment that helps me assess where their business is at.

One of the questions on there is, what's your profit margin? And I can tell you that eight out of 10 people - not nine out of 10 - eight out of 10 people will tell me their profit margin is a dollar amount. So they would tell me, ‘Oh, I made a hundred thousand dollars in profit’ for example. And then I need to go back to them and go, that's not your profit margin. That's your profit expressed as a dollar, which is great, but I need to know what your profit margin is. So a margin is expressed as a percentage.

If I had to define profit margin, I would say it is most certainly a key financial metric within your business. And what it measures is: it looks at how much profit you are retaining from your revenue after you've covered all your expenses. So it really reflects the percentage of income that is left over once you've paid all your clinician wages, including your own - so a lot of people forget to include their own in there - you've paid all your admin, your rent, your equipment, your marketing. So all your operating expenses have been paid. That's the amount of money you have left, but we express it as a percentage. 

So why a percentage and not a dollar amount? Because I do know it's way more fun seeing the actual dollars. Like what does that mean? How much money is that? But we look at a percentage because one of the biggest mistakes I see group practice owners make is that they are so eager to grow their practice. Because when we grow our practice, we generally grow our team members. And when we grow our team, it means that we can help more people, right? Because that's why we are in this. 

Like I said at the start, we are in this to help more people in better, more effective ways. So we hire more team so that we can open up more appointment slots, so that we can help more people. People can come through our doors and get the help that they need. 

But if you're not looking at your profit margin, you might be making the same amount of profit in dollars. So let's say you make a hundred thousand dollars profit when you have four team members. Now you double your team size - now all of a sudden, you've got eight team members. If you are still making only a hundred thousand dollars in profit, that's not right. Does that make sense? It's like surely you should be doubling that. And that's the problem. 

A lot of people aren't growing their profit as they grow their business, which means that all they are doing is they're just growing the number of headaches they have to deal with. And if you've got this large business and you are only still making a hundred thousand dollars in profit, it's like, why would you do that when you can just as well go back to only having four people to manage and support and make the same amount of money in terms of dollars that doesn't make sense, right?  I'm a very realistic person. I like things to make sense. I like things to be as simple as possible and as easy as possible, ideally.

And I want business to be simple and easy. Because most of the time it's not. So where I can make it simple and easy, I want to do it, so that I can have the brain space and the emotional space to deal with the not so easy and the more complex parts of it. So that is why, when your business grows, we want to make sure that the percentage profit margin stays at least the same or increases. Because if the percentage remains the same, the dollar amount will be increasing as your business grows. And that's why it's the margin that is really, really important.

And by the way, I know that sometimes it's hard when you are listening to a podcast for things to make sense and I am personally a very visual learner. So what I will do is in the show notes, I will include a link to just a graphic for how to calculate your profit margin. Because it can be a bit complicated if you're not an accountant - and I'm not an accountant -  so I still very often need to refer to that graphic to make sure I'm doing it right. So I've got you. Just go into the show notes, click the link and download it, and it will be sent to your email address for you.

Why Knowing Your Profit Margin Matters

Before we talk about the actual numbers here, I really want to emphasize and share with you why I think it's important to look at this. Because I often speak to practice owners who are very values driven - which I am too by the way - but you know, that are struggling and grappling with that making money part of running the business. And they often go, ‘You know what? I'm not here to make big profit margins Gerda. I want to pay the bills. I want to pay my team really, really well. I want to help all these clients. Yes, I also want to pay myself a wage. But you know, I don't care. As long as we break even, I'm good. As long as I can pay all those things and we break even, I'm good.’

Which I love. I get that. But if you're going to take up this challenge of running a business, don't you want to make it worth something at the end of the day? I don't know about you, but I want to be able to retire one day without worrying how I'm going to fund that retirement. I think that each of us have a responsibility that if we can, that we want to be responsible and look after our retirement. Which means that I want to have the choice one day to potentially sell my business that I've worked really hard to build and create. I want to be able to sell it. 

Now, when you sell your business, your profit margin and the profit that you have in your business is going to determine the value - not the blood, sweat, and tears that you've put into it, right? If I had to emotionally tell you, if you want to buy The Psych Professionals right now, you're going to have to pay me like $10 million for me to even consider it, because the blood, sweat and tears that's gone into it is worth at least $10 million. But that might not be what it's worth, right?

So if a willing buyer comes along, they don't care about my blood, sweat, and tears. They care about a return on their investment into my business. So they're going to look at the profit. And this is how it works generally - and I'm not a business broker, I'm not an accountant - but generally they will look at what was your profit over the last three years in terms of dollars. But if you don't look at the margin, the dollars won't keep up with your business growth like I explained earlier. So they will look at the actual dollars on the bottom line for profit, and they will work out the average. 

So let's say we stick with our example of a hundred thousand dollars. That was the average profit margin. They would times that with a multiplier. Now, the multiplier varies dependent on the industry. It can also change over time. But on average, in our industry, that has been times three. So if my average profit that's left after I've paid all my expenses, on average over the last three years was a hundred thousand dollars, it'll be times three, which means that my business is worth $300,000. 

I don't know about you, but I'm not selling the site professionals for $300,000. That's not happening, right? It's like, what? That's like nothing. That's nothing. So if you want to create a sellable business and you want to sell it for the best price - just like when you want to sell your house. You want to sell it for the best price. If you want to sell your car, you want to sell it for the best price - If you want to sell your business for the best price, you need to do the work to sell it for the best price.

And you need to look at how does the market work? So you just need to look at the facts of the matter. So it's really important if you want to be in a position one day to sell your business. And I can tell you that most people do not sell their business in a planned manner. Most people that sell their business sell it because they got sick, somebody in their family got sick, or something happens and they need to sell it unexpectedly. So I would encourage you - even if you go - ‘Nah, I don't have to worry about this now, Gerda, because I'm not planning to sell my business. Geez, I only started it two years ago. I only started it three years ago. I'm going to still be doing it for another 10 years.’

You do not know what the future holds. You do not have a crystal ball. Unless you do, then I want to come over and use it.  But you don't know what's going to happen in your world. Something might happen tomorrow, right? That's just how life happens. So you need to be ready to look after your family. You need to be ready to potentially sell that business. Which is why knowing what a realistic profit margin is, is really important and for you to start tracking it. And I'm not saying freak the hell out now. It's just like - okay, I'm learning something new and now the onus is on me to start doing something about it. 

Your first job is going to be to speak to an accountant or just pull up your Xero. So if you actually go into your Xero account, I think it's the tab at the top that says Business. You click on that, there is a sub menu option that says Business Snapshot, and in there it'll tell you what your profit margin is. Of course, your zero needs to be up to date for that to be an accurate reflection. You can also put in different dates there that tells you what period you're looking at. If you're going, shit, my zero's not up to date, reach out to your accountant and tell them to give you your profit margin as a percentage for the last financial year. 

Be informed and then go from there.

Assessing Your Profit Margin

Alright, so what is this elusive profit margin percentage you speak of Gerda? Well, I'm going to share that with you right now.

What I will say is that it's really hard to find great benchmarking numbers for Allied Health, because what often happens is that all disciplines get bunched together. But not only that - when it comes to accounting benchmarking figures, we also as Allied Health get bunched together with medical professionals and specialists, and it's like the range, and that Continuum is just absolutely humongous.

The other problem is that both solo and group practices get bunched together, so it's really hard to compare what is realistic? What is the industry standard? I don't think there really is an industry standard, because of all the variables that go into that benchmarking data that you can find through proper research-based benchmarking statistics. There is actually a company that does that, and generally accountants are registered with them and your accountant will have access to those numbers. I've looked at it and yes, it's really insightful - but again, it's like Allied Health is part of medical professionals. It's like we can't compete with specialists, right? Our businesses look very different. 

Then I think of, okay, let's look at general small business. And again, there's industry differences. So what I'm going to share with you is from my own experience, I’ve been in Allied Health private practice now since 2007. I've got two group private practices that operate as two separate financial and legal entities. One has always traditionally been in a lower socioeconomic area and the other has been in a higher socioeconomic area. 

Interesting fact: even though that's the case, our average session fee has generally been very similar. In fact, at one point, our average session fee in the lower socioeconomic area was actually higher than in the higher SES area. How interesting is that? I know why - but that's a topic for another day. And the profit margins have generally been very similar.

So if you're going, Well, Gerda, I'm in a regional location, or I am in a low SES area - I actually have a lot of data that shows that that is not a variable that's going to impact your profit margin. That I hate to say it, is sometimes an excuse and a justification that we use for why my practice can't get to a certain level. So I wanted to get that bit out of the way. 

What I also know is that if somebody's going to come and look to purchase your business, they are going to look through a specific filter. If you're not making any profit, they're not going to buy your business, right? Because again, people coming in to purchase your business want a return on investment. So yes, they're going to value your business based on the average dollar amount, but they're also going to ask you: what is your profit margin on average? 

So what I'm going to share with you - as I said - is based on my own experience, having my own two businesses, but also I've now been working with Allied Health Group private practices since 2014. I am now in my 11th year of working with Allied Health Practice owners. The majority being psychologists. Second most that I've worked with is occupational therapy, and then I have worked with speech pathologists, dieticians, music therapists, you know, all the other ranges, physios, yeah, I've worked with a lot of physios as well. And all that range of people in those 11 years, I've had insights in people's books, into what they report to me, all of that stuff. So I think I've got a fairly good idea of what's happening in the industry. 

But what I want to share with you is what I think you should be working towards - and what I think is realistic for you to achieve - if you are running a for-profit business, which is private practice. I'm not talking to you if you've got a charity. I'm not talking to you if you've got an NGO, okay? I'm talking to you if you've got a PTY limited company - or it might be operating under a trust structure - but under Australian law, you've got a fiscal responsibility and a legal responsibility to run a financially sound business. Because if you're not making money in your business - AKA profit - you might be trading whilst insolvent.

And yes, some years you might have a loss. But you can't have that year after year, after year because you can get into big problems with the A TO and you can actually be fined for running a business whilst insolvent. So even though people might want to shame us for making money, it's like - what do you want me to go to jail? I don't think so. You go to jail.  So this is what I think - not what I think, what I know you should work towards - and if you were ever to come and work with me, (and I invite you to consider that,) this is what I will help and support you to achieve. 

When I work with my clients in business coaching, we look at five very important growth drivers for your business, and profit is obviously one of them. We rate your growth driver - AKA - your profit performance across four areas. So your profit's either going to be a problem, a weakness, a strength, or it's going to be your superpower. 

If we rate it as a problem, it means that your profit margin is sitting at 0% or less. In other words, you are just breaking even. So being able to go -  Oh, I've broken, even this year is not an achievement in the Private Practice Success world. It is a problem because there's no margin, the risk within that business is huge. One thing's going to go wrong and you're going to be stuffed. So just breaking even is not good business management. You are putting your whole team at risk. You are putting all the clients that you have at risk, and yes, you're putting yourself at risk. Don't do it, okay.

Then, what is a weakness? If your profit margin is between one and 10%, that is what we would term a weakness for your business. Because yes, there's margin, but it's a very slim margin. And you just need to look at what's going on in the world right now in terms of the factors at play within Allied Health within our industry. You have a responsibility to, again, make sure that the margin that is in your business allows you to sleep at night.

I feel very responsible for the people that I employ. The people that I employ, they are reliant on me as the business owner to run a fiscally healthy business. Because if I don't do that, I'm putting their livelihoods at risk. I'm putting their families at risk. Same thing with the clients. If I don't have the right margins in my business, I'm putting those services at risk and I'm not willing to do that.

If I look at my personal risk profile, I'm one of those people that are willing to take risks with a lot of stuff. If I look at my money archetypes - my money archetype, and I'm sharing a bit of my personal information in here - is I'm a ruler. If you know about money archetypes, I’m a ruler, which means that I am happy to invest money in things that I think is going to make things better. I'm also a creator, so it's like, Oh, we can do this new program. Let's do this outreach. Let's do this new group. Let's do this new service. But in order for me to offer those things, I need to have money as a resource - I’m very aware of that. When it comes to my team and keeping the doors open, that's where I get more risk averse. 

So you can have both of those parts to who you are, and it's about finding that happy medium between knowing yourself as a business owner. What is your risk profile and where you are driven to risk more in order to create something really amazing? But from a financial standpoint, I also know that when I'm a bit more risk averse there, it allows me to offer these great and new services to the clients. 

So one to 10%, that is what we would refer to as a weakness. Then from 10 to 30% - if your profit margin is 10 to 30% - that is a strength. It's like, yes, that is really, really good. You've got this, you know, let's work towards that. And yes, that's still a big range - that's a 20% range. But you also benchmark your own business. You might be at 11%. It's like strength right? Let's get that to 12% in the next 12 months. Let's get that to 15% in the next 24 months, and we continue to work on that.

If your profit margin is 30% or more - that is that unicorn number which we consider to be a superpower within Allied Health. Now, these are the numbers for group private practice. If you are a solo practice owner, you should most certainly be at least 30% or more. Obviously, the moment you start a group practice, you've got more expenses, and I think a lot of people underestimate the amount of operating costs involved in running a group practice, it is humongous. 

Which just means that you need to know your money numbers. You need to look at your finances. You need to know what KPIs you need to look at. And that's what makes business interesting. Running a great business, a fiscally responsible business is a challenge, but it's also fun if you look at it through that lens.

So just to emphasize, this is for group private practice.

Next Steps

So where to from here? I would encourage you to step one, determine your profit margin at your business right now. Then depending on what it is, go, okay, maybe it's a weakness or you know, maybe it's a strength. And then ask yourself, what is the gap between what it is right now and making it a superpower? And then just start chipping away at it. Because even though people might feel very discouraged in our industry and go, that's not possible - it is possible. But what I will tell you is that it won't happen overnight. And a lot of people give up. I'm often surprised that Allied Health professionals set these unrealistic goals for themselves.

Oh, why am I surprised? We do suffer from unrelenting standards, right? If you think of it in terms of schema therapy, as a psychologist, most Allied Health professionals have unrelenting standards, so it shouldn't surprise me. And people often come into The Academy and they might have very low profit margins, and we benchmark their business and I ask them, What do you want to achieve in 12 months? And they have these huge,huge goals - which I do love - and it's, and it's not like I'm going, I can't help them. I know I can help them. But I also know how business works. And especially when it comes to financial numbers, people often overestimate what they can achieve in 12 months. And you know what happens then? They give up. They go, ‘Well, this isn't working’, or ‘I'm not cut out for this, or I'm failing at running this business.’ 

But if you can commit to 12 months of really putting in the work that is required to improve your numbers,I can guarantee you that you will not even fathom where your business can be in three years. So people overestimate what they can achieve in 12 months, but they underestimate what that will look like in three years, because they give up. The first 12 months of changing how you run your business is the hardest part, but I can tell you the second 12 months will be even easier. And the third 12 months - that's when you will be flying. 

I experienced this myself. When I first started working with a business coach back in January of 2012, I remember it like yesterday. The first 12 months were horrendous -  the amount of tears I shed, the stress I had because there was so much change management, because I had an already existing group home practice. I already had two locations. If you looked from the outside into my business, you would've thought that. Gerda, you've made it. But back at the ranch, locked away in my little back room, I was in the back office. I would sit there at my desk with my bank accounts open, just thinking, what the hell am I doing wrong? Because it doesn't make sense. 

Anyway, I had to engage in change management for the first 12 months. It was really hard. The next 12 months were like, okay I can now start to see the impact of the changes that I made in the first 12 months. The third 12 months -  that's when things just skyrocketed. The growth was amazing. And then I did a fourth 12 months with my business coach and I called that my safety blanket year. Because it's like, is this real? Maybe this is just a dream. I'm just going to keep on working with him just to make sure that this wasn't just a mirage dream that I'm going to wake up from. And it wasn't. And it's the best thing I could have done because I'm still reaping the benefits of that today. 

So at the end of the day, you just need to decide that you want more and that you know what, it's okay to have more. And that, I'm not going to allow people in Facebook groups in networking events - I'm not going to allow anybody to shame me for running a business that makes a profit margin required to keep the doors open. If you expect me to do that, well just walk on straight by - you’re not the person for me. So don't let other people shame you.

If you take nothing from this talk today - and within our industry, it is rife within psychology, It is probably the worst - I have personally found that in psychology, our peers can be the most brutal when it comes to judging us. And because we are already so hard on ourselves, it is incredibly difficult to deal with that. 

So I also want to encourage you that if you are in communities where that is happening, step out of it. Step away. Leave that group. Leave that community and surround yourself with people that get it. That gets that you want to help more people in better, more effective ways, that you need to have a healthy profit margin within your business.

I'm going to leave it at that. I hope that this was of value to each and every one of you. Thank you so very much for tuning in. And as always, remember that I am here to help you build a practice you can't stop smiling about. 😊

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Gerda Muller

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