How understanding behavioral finance can make your practice more viable
By Jennifer Perkins LMFT, LPCC
Last year I started a mental health private practice. I had a dynamic and long history as a clinical and research scientist but absolutely no expertise in business. I knew I couldn’t pull off a private practice on my own, so I immediately sought assistance from my partner of 6 years who is an established entrepreneur and MBA candidate. The following is useful research we implemented.
As therapists, our understanding of heuristics (mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others) has an impact on our media and marketing decisions. I found two major areas of Prospect Theory that are relevant for private practice and was able to implement the research immediately and with minimal effort. (Read also: Dooley, Brainfluence, Kahneman, Thinking Fast, Thaler &Sunstein, Nudge.)
1- Communicating Your Highest Value/ Setting The Reference Point: According to Prospect Theory, humans make selections in two phases, the Editing Phase and the Evaluation Phase.
Editing Phase: Humans rank and edit choices based on behavioral heuristics. We throw out choices that ‘make no sense’ and mentally rank what’s left. This is usually done in a very quick fashion, ignoring actual evidence.
Evaluation Phase: Using heuristics again to evaluate the ranked choices we come up with a selection of the final choice. This final choice is the one of perceived highest value. This is evaluation phase is performed very rapidly.
Based on the above aspects of Prospect Theory I focused on efficaciously communicating my highest value to clients in order that I might make the cut into their evaluation phase. Using “Creating Perceived Value” as my vision statement gave me the direction I was lacking and helped me craft my online presence with purpose.
2- Heuristics in Fees: Clients edit therapists based on many variables including price and sliding scale. Having knowledge of the interplay of heuristics in the sliding scale negotiation can help private practices maintain viability.
Anchoring and adjustment heuristic refers to the propensity of humans to grab onto the last thing said (the anchor) while making decisions. Humans may also show more variability while discussing discounts in dollars, but less variability discussing discounts in percent. Below are some tips for discussing fees:
Set your anchor point by stating “My full rate is 100 dollars.” (NOTE: this number used only for illustration, not my actual price) This anchors any negotiation that may follow.
Don’t ask, “What can you afford?” While this may be a great question, the word “afford” is subjective. Asking this question simply gives you a number, not a qualitative expression of affordability.
Negotiate in percent, not dollars: Negotiation in dollar amounts can lead to insensitivity to actual discounts taken. In my own observation, when clients call and ask for a sliding scale they are generally accepting of a 20% to 30% break. I directly state, “I can offer you a 25% discount. This price is 75$ for 50 minute session.” My goal is to state simply the discount in heuristically useful terms for clients during their editing phase. To help with this process, I have a spreadsheet near my phone identifying, in dollar amounts, what a 5% – 40% discount looks like.
I’m not a sales or marketing person, and quite frankly, despise this aspect of private practice. However, understanding the science behind decision-making has helped me make evidence based choices instead of being blinded by the heuristics. It’s using science to succeed in private practice. And that just makes sense to me.
By Jennifer Perkins LMFT, LPCC
Last year I started a mental health private practice. I had a dynamic and long history as a clinical and research scientist but absolutely no expertise in business. I knew I couldn’t pull off a private practice on my own, so I immediately sought assistance from my partner of 6 years who is an established entrepreneur and MBA candidate. The following is useful research we implemented.
As therapists, our understanding of heuristics (mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others) has an impact on our media and marketing decisions. I found two major areas of Prospect Theory that are relevant for private practice and was able to implement the research immediately and with minimal effort. (Read also: Dooley, Brainfluence, Kahneman, Thinking Fast, Thaler &Sunstein, Nudge.)
1- Communicating Your Highest Value/ Setting The Reference Point: According to Prospect Theory, humans make selections in two phases, the Editing Phase and the Evaluation Phase.
Editing Phase: Humans rank and edit choices based on behavioral heuristics. We throw out choices that ‘make no sense’ and mentally rank what’s left. This is usually done in a very quick fashion, ignoring actual evidence.
Evaluation Phase: Using heuristics again to evaluate the ranked choices we come up with a selection of the final choice. This final choice is the one of perceived highest value. This is evaluation phase is performed very rapidly.
Based on the above aspects of Prospect Theory I focused on efficaciously communicating my highest value to clients in order that I might make the cut into their evaluation phase. Using “Creating Perceived Value” as my vision statement gave me the direction I was lacking and helped me craft my online presence with purpose.
2- Heuristics in Fees: Clients edit therapists based on many variables including price and sliding scale. Having knowledge of the interplay of heuristics in the sliding scale negotiation can help private practices maintain viability.
Anchoring and adjustment heuristic refers to the propensity of humans to grab onto the last thing said (the anchor) while making decisions. Humans may also show more variability while discussing discounts in dollars, but less variability discussing discounts in percent. Below are some tips for discussing fees:
Set your anchor point by stating “My full rate is 100 dollars.” (NOTE: this number used only for illustration, not my actual price) This anchors any negotiation that may follow.
Don’t ask, “What can you afford?” While this may be a great question, the word “afford” is subjective. Asking this question simply gives you a number, not a qualitative expression of affordability.
Negotiate in percent, not dollars: Negotiation in dollar amounts can lead to insensitivity to actual discounts taken. In my own observation, when clients call and ask for a sliding scale they are generally accepting of a 20% to 30% break. I directly state, “I can offer you a 25% discount. This price is 75$ for 50 minute session.” My goal is to state simply the discount in heuristically useful terms for clients during their editing phase. To help with this process, I have a spreadsheet near my phone identifying, in dollar amounts, what a 5% – 40% discount looks like.
I’m not a sales or marketing person, and quite frankly, despise this aspect of private practice. However, understanding the science behind decision-making has helped me make evidence based choices instead of being blinded by the heuristics. It’s using science to succeed in private practice. And that just makes sense to me.
Jennifer Perkins is an MFT and LPCC in Oakland, California. Learn more on her website www.jenniferperkinsmft.com