When you work as an employee, your employer sets your wage or salary. But if you are a private practice therapist, your personal earnings are tied to your practice’s income.

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So, the higher your practice’s income, the more you can afford to pay yourself. However, there’s more than your paycheck at stake. A healthy bottom line allows you to put aside emergency savings, or even invest in expanding your practice. 

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Whether you’re already self-employed or you’re preparing to go solo, these are seven of the most important factors affecting your practice’s income:

License type

Your rates help determine your income, and therapists’ average rates correlate with their license types.

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According to our 2025 Financial State of Private Practice Report—which is based on a survey of over 3,000 self-employed therapists—psychologists charge the most per session, while professional therapists (LPCs) charge the least.

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Here’s the breakdown: 

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Experience

Anecdotally, therapists with more years of experience under their belts are able to charge higher rates.

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Some potential reasons why:

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• Clients are willing to pay more for a therapist who has been in practice longer.

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• Thanks to established referral networks and word-of-mouth marketing, more experienced therapists have more patients coming through the door—demand is higher, so they can charge higher rates.

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• Certifications and additional training obtained over the course of a long career enable an experienced therapist to treat a wider variety of clients or, conversely, offer highly specialized treatment in particular niches.

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If you are a new therapist, you may find it intimidating to compete for clients with more experienced professionals. But there’s a silver lining: the longer you stay in practice—and the more you expand your referral network and develop your skillset—the more you will benefit over time.

Location

The average cost of therapy varies according to location. In areas where the demand for therapy is high and therapists are in short supply, rates tend to be higher. In areas where demand is low and there are more therapists available, rates tend to dip.

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Offering remote therapy in multiple states may allow you to counteract some of the impact of location if your practice is based in a low-demand area.

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Rates and reimbursement

Offering lower per-session rates may make your practice more competitive and attract more clients. But as a result, you will earn less per hour—and there are only so many clients you can see each week. (Most full-time therapists max out at around 20 – 24 sessions.)

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Because of this, it’s important to research local market conditions and build a budget before you set your rates.

Insurance reimbursement rates

If you accept insurance, reimbursement rates play a role in your practice’s earning potential. According to the Financial State of Private Practice Report, the average hourly fee for individual therapy in 2025 was $159, while the average hourly reimbursement was $111. 

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If low reimbursement rates are putting a cap on your income, it may be time to negotiate higher rates or even drop insurance altogether.

Operating costs

The cost of running your own practice has a direct impact on the bottom line. The more you spend on operating costs like rent, insurance, software subscriptions, and continuing education, the less your practice keeps as profit.

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Some expenses, like liability insurance, are non-negotiable. But you may be able to reduce your operating costs by reducing or eliminating rent. That could mean sharing an office space with other therapists. Or it could mean switching your practice to remote sessions exclusively, and benefitting from the home office deduction. 

Business structure

Once your therapy practice crosses a certain income threshold, you can reduce the amount of self-employment tax you pay by electing S corp status.

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Generally, that threshold is around $100,000 annual revenue. At that point, the added cost of registering your business and filing S corp taxes is covered by the tax savings you realize. Larger and more established practices that elect S corp status have a financial advantage over those that operate as sole proprietorships.

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Not sure whether starting your own practice makes sense financially? Check out Therapist Income Benchmarks: What to Expect in Private Practice.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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