One of the hardest parts of starting any business is setting your prices. Even if you have worked in childcare or enrolled your child in a childcare facility, the prices you remember may not be valid for your particular facility. There are several factors that go into calculating the right price as well as ways to get an idea what the market finds acceptable.
Remember, the price you charge forms the financial base for your business and your income. You need to be competitive and affordable while also making a profit. You will need to justify your rates repeatedly to each client who comes to your facility; take the time to think through how you want to frame your explanation.
Check Your Competition
In retail, this is called “market research.” Find childcare businesses that are similar to yours. Find out what prices they charge, including various fees, and use them as the basis for your own pricing structure.
The internet makes it easier than ever to learn what anyone is charging. Most businesses have a minimal website presence at the very least. While you are doing your online research, keep track of the terms you use to find providers as a basis for keyword research for your own website.
- Offline places to find information and pricing include newspapers, free directories, and jobs wanted listings. Call up a childcare business and ask for their rates. You don’t have to tell them why you want to know.
- Ask friends or family members with children in care how much they are paying and what they receive in exchange.
- A local Resource and Referral Center may also be able to provide general rates in the area.
- Babysitter and nanny pricing can also give you a place to start.
Babysitting fees are just a starting place. If you plan a curriculum, are located anywhere other than your home, or hire additional staff, you should charge accordingly. Private school fees may be more in line with your business. You are also justified in charging an enrollment fee for administrative work.
Analyze the results, and you will have a fair idea of how much other providers in your area and niche charge and the activities and services they offer.
Next, you can begin building your price from the big three factors of business: labor and materials, overhead, and profit.
Labor and Materials (Supplies)
Labor and materials, or supplies, will be your biggest expense. Estimate labor costs by researching wages and benefits paid to childcare and administrative workers in your city and industry. Even if you do not expect to draw a salary and, instead, take your pay from the profits, add an estimate for your labor as well. Labor is expressed as an hourly rate.
Don’t forget the hidden costs of labor: payroll taxes, benefits, and other withholdings.
- To estimate a fair weekly tuition for a full-time attendee, determine the child to caregiver ratio, which can differ according to age groups.
- Divide the hourly labor cost by the number of children a single caregiver will watch.
- The result is the labor cost.
Example: If the hourly labor cost is $15 and each caregiver can watch six attendees, the labor cost is $2.50 per child per hour.
Materials (supplies) can be estimated at 45% of labor costs until you can gather historical data to determine your real supply costs.
Make a realistic estimation of how many people your facility can accommodate. Also, check with your state licensing agency for the allowed caregiver to child ratio for different age groups.
Overhead includes any non-labor, indirect expenses required to operate your facility. If you have historical data from a previous facility, add up all your expenses for one year excluding labor and materials. Then divide that number by your total cost of labor and supplies to determine your overhead rate.
A good rule of thumb in the absence of data is that your overhead should be about 30% to 40% of your labor and supply costs.
How much profit you want to make is up to you but remember, the market will only bear a certain level of pricing. Squeezing labor and materials or overhead to provide more profit usually results in substandard facilities and an inability to hire talented staff.
Most childcare businesses expect a net profit of nine to fourteen percent of gross revenue.
Now you have a baseline for your pricing structure. If you are expecting to care for infants and toddlers, you may wish to charge higher prices to make up for the difference in the child to caregiver ratio plus additional supplies.
Streamline Your Financials with Childcare Management Software
Most facilities that offer full-time childcare charge by the week or by the month. Typically there is a clause in the contract stating whether you will credit them for days the child does not attend due to illness and how you will handle times when the parents take the child on vacation.
However, if you want to create different payment scenarios for other time periods, such as hourly or daily care, you can use the childcare software to make calculations to determine if it is feasible. You can also work with adding activities for an additional fee to see if you could realistically recoup your expenses.
Some childcare management software can accept different forms of payment including bank drafts and credit cards. You can calculate what your monthly profit would be after credit card fees are subtracted or how much money you could save by providing a parent portal for accepting online payment.
Overall, childcare software can lower:
- Your labor costs - less need for administrative task work
- Your materials costs - less paper, ink, and supplies required for invoicing and billing
- Your overhead - reduced need for document storage and IT equipment
When you can lower the costs of operation, you can achieve a more profitable business.
Setting a price for your childcare business may seem like a mystical prediction. However, if you approach the task by breaking down your known expenses and deciding ahead of time the amount of profit you hope to achieve, it won’t feel so overwhelming and risky.
Using childcare software to help you predict and calculate costs for different scenarios can help you streamline your decision process.