How to Set Prices for Your Child-Care Service

Get Up & Grow

In Start your own childcare service, the staff of LikendisLike Media Inc. and the writer Jacquelyn Lynn explain how you can start a child care service, whether you want to start a small home-based business or a large shopping mall. In this edited extract, the authors offer advice on setting the right prices for your childcare service.

The fees you charge for your child care will provide the financial basis for your business and your income. They must be competitive in your market, reasonable and affordable for parents, and also fair to you. There are a variety of issues you need to consider, including your costs, the benefits you want to make, the rates in your area, and what the families you are targeting can afford. Setting your rates, explaining them – and often justifying them – to parents, then collecting the money are all part of the childcare activity.

Because you will be offering a carefully planned program that is more than just a babysitting service, you are justified in establishing a fee structure similar to that of a private school. A one-time half-week tuition fee will hardly raise your eyebrows, but it will compensate you enough for the cost of time, paperwork and special attention that each participant needs.

The calculation of the amount to be invoiced for the space in your center will be based mainly on three variables:

  1. Labor and materials (or supplies)
  2. Air
  3. profit

A fourth factor that is unusual for most businesses but important for a daycare center is the limit on the number of children you can accommodate. When it comes to child care, state laws and practical reality limit the number of children you can accept, which limits the income potential of your business. To overcome this problem, successful daycare operators often open more locations in neighboring regions to increase their clientele and income.

Until you establish records to use as a guide, you need to estimate labor and material costs. Labor costs are the wages and benefits you pay your employees. As an owner, your salary (if you do not derive your personal income directly from the bottom line) must be included in the total workload. If you are not making any formal allowance for yourself, but simply making a profit, you must include your work, proportional to your contribution, in the total estimate of work.

The cost of labor is generally expressed as an hourly rate. A little research should give you a good idea of ​​the rate in effect in your region for different positions. When calculating your labor costs, be sure to include hidden costs (payroll taxes, benefits, etc.).

To determine the weekly tuition fees for a full-time participant, you must first determine the child-tutor ratio. For the purposes of this example, we will use a 6 to 1 ratio. If the hourly labor cost is $ 13 (including wages, taxes and benefits) for a single caretaker to monitor six cost of labor would be $ 2.17 per child per hour. You will first need to estimate your material costs; 45% of the work is a good average to use until you have a history to measure.

Overhead costs include indirect non-work related expenses necessary for the operation of your business. If you have past operating expenses to guide you, it’s not difficult to calculate an overhead rate: you simply total all of your expenses for a year, excluding labor and materials, and then divide that number by your total cost of labor and materials to determine your overhead. rate. At first, you won’t have any past expenses to guide you, so calculate the overhead as 30 to 40% of your labor and material costs. Most daycare operators expect a net profit of 9-14% of their gross revenue.

In addition, most daycares charge according to the age of the child, parents of children who are not trained in the toilet or who are prone to “accidents” pay up to 20% more than children. slightly older. Very young infants and infants also need lower adult-to-child ratios, which increases your labor costs and contributes to higher costs for toddlers.

You can start the process of determining your prices using the three elements that we have just considered, but the only way to judge the viability of this price is to test it on the market. However, even if you discover that other centers are charging less, think carefully before lowering your price. Can you reduce your overhead and maintain profitability? A business that does not make an adequate profit is more vulnerable to total failure because it lacks the financial cushion that good profits provide.

In addition, even if other centers charge less, your services may be worth more or these centers may not have openings, which means that your potential customers cannot place their children there anyway. Of course, that doesn’t necessarily mean that local families will pay your higher rates; they may not have the means to do so. A little research will tell you what families in your target market are able to afford. In general, families can afford to plan about 10% of their income for child care expenses. Checking the census data at your library will tell you the income ranges for your community; low-income families may be eligible for assistance with child care expenses.

Take your cost plus desired profit and what families can afford, and see how well they fit. While you certainly want to be sensitive to a family’s budget, keep in mind that it’s not your responsibility to help all parents afford child care. Rather, you are responsible for setting up a quality child care program based on sound business practices. If you want to serve low-income families, take the time to investigate the various government subsidy programs designed to help those who cannot afford the high cost of child care. A good place to start is with your local research and referral agency.

You can bill for your services on an hourly, weekly, or even monthly basis. Hourly billing generally means that you are only paid for the duration of the child’s care and that you will not receive any income if the child is not there. This makes planning your time and budget more difficult. Weekly or monthly rates based on an expected amount of care are more logical and easier to use.

You can also add an overtime rate to your base rate to meet the special needs of parents. Suppose a mother generally drops her child off at 7 a.m. and picks it up at 5 p.m. From Monday to Friday. But during the first week of each month, the mother’s employer asks her to work an additional hour a day, which means that she cannot pick up the child before 6 p.m. You have been working five hours overtime for the week you take care of this child, and you can charge an hourly rate for that period. Depending on the circumstances, you may want to calculate the hourly rate based on your standard tuition rate, or you may charge a premium for overtime.

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