Setting your tuition and fees in early education involves many factors, some of which are beyond the control of owners and administrators. For example, what parents can afford to pay is based on what they earn and the local cost of living. What government, or other scholarship programs, will pay is typically based on available funds.
Of course, it makes sense to focus on the factors that are within your control. And determining your actual cost per child is essential to sound fiscal management. When you know this, you can compare your operational costs to the prices you charge for care, to see if you’ve got any gaps in your budget. Your tuition fees plus any other funding sources must equal per-child cost — otherwise, your setting is losing money.
In this article, we’ll go through just how to make those calculations.
As we go, it might help to visualize what your budget spreadsheet will look like, if you don’t already have one. You can download a budget template, as well as tools to help calculate the cost-per-child, from the ECE Shared Resources website or from First Children’s Finance.
The cost per child can and should be established in multiple ways. For most settings it’s essential to know the cost per child by age, as well as the cost per classroom, and in some cases it’s also helpful to know the average cost per child, regardless of their age.
To calculate the cost-per-child, you’ll need the following information:
Once you’ve got the information you need, here’s how you can calculate the average cost per child:
Owners and administrators that calculate their costs by child and classroom quickly learn that the cost of serving infants and toddlers is significantly higher than the cost of serving preschoolers or older children. But it can be challenging to charge families tuition that matches costs for babies, because high prices might drive away potential customers.
To address this challenge, many providers create “loss leader” tuition for babies. This strategy can make sense if you know that you can make up for these losses by charging tuition for older children that is above your cost, or compensate through other funding sources.
Knowing your cost per child is extremely important, especially if your program relies largely on government funding. All too often, public reimbursement rates don’t cover the full cost of care – especially for infants and toddlers. That’s why data to document your costs is essential to good policy development.
In tough fiscal times, when government and philanthropy are cutting budgets and parents are squeezed financially, early educators often face a difficult choice: keep fees high and risk increased vacancy rates and higher bad debt, or lower fees to boost cash flow.
There’s no simple answer here. But if you get a better handle on the data behind your finances, you’ll have an easier time finding your best path forward.
Keep in mind, focusing on tuition rates as your primary revenue driver can be short sighted. My experience with cost modelling suggests that other sides of the Iron Triangle (enrollment and fee collection) can sometimes make a bigger difference in your bottom line.
Increasing tuition only generates more money if you’ve got full occupancy. If raising tuition reduces occupancy you are in a zero-sum game. If the government raises the reimbursement rate but the required family co-payment remains very high, an early years provider may not see increased revenue because bad debt increased in near-equal measure.
In short, program managers need to understand exactly where and why they are losing money and begin gathering data to guide decision-making before multiple small losses build and cripple sustainability. Understanding each element of the Iron Triangle finance model will give you a solid groundwork for keeping your finances sustainable in the long run.
Louise Stoney is an independent consultant with over 30 years’ experience in early care and education finance and policy. In 2009, Louise co-founded Opportunities Exchange, a non-profit organization focused on transforming the business of early care and education to improve outcomes for children.You can learn more and get in touch with Louise at www.stoneyassociates.com or www.opportunities-exchange.org
Please note: here at Famly we love sharing creative activities for you to try with the children at your setting, but you know them best. Take the time to consider adaptions you might need to make so these activities are accessible and developmentally appropriate for the children you work with. Just as you ordinarily would, conduct risk assessments for your children and your setting before undertaking new activities, and ensure you and your staff are following your own health and safety guidelines.