• This is the final article in Louise Stoney's Iron Triangle series, which presents a three-part formula you can use to boost your revenue when running a child care setting.
• In this one, we'll look at calculating your operational cost per child — and why that's such an important figure when you're managing your finances.
• To go back and read part three, which talks about the best ways to collect your tuition fees, just click right here.
Setting your child care tuition and fees involves many factors, some of which are beyond the control of an early education program director. 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.
That said, determining your actual cost per child is essential to sound fiscal management. This way, 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 third-party payments must equal per-child cost — otherwise, your program 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. In center-based child care, 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 at your child care center:
ECE program managers 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 school-age 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 centers 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 via other funding sources.
Knowing your cost per child is extremely important, especially if your ECE program relies largely on public reimbursement. All too often, public reimbursement rates don’t cover the full cost of care – especially for infants and toddlers. 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, ECE programs 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 modeling 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 are fully enrolled. If raising tuition reduces enrollment you are in a zero-sum game. If the government raises the reimbursement rate but the required family co-payment remains very high, an ECE program may not see increased revenue because bad debt increased in near-equal measure.
In short, ECE 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.