Management

How much does running your child care cost you per child?

June 20, 2022

Part four of Louise Stoney’s Iron Triangle series

Part four of Louise Stoney’s Iron Triangle series
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In a rush? Here's the quick run-down.

• 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.

What you need to calculate your cost per child

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:

  • Staffing by classroom or age group. You’ve got to know the number of Full Time Equivalent (FTE) paid staff in each classroom, their wages, and the cost of any fringe benefits. Remember to build in coverage so that teachers are able to leave the classroom to participate in supervision, training, planning, child assessments, etc. If children attend for more than 8 hours a day, you must also include additional staff for these hours.
  • Any non-teaching staff assigned to your center, and their wages and fringe benefit costs. This might include administrative or support staff located in the center or, in the case of a multi-site center or Shared Services Alliance, a percentage of staff who are located in the ‘hub’ agency, but provide administrative support to the center.
  • A current budget for each center that includes all costs. To put it all in perspective, you’ve got to know your costs for classroom personnel, non-classroom personnel, and non-personnel costs, which includes everything from your art supplies to your monthly rent. This often works well when you calculate it as your total annual costs.

How to calculate your cost per child

Once you’ve got the information you need, here’s how you can calculate the average cost per child at your child care center:

  1. First, for each classroom, or age group, add up the costs of all staff working specifically in that classroom.
  2. Then, decide on how you want to divide up your costs that aren’t associated with a specific classroom. This includes non-classroom staff (such as a director, cook, or admin assistant) and expenses like food, utilities and maintenance. You can factor in these costs either by child (total costs divided by total number of children) or by classroom (total costs divided by the number of classrooms).
  3. To calculate your costs for each classroom, add the in-classroom staff’s payroll costs, plus all the other costs described in #2 above. This is the total cost of that classroom.
  4. Divide the total cost of that classroom (the result you get in #3 above) by the average number of children enrolled in that classroom (remember to use the actual, or projected, enrollment not the classroom capacity). This is the cost per child by classroom.
  5. To determine the average cost per child in the entire center, simply divide the total cost of operating the center, including all personnel and non-personnel costs in all classrooms as well as in the administration, by the number of children enrolled.


The big ideas

Adjusting for the cost of infant care

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.

Using every element of the Iron Triangle

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


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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.

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