Thing One and Thing Two: What’s Making Trouble for Childcare Owners?

The HINGE team has spoken to more than a thousand early education business owners over the last 12 months in our own workshops and conference as well as guest speaking engagements for national and state organizations, and it has become increasingly apparent that there are two things that are consistently tripping up our clients financially…

Thing One: Tuition Rates
If you have ever heard Kathy Ligon speak, you are aware that she is a champion of the early education business owner having a thriving business (aka one in which they are thriving personally and reinvesting in their facilities and programs as well as teams and families). If you are not thriving personally, you will never fulfill the mission you are trying to serve. Remember: No Money, No Mission! And, in a time of increasing staff wages and benefits that keep you competitive in this low unemployment environment, it is more critical than ever to increase tuition rates to the point that you are spending on staff salaries at a healthy rate.

We have seen many clients struggle during the last year as salaries for new entrant team members have risen drastically, causing a corresponding increase in all staff rates and the need for a more than typical tuition rate increase. This is not the time to be timid! Consider a stronger increase this year—possibly raising rates more significantly on incoming families—and consider minimizing discounts.  Removing discounts for “free days” or lessening discounts for siblings or staff (staff is admittedly a tough one) can often work in conjunction with a tuition rate increase to lessen the blow to your business. For more information on tuition rates strategies, watch our THRIVE Masterclass Tuition Rates: Strategies for Success here.

THING TWO: Occupancy
Often, our clients believe they are fuller with enrollment than they actually are, as the industry norm is to count heads in the building and compare that to the licensed capacity to get an occupancy percentage. The problems that arise with this method are that other factors, like part-time enrollment and discounting, can significantly impact the financial picture while presenting the perception that you are fuller than actuality.

The HINGE team uses a financial health measurement beginning with the net revenues (tuition plus other charges minus discounts), divides this number into the average tuition rate (typically the three-year-old, full-time rate) and the licensed capacity to get a financial health percentage

For example…

Net Revenue (Tuition + Other Charges - Discounts for the year) $1,500,000

Divided by three-year-old weekly rate (could also be monthly) $287

Divide by the licensed capacity (actual—not what you believe is correct!)                      165

Divided by 52 weeks (or 12 months if your rate was monthly)                                          52

Equals the Financial Health Measurement ($1,500,000 / $287 / 165 / 52) 60.91%

This calculation is the basis for financial health and expense control.  And at HINGE, we believe this number should be 70% or greater to have a baseline of cashflow that supports a strong curriculum and team and allows you to reinvest in the business and begin to thrive personally.

If you have lots of bright, shiny faces in your building but are struggling with financial health, reconsider part-time enrollment—unless you are able to match them for a full-time equivalency or they are afterschoolers who fill space that was used by younger children in the morning. And be sure to take a strong look at your discounting. Industry norms are moving away from “free days” for parents, decreasing the allowed number of discounted children for staff, and removing discounts for infants and toddlers—where you are most likely losing money anyway.

The good news about all of this? Alongside the struggles with staff wages that accompany a low unemployment rate, come full schools! More people are working than in the last 50 years and this financial impact means you should be thriving with enrollment.

Have questions about the best ways to implement tuition increases or how best to start eliminating discounts? The HINGE team is always happy to act as a resource to early education owners as you consider this information and the impact of full enrollment and tuition rates that reflect the cost of services and reinvestment. Please contact us at info@hingebrokers.com

Meredith Martin