Using Information to Manage Occupancy
As stated in the November, 2007 article, Using Information to Manage, occupancy is one of the four key indicators of an early education business that should be tracked weekly for maximum operational preparedness. The other key indicators are gross revenues, salary expense, and accounts receivable. Establishing a base line occupancy percentage, knowing a center’s target breakeven occupancy and profitability occupancy, and watching for changes from week-to-week is critical in order to react quickly to shifts in enrollment. Occupancy could be defined as the percent usage of your programs and services.
Although the most commonly used method of calculating occupancy is the “Head Count” method, or counting the number of children enrolled, this author prefers a “Three Year Old Equivalency” method. Logically speaking, this method asks “If every child in your building were a full-time three year old, how full would you be?” This method eliminates the fluctuation in income due to part-time enrollments, lower rate afterschool enrollments, and higher rate infant and toddler enrollments, and creates a more stable method of tracking changes and managing costs.
In calculating the Three Year Old Equivalency occupancy, the week’s total gross revenue is divided by the weekly three year old tuition rate, and the resulting number is then further divided by the center’s licensed capacity. For example:
- Weekly Gross Revenues $16,000
- Weekly Three Year Old Tuition Rate $ 150
- Center’s Licensed Capacity 160
- Occupancy under this example would be 66.67% ($16,000/$150/160).
Again, this method states that if every child enrolled were a full-time three year old, this example center would be 66.67% occupied. Using this method, the average center serving all age groups (infant through afterschool) would breakeven between 50-60% occupancy and should be able to gain a strong profit at 80-90% occupancy. This stabilized occupancy methodology is then able to be used as a tracking device to indicate sudden changes in enrollment, along with slower trends upward or downward.
If you have any questions about this article or need help in understanding the value in occupancy calculation or tracking, please contact us at firstname.lastname@example.org
Coming next month, Staffing Costs, the third financial article in the series Using Information to Manage.