Many people start a childcare business without really knowing the true value of the service that they provide. Let’s take a look at childcare center pricing and why it is so important to come up with a rate that reflects fair market value. We also offer some ideas for approaching the issue of pricing as a new childcare business owner.
Pricing your Services too High
If you price your childcare services too high then parents won’t sign their children up for your services. Parents will shop around so you must make sure that your rates offer fair value for the service that you offer. You should aim to have your daycare at close to full capacity to maximize income and to make full use of your facilities.
Pricing too Low
Some new childcare center owners make the mistake of starting out pricing at ridiculously low rates in an attempt to get their business established quickly. However, they then realize that they won’t be making any money at such an unrealistic price level. Having to tell parents that you need to increase the price dramatically when you don’t yet have such a good relationship with them doesn’t make for happy customers. If you are pricing too low then you are leaving profits on the table and could be doing damage to the industry in your local area.
Finding Fair Price Points
You have to find a healthy price point where you can make a nice profit and still offer customers good value compared to other options that they have.
How to Price Childcare Services
Here are two methods that you can use to come up with rates for your services. Ideally both methods should be taken into account when making a decision.
1) Price in Line with the Market
One simple approach to pricing is to simply take a look at your competition and find out how much they charge. This should be done as part of the market research for your childcare center. Take note of the rates that competitors are offering and the service level that they provide. After making adjustments for any variations where appropriate you can then price your services at a similar level. This approach is a little simplistic though and it doesn’t take your expenses into account.
2) Pricing to take Business Expenses into Account
A more independent approach to pricing is to work out your total cost per child and then add on a suitable profit to arrive at a price that allows you to operate profitably. This method is not always easy as you will have fixed costs that have to be paid no matter how many children you have in your center. These are in addition to the variable costs which will change depending on the group size.
Under this method you could assume that your childcare center were at 80% capacity in terms of the number of children that you could take. Then you would work out the total costs associated with running your business at that level and divide the total cost figure by the number of children. When you calculate total costs be sure to include all of the day-to-day running costs and monthly overheads and don’t forget to add on a suitable salary for yourself. Finally you can add on an amount for ‘profit per child’ and then you will have a price that works.
This method is not entirely accurate if your attendance falls above or below 80% capacity but it offers a reasonably accurate pricing guide.
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