Daycare profit margins have steadily increased over the years for two reasons. One reason is the increased popularity of early childhood education. The other is due to an increase in expendable household income.
The first step to making your daycare more profitable and maximizing your profits begins with evaluating your budget. Every business must balance its income with its expenditures and a daycare business is no exception. Finding places to save money on expenses while increasing the flow of money coming in will boost your profitability in no time.
Daycares must adhere to state and federal regulations that put restrictions on factors that affect profitability. Aspects such as the size of the facility and child-to-teacher ratio limit what budget changes a daycare owner can make to increase profit.
Evaluating Your Daycare Budget
To make your daycare more profitable, you must have a complete understanding of the daycare’s budget. This begins with knowing how much money is coming into the daycare. Income in the form of tuition fees from parents to government grants and subsidies all impact the budget.
Along with income, the daycare’s budget includes the day to day expenses of running a business. Everything it takes to operate the daycare is included in this list of items. Some expenditures remain constant with little fluctuation from month to month while others can change.
Remember to include all costs associated with the daycare. This includes such things as payroll taxes, state and federal unemployment taxes, and insurance premiums. Every item must be included in the expenses list to single out the flexible ones.
Don’t forget to include expenses you incur from using vehicles for the daycare whether it be your personal car or a company bus. Be sure to include gas consumption and mileage for running business-related errands such as banking, grocery shopping, and field trips
Types of Daycare Income
- Tuition from parents
- Government stipend
- Gifts from parents
- Food Programs
Common Daycare Expenses
- Education Supplies
- Office Supplies
- Cleaning Supplies
- Employee Salaries
Once you have a clearly defined picture of the daycare’s income and business expenses, you can see where to make changes. These lists will provide the map to locating where you need to maximize and identify expenses that can be minimized. Together these adjustments will increase your daycare’s profitability.
Maximize Enrollment Capacity
Square footage of your daycare facility will define the maximum number of students and staff your business can accommodate. Also, state and federal guidelines determine the teacher to child ratio. Combined, this information will give you the maximum number of children your daycare facility can enroll.
Check with your local government about the required usable floor space per child as they vary from state to state. As a general guideline, the federal minimum requirement for usable space per child is 48 sq ft. Outside space requirements increase to 75 sq ft per child.
Areas that are not considered usable space must be subtracted from the daycare facility’s entire square footage to find how much usable space you have. These include:
- Bathroom facilities
- Non-movable furnishings
- Offices and storage
- Laundry facilities
Childcare centers need to maintain enrollment at 80-85% of capacity to begin to see a profit. This is often due to the high cost of the fixed expenses of a daycare facility. Maintaining the highest level of enrollment capacity is one of the most effective income boosters.
Maximizing your daycare’s enrollment capacity will also boost your business’s reputation. New parents are more inclined to enroll their child in a daycare with capacity enrollment. It gives a sense of comfort when so many other parents have chosen the same daycare for their child.
Maximize Business Efficiency
Every captain must run a tight ship when sailing the seas of business. Each task must be well-defined with clear expectations. Also, each job should be manned by an individual qualified to handle the specific task.
Maximizing the efficiency of a daycare creates consistency in the workplace. It makes clear what jobs need to be done and how to do them. It also provides a structured environment for children enrolled at your center.
Daycare efficiency begins with establishing a yearly calendar similar to traditional school-year schedules. This calendar outlines important dates and events including closures and holidays. It provides parents with a set schedule and keeps them informed.
Setting up a yearly calendar maximizes a daycare’s efficiency by coordinating every aspect of the business. It lays the framework for creating the center’s educational curriculum, field trips, test dates, and graduation days. A yearly calendar helps to organize classroom schedules, registration dates, and payment schedules.
Creating the calendar will also make other tasks easier to do such as developing the meal menus and employee schedules. The changing of the seasons is one of the easiest guidelines to follow when planning a yearly calendar. Seasonal themes help in the development of the curriculum, special programs, and even daily meals.
Maximize Usage of the Facility
Daycares provide a much-needed service for working parents. Hours of operation are often the defining factor for many moms and dads. One way to maximize the usage of your daycare facility is to operate beyond the typical 6 am to 6 pm schedule.
Another option to maximize the facility’s usage is to provide daycare service on weekends and holidays. Most corporate daycare facilities, like La Petite Academy, only operate on a Monday through Friday schedule. Being open beyond the traditional workweek will entice those parents whose schedules are atypical of the 9-5 life.
Renting out the use of your facility outside of business hours is another way to boost your daycare’s profit margin. The layout and environment of a daycare facility is the perfect setting for meetings, birthday parties, and holiday gatherings. Daycares are great locations for parenting classes, continuing education courses, and CPR training.
Finally, to maximize the usage of your daycare facility, you can provide additional services beyond the traditional infant and pre-k care. Expanding to include kindergarten and after-school care for older children can increase income through increased capacity. Providing tutoring services to after school care kids will certainly sweeten the deal.
Additional Services to Consider
- Uniforms and laundry service
- Weekend meals
- School photos
- Family portraits
- Hair cuts
- Grooming and childcare supplies
Maximize Daycare’s Exposure
No business can expect to grow if no one knows you’re there. To be the most successful in today’s world, your daycare needs to be out in public and prominent online. Reaching out to the community in person and on the internet gives your daycare maximum exposure.
Getting involved with the community where your business is located shows you care about the people who live there. Participating in local events like street fairs and community outreach can provide you an opportunity to connect with other business owners. It will also give you the time to build rapport with the residents.
Traditional advertising in the local paper and on radio or television will always gain exposure to your daycare. Today, however, your daycare’s presence online is a vital element that can nourish success or burn up in failure. Neglecting to reach your audience through their preferred media results in missed opportunities.
Maximizing your daycare’s online exposure starts with your website. A high-quality professional website with user-friendly features will make a positive first impression of your daycare. Presenting information in a concise yet thorough format and easy navigation simplifies the process of comparing daycares for busy parents.
Social media has exploded into a busy web of interactions so it’s no surprise it now plays an important role in the world of business. Grabbing maximum exposure for your daycare requires being everywhere at the same time. Many offer promoting functions that take the hassle out of advertising.
These media platforms give parents more avenues of communication with the people caring for their child. This often instant line of contact gives a reassurance that comes with being able to check-in at any time. Being a part of an online community helps to strengthen the in-person relationship that builds between caregivers and families.
Check out other ways to get your daycares business out there HERE!
Once you have finished maximizing everywhere, it’s time to look at how your daycare can minimize spending. Budget items like school supplies and groceries provide several ways to save money. For instance, some office and school supply businesses provide discount programs for teachers and education administrators.
Shopping for supplies online makes for easier price comparisons to get the most for your daycare dollar. It can also save you time and hassle with delivery options and automatic ordering of frequently used supplies. Online shopping also offers unique discount codes and frequent shopper incentives to save your daycare even more.
Bulk item stores were designed with businesses like daycares in mind. Where else can you get a pallet of paper towels and a lifetime supply of snacks at a fraction of grocery store prices? Many of these warehouse behemoths have fuel saver programs and special member prices that more than pay for the annual membership fee.
Minimizing your daycare’s spending budget can also come in the form of taking advantage of generosity. There are a variety of grant programs and government subsidies available to daycare providers. One such program provided by the United States Department of Agriculture (USDA) offers financial assistance to supplement your daycare facility’s food program.
Minimize Employee Turnover
Staffing your daycare is a very important element of business success and often a difficult budget item balancing act. Wanting the highest quality caregivers means paying the most in salary and benefits. Offering incentives and continued education opportunities for your staff can be a way to benefit everyone involved.
A high employee turnover rate reflects extremely poorly on a daycare. There is a level of expectation parents have regarding who cares for their child. A constant changing out of staff and teachers is a disruptive and inconsistent environment unsuitable for learning and unsettling to parents.
Choosing staff and caregivers who are good at what they do and enjoy their job will make your ship sail smoothly. Happy employees who care about the work they do are more inclined to go above and beyond what is asked of them. The best daycare employees know how truly important their role is in the lives of young children.
What is the ideal budget scenario for a profitable daycare?
Achieve and maintain an occupancy rate in the range of 70-90% capacity to maximize your daycare’s income. Spend 50% of that income on staff as they are your shipmates and will influence whether you run aground. Operating costs should be in the 10-15% range of the income and facility expenses at around 20-25%. Leaving a profit range of 10-30% of the daycare’s income.
How can I increase efficiency in the menial tasks involved in running a daycare?
Use computer systems and apps to streamline the daily office tasks associated with a daycare business. Creating an automated system for billing and payments can make collecting tuition fees easier for everyone. There are also easy to use computerized systems used for keeping attendance and tracking employee hours. Accounting software is another business must for maintaining proper bookkeeping to make taxes less taxing.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
To learn more on how to start your own daycare checkout my startup course and documents here.
Meet Shawn Chun: Entrepreneur and Childcare Business Fan.
I’m a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online daycare business resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a childcare business owner, I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Daycare Business Boss: I want to help childcare business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.