A daycare can be a prosperous endeavor. The average profit for daycare centers in the United States is 16% . This profit margin can vary depending on the location of the business, the number of employees, state, city, and local registration fees, if food is served, if educational programs are offered, how many children are part-time compared to how many are full time.
A daycare can make on average a 16% profit. An example of this would be, if your daycare has revenue of 150,000.00 a year, your profit would be $24,000.00. The reasons for this can include mortgage or rent payments, employee costs, food, toys, insurances, and more.
Understanding how to make a profit and what it involves is as important as the profit itself.
In this article, we will discuss what is important in determining your profit or prospective profit.
What is a profit margin
A profit margin is determined by subtracting the amount of expenses you require to run your business from the amount of income you have generated.
Let’s do a basic example for this.
If you are running a daycare with 40 children and you are charging your clients, $180.00 a week for newborns, $160.00 a week for toddlers to the age of 4 and $150.00 a week for children from the ages of 5 to 11.
If you have 8 newborns, 21 toddlers, and 11 children you will be earning $6410.00 a week. This thought sounds AMAZING right.
Now you have to consider your expenses. With 8 newborns you may need 2 employees for that room, you are paying each employee $10.00 an hour they work 40 hours a week. For 21 toddlers you may require up to 4 employees that you are paying each of them $12.50 an hour and they work 40 hours a week, and for the 11 children you may have 2 employees that you are paying $11.00 an hour they may be working 25 hours a week.
You are probably asking yourself why am I paying the toddler employees more. Simply toddlers require more time and care as well as educational development. You will want to have employees that are qualified and educated in teaching children things like counting, ABC’s, and more.
At this point, your expenses will already be $3350.00, which means that you are profiting 52%. So far this is looking GOOD!
Now let us say that you are providing food in your center, this means a morning snack, lunch, and an afternoon snack, plus, juice and milk, you may be looking at roughly $3.00 per toddler a day and .50 per child a day. Food costs will total $6.00 a day, multiplied by 5 days food costs are $30.00 a week. This brings your profit to roughly 51.75%. Still not bad.
The high item costs for running a daycare center will be rent/mortgage, electric, water, gas, or fuel for heat, internet, bookkeeping expenses, licensing, and bonding of the business.
Using generic figures lets look at an example:
Employees $3350.00 a week
Food $30.00 a week
Mortgage or Rent $1100.00 a month or $275.00 a week
Electric $400.00 a month or $100.00 a week
Gas $450.00 a month or $125.00 a week
Internet $35.00 a month or $8.50 a week
Licensing for the year $800.00 or $16.66 a week
Bonds for the year $600.00 or $12.50 a week
Other expenses not listed $1000.00 a month or $250.00 a week
Total expenses weekly: $4167.66
Total income weekly: $6410.00
Total profit weekly: 34.5% which would relate to $2,242.34
Total expenses monthly: $16,945.00
Total income Monthly: $25,640.00
Total profit Monthly: 35.5% which would relate to $8,695.00
Total income Yearly: $307,680.00
Total expenses yearly: $200,540.00
Total profit yearly: 34.823% which would relate to $107,140.00
This is a simple example, these figures can and will vary depending on where you are located what you charge, your state and local expenses as well as if you offer snacks and lunch and drinks or is are clients bringing prepared meals for their children, as well as other factors.
All in all, a profit margin of nearly 40% is outstanding for a small business.
Now that we know what a profit margin is and the various items that will be used when figuring out our profit margin. Let’s look into ways to make the daycare profitable.
Problems with maintaining profit in a daycare center
The biggest problem you can run into with loss of profitability is clients. If you have clients that are slow-paying or don’t pay and you still are providing the service of daycare including staff payments, food, educational resources and all your other bills to maintain the business, this WILL affect your bottom line.
One way to decrease this is to ask clients to pay upfront for the week or month. This allows you the comfort of knowing you are not spending money that you possibly will not get back.
Another way to handle this possible issue is to have a contract for each client. This will ensure that if you provide the service and are not paid, you can ask for legal help in receiving what you are owed.
Since we have seen that there are possible issues with maintaining your profit, let’s next look at ideas on how to maintain, or increase these profits.
How to Maintain Profits for a Daycare Center
Keeping costs low. This is the simplest answer. Always purchase quality products for the children at the best value. Sometimes this could include buying in bulk.
For example, hen buying toilet paper, this is an item you know you will NEED no matter what it is an essential item. So when you are purchasing this item for your daycare center, look for it in bulk, buying at places like Sam’s Club, Costco or Amazon can save you money. It may seem extreme to buy 100 rolls of toilet paper, but when you consider whether it takes a week or 3 months to go through all of it, you will inevitably use it.
So if you buy a cheap brand of toilet paper an 8 pack for $8.99 and then in 2 weeks you buy another, you have already spent almost $18.00. Now if you buy a case of 75 rolls at Amazon for $73.00 you will be saving $7.91. This doesn’t sound like a ton of money I understand but consider over a year you need to make this purchase 5 times. Now you have saved $39.55.
Take into consideration all the different essential items you will be needing to purchase throughout the year. When you add up every $40.00 you saved it could be thousands.
Another way to maintain profits is to regulate services. Your employees should be qualified and trained, and they should also work only the hours needed. If you have 2 employees that work with children 5 through 10 and there are 11 children in that age range as in the example above.
You can consider having one full-time employee and one part-time employee; consider that unless it is spring break or summer, these children will be in your care, before school, and after school. The Kindergarteners will be there longer than the first through fifth graders.
Let’s stay on the topic of employees, check into local Career Centers and Collages you can find help from students, who may be only looking for part-time or even for internships to complete their program qualifications.
Daycare Centers are thriving in today’s business world. Children will always need good, quality care, and parents will always need to find this care. More and more both parents are working in a family and this means that the children need someone to take care of them.
Follow Up Questions
- Where can I find deals on necessities for a daycare center?
Wholesale clubs are an easy resource to use for things like toilet paper, paper towels, snack foods, drinks, blankets, towels, diapers, wipes, and more.
- Am I guaranteed to make a profit if I open a daycare center?
The simple answer is No.
There is no guarantee in any business. Daycare centers are profitable if run properly and you have satisfied clients. However, how successful you are can depend on many factors such as location, how many other facilities are in the area providing the same service, what your clients say about you and your center, and many other factors.
- Should I open a daycare center in my home or outside my home?
This depends on you. An in-home daycare means you are the provider; you are the one that takes on all the responsibility for all the children in your care. It also means you cannot have as many children at one time.
On the upside, there is a less initial investment, and many of the ongoing expenses can be written off on taxes.
So whether you should open a brick and mortar center or an at-home center depends on what you are hoping to accomplish with your new business.
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.
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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.