Childcare is more than a business. It is life. Caring for children is the reason many get out of bed in the morning. For these people, helping to set the foundation, and being a part of the lives of the leaders of the future is a dream opportunity. One way to achieve this dream is to have a daycare center. So, how much does it cost to set up a daycare franchise?
Depending on the franchisor, the costs of setting up a daycare franchise often vary. It ranges from $300,000 to $7 million. Everything- from the legalities, costs of operations, and marketing expenses- has been taken into consideration.
However, you would know that starting a daycare center from the scratch doesn’t cost as much as buying a franchise. So why should you even bother about daycare franchises?
Daycare Franchise Vs Starting Up From The Scratch
Starting your daycare from scratch is usually less expensive and gives you some independence in running your business. Before you ask why anyone would want to go for daycare franchises- the more expensive option- consider these:
- Franchises help to eliminate costly trial and error
Most startups don’t have a tested business model. The business owner might have it all planned out in pen and paper, but things could quickly get out of hand in reality. Some owners usually find themselves in a cycle of trial and error, which may accumulate high costs.
Franchisors, on the other hand, have refined business models that have gone through series of tests in real-life scenarios. And they have done this with a reasonable level of success. So, the franchisors teach franchisees the business models that have helped them remain consistently profitable. Thereby, helping the franchisees skip any costly trial and error that may happen.
- Franchisors already have brand reputations
One hurdle new startups, daycare, or any other business have to scale over is brand recognition. Nobody knows them, so they have to convince customers to patronize them. Unfortunately, this may take time. Some don’t even make it past this first hurdle before they pack up. And this is just one of the many hurdles queued up in front of them.
Purchasing a franchise, however, already helps franchisees skip this hurdle. The franchise already has brand recognition, making it easy for customers to trust them.
Those are the benefits of daycare franchises. Remember how I said daycare franchise costs varies greatly? Does that make you wonder what factors contribute to these wide variations?
Key Factors That Vary Daycare Franchise Costs
This is where you begin your planning stage when you’re looking to purchase a daycare franchise. The cost of setting up the franchise will depend on these factors:
This is probably the most important factor on this list. The location of your business does not only play a key role in how much you would be investing, it also contributes to how much you would be earning.
The franchisee has to select a location and submit it to the franchisor for approval. The franchisor may then send real estate agents and other professionals to assess the site to confirm that it meets its standards.
If you are looking to lease a facility, invite the franchisors to assess the facility before you lease it. If you want to build the facility from the ground up, invite them to assess the site before purchase.
Most leased facilities require a deposit of $15,000 to $110,000. This does not cover the costs of upgrade and minor repairs. Acquisition of real estate, on the other hand, could cost from $2,700,000 to $4,000,000, and this estimate covers major constructions. You may also add utility bills to this category, and it often ranges from $2500 to $10,000
Also, don’t forget to put local regulations into consideration before deciding on a location.
2. Legal Requirements
As soon as you the clear location matters, what comes next is the legalities.
This is where you purchase the franchise, get a daycare license, pay for insurance, prepare employee contracts and other contracts, and so on. It is necessary that you do your research concerning this aspect and try to do everything according to the rules that apply to your jurisdiction.
For instance, the state will carry out two or more inspections on your facility to make sure it meets the local requirement for daycare businesses. The four basic requirements are health regulations, physical space, fire regulations, and education requirements.
Doing these would help you avoid a lot of legal issues that may come up in the future.
Legal Requirements Costs
The initial franchise fee for many daycare franchisors often ranges from $50,000 to $150,000. Most franchises fall close to the lower boundary, with only a few going as high as the $200,000 mark.
It is not as simple, however, to place an estimate on insurance costs, as there are many insurance policies to choose from. However, the two most common policies are General Liability Insurance and Workers’ Compensation Insurance. You may skip the latter if you plan on running your daycare all by yourself. But seeing how that might be hard to do, the two could cost you any amount from $500 to $3,000 annually.
3. Equipment, Supplies, Products And Other Expenses
Now that you are done with the legal and location details, it is time to stock up. This is without a doubt one of the most important factors to consider. When parents are looking for the best daycare for their kids, only a handful of them care about your legal standards. All they want to know is that their kids are in the safest and most conducive environment. And the equipment, supplies, and products that you have in your daycare are the easiest ways to assure them that their kids are in competent hands.
It is easy to out-shoot your budget here. You may keep going around the store and keep finding more and more things you think you might need. In the end, you may realize that you forgot to buy something important and your budget is up in flames.
The best way to make sure you stay within your budget here is to make a list of everything you will need. Then, depending on your budget, you may begin to strike out the least important items from the list.
The expenses that you should expect to cover here are food and kitchen supplies, educational expenses, and playground equipment. If your daycare will have kids that are old enough to use computers, you may add them to your expenses.
Besides the kids’ supplies, you will need to purchase supplies for the adults in the daycare as well. The telephone system, offices, and the furniture are examples of these supplies.
Telephone system, offices and furniture: $10,000 to $30,000
Computers: $25,000 to 60,000
Playground and indoor supplies: $70,000 to $250,000
Food and kitchen supplies: $15,000 to $30,000
If you have made it to this stage, you are halfway there. Pat yourself on the back. But if things were serious before, the stakes of seriousness increase drastically here. Even if you got all the other factors above right but fail in this, your entire business could crumble. This is because the people you work with have a direct impact on how well your business does.
You have to be sure that your employees are all good with kids. And even after you employ them, you may need to invest in some extra employee training for them. These are people’s kids we are talking about. Their parents trust you to keep them safe, fed, and happy. You, in turn should be able trust your employees to help you achieve this goal. And if your employees are incapable, your entire business is incapable.
Fortunately, franchisors run comprehensive training programs for all their franchisees where they teach the new business owners business models and best practices. Apart from this training, another way to ensure that your employees are motivated enough to do their best is by paying them well. And this is where the labor cost comes in.
Labor cost breakdown
The average pay for daycare workers is about $30 per hour or $62,400 per year. Multiply this number by the number of employees you have, and that’s an estimate of how much you will need to pay your workers. Don’t forget to add your own salary to the budget. You deserve to be paid too.
This is the final part of the daycare franchise set up. Some major daycare centers even have marketing departments, but you need not worry about that if you’re just starting up. Typically, your franchisor’s brand name should give you a boost in your marketing. This is because parents already trust the franchisor and they don’t expect yours to be different. However, you can’t rely on that alone. You have some marketing strategizing work to do.
A lot of franchisors often help their franchisees to kick start their marketing. Some of them provide marketing plans for their franchisees. But you would be increasing your chances of getting more customers by contacting potential clients by telling them about your services. Don’t forget to tell them what makes your services unique.
The cheapest and one of the most effective marketing strategies is by referrals. When parents are satisfied with the way their kids are treated in your daycare, it is easy for them to convince their fellow parents to join in.
Also, depending on the geographical location of your potential clients, you may need to invest in online, print, and radio adverts. In the digital world where we find ourselves in today, it is often a smart move to create a professional and well-designed website where your customers can easily reach you or even pay for your services. Print nice looking business cards and brochures and distribute them accordingly.
Marketing Cost Breakdown
Daycare website templates cost an average of $50 and building a simple website from scratch could cost up to $500.
Business cards and brochures cost an average of $500.
Depending on the time of airing, radio ads could cost from $300 to $1,000
If your daycare franchise project has reached this level, you have done most of what needs to be done. You have cleared the biggest hurdles in the project. From this point on, the only costs involved in your daycare franchise are running costs. However, what is south in this article is just as important as what is above. It is the part where we talk about your pricing model.
Let’s dig in.
5. Your Pricing Model
Deciding on the best amount to charge parents could be harder than you think. Sometimes, you might not have to worry about this because the franchisors have already provided you with a comprehensive pricing model. But in other cases, the franchisee might have to come up with their pricing model.
Eventually, whatever pricing model you follow must be affordable to parents, competitive, enough to keep the business running, and fair to you. You also have to consider the average amount your target audience is willing to pay for your services and the number of employees working for you.
Daycare franchises, like other businesses, charge per hour, weekly, or monthly. Charging parents per hour means they would only pay you for the number of times their kid spends in your daycare. And as you may already suspect, this could require a lot of paperwork from you. Charging weekly or monthly does not have as much paperwork involved.
However, weekly charges has its advantages. One of them is that you can easily charge for overtime. Imagine a parent was always an hour late to pick up their child every weekday. You would work for five extra hours in that week alone. Do the maths, it’s 20 hours of overtime at the end of the month. That is worth adding to the bills of the parent.
I hope you had fun learning about how much an average daycare franchise costs. Buying a franchise comes with many perks. There are many factors that affect the cost of a daycare franchise, so, you want to do your research to know what works best for you. However, if you can’t afford a franchise or you want the satisfaction that comes with running your business as you like, starting an independent daycare is the way to go.
- How do I choose the best daycare franchise?
There are a lot of daycare franchisors out there. The best way to choose one to partner with is to do your due diligence regarding research on each one you are considering. Also, you can view this shortlist of 15 best daycare franchises according to franchisechatter for guidance.
- How much profit can I gain from running a daycare franchise?
There is no way to tell for sure how much profit you would make as there are many factors in play. However, you franchisor may be able to provide you with an estimate of how their other franchisees perform.
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.