Daycare in the United States is one of the world’s largest industries. This is not surprising due to most households are now required to have two solid incomes in order to make ends meet. The need for daycare is on a constant rise and in some areas, it is in high demand.
The average profit margin for a daycare business is 6.5%. According to Statista, the industry revenue in the United States for 2017 was 41.56 billion dollars. The industry revenue for 2023 is estimated to be 49.2 billion dollars in the United States.
Between 1987 and 2007, child care facilities have increased by over 500,00 in the United States. The child care industry has a healthy net profit margin as well as a somewhat consistent sales growth, according to Forbes.
What is profit margin and why is it important?
In business, profit is referred to as your bottom line. In simplest terms, your profit is the amount of money you are actually able to keep. Subtracting your costs from your revenue is how your profit is calculated. Your annual profit margin percentage is calculated by taking your total annual cost and dividing it by your annual profit amount.
The importance of the profit margin is to paint a picture of how successful your business is or has become. Knowing your profit margin helps you to determine if you need to make any budget adjustments.
You are able to get an understanding of the financial stability of your daycare. Understanding the financial stability of your daycare is extremely important. This is where you may have to make some difficult decisions in order to keep your daycare operating smoothly and successfully.
How does understanding profit margin help my business? As your business grows, you will have to hire more staff to keep the teacher to child ratio where it is expected according to your state regulations. The fewer employees you have, the less payroll you will have to pay. This means that the income you are receiving for tuition is not all being spent.
However, keep in mind that as you add employees, your profit margin may drop due to the extra payroll expense. However, as you gain more children, your income will increase. As you can see, your profit margin will fluctuate according to how much income you receive from tuition, and by how much you will need to spend for supplies, food, payroll, and building expenses.
What are some areas that will affect my profit?
As you strive for profitability, you will have a few areas of opportunity. If you are going to have a center-based daycare center, you will need to keep in mind that there is a potential for turnover when it comes to your employees. If you have turnover, then that means you will have to account for training in your budget and you will not profit as much if you are having to put new employees through training.
Another area of opportunity to keep in mind is that as your daycare center grows with more children, you have to make sure that you stay within your state guidelines to ensure that you are in compliance with the teacher to child ratio. Gaining more children means more profit, but also may mean more payroll and training if you are having to hire an additional employee.
Gaining more children also means making sure you have enough space for all your children. So if you outgrow your current daycare center, you will have to find a bigger space for your facility. This will cost a little due to deposits and moving fees. You may also experience an increase in your rent and utilities.
Children will need food throughout the day. Keep in mind that you will need to make sure that if your facility is not set up with a kitchen to provide meals, that you partner up with a local service that will provide meals. If there is nothing in your area, you may need to require your parents to provide meals for their children.
There are meal funding programs that will assist you with your food cost for your daycare. It is very imperative that you provide nutritious meals and snacks throughout the day. You can retrieve additional information on what kind of funding you will be able to receive from the Child and Adult Food Care Program.
You will want to review any funding programs that are offered for your particular type of daycare that you are operating. Any additional funding vouchers that you will receive will help you get the most profit for your daycare. Having a successful and profitable daycare will keep you open to help those parents in need.
What are some things that I can do to keep my daycare profitable?
For starters, you will want to make sure that you keep your daycare center well organized. Make sure everything is in a safe place and that there is no valuable information left out where the public can see it in the event you have to walk away from your desk for a second.
Secondly, make sure that you hold everyone accountable. This goes for yourself, your employees, the parents, and the children. It is very important that each person does his or her part when it comes to operating a successful daycare center.
Thirdly, make sure you are maintaining your business and customer needs. Yes, you want to run a successful business, but you have to meet those customer needs as well. Make things as easy as possible on both you and your customers. An example would be to have different avenues for your clients to pay you for the services you provide.
Fourthly, get to know your community and your competition. You want to be sure that your clients are going to choose you over your competition. An idea that could help you would be to maybe have a discount for the first 50 clients that sign up. Maybe you want to give referral credit for each referral you get to your daycare.
Networking is very big when it comes to getting to know your community as well. You can do something simple as leaving your business cards for your daycare at a coffee shop and asking them if they could provide coffee for a tour you are hosting.
Get your business out there and let the community know who you are. Let your competition know that you are rolling up your sleeves and that you are ready to show them how your daycare is the choice of the area.
Food for Thought
According to Care.com, the average weekly child care cost for one infant is $215 for a daycare center and $201 for a family care center. Between 2013 and 2019, the cost for one infant increased by 16% for daycare centers and by 58% for family care centers. The average annual costs for a family child care center is $57,600 and for a daycare center, the average annual cost is $118,080.
For example, let’s say you have 10 infant children that you care for in your family care center. At a tuition cost of $201 per week per infant child, you would receive $2,010 per week for all 10 children, $8,710 per month for all 10 children, and $104,520 per year for all ten children.
Let’s assume your expenses are about $2,500 for the month. As long as all your parents pay you for your service you will profit $6,210 for the month. So, if you want to determine your profit margin percentage for the month, your equation would look like this: $8,710 divided by $2,500 would give you a 28.7% profit.
If you would like to determine your profit margin percentage for the year, keep in mind that the average annual cost is $57,600 to operate your family care center. If you profit $104,520 then subtract $57,600 for your annual cost you would have a yearly profit of $46,920. If you divide $104,520 by $57,600, your profit margin percentage would be 55.1%.
This is a great example of how you can really be profitable with your daycare business. You get to be your own boss, set your own rates, and help working parents feel at ease knowing that their child(ren) are in a safe environment.
- What is the average income for an in-home daycare business?
According to zip recruiter, the national annual pay for a home daycare from 21,000 to 31,500. The average pay for a home daycare business is 29,218 per year.
- What is the average cost to invest in a childcare franchise?
If you decide that you want to invest in a childcare franchise, you will need to have some money on hand. The average cost for a childcare franchise is anywhere from $493,000 to over $3,000,000 according to Small Biz Trends.
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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