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 was 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.

Other Considerations

Some childcare centers offer different rates for children of different ages and you might want to take this into account when you set your pricing structure. Younger children usually require more care than older children so a price structure that starts off higher for infants and gradually gets lower as a child gets older is appropriate.

Childcare centers usually charge more for part-time care than full-time care on an hourly basis.

Don't forget to offer families with more than one child a discount if they register more than one child for your services.

Aim for a price that confidently reflects market value or comes in slightly above. If your program or services are unique and really offer something different from other market players then a higher price may be justified. Those that have a well-developed reputation or an excellent sales process also sometimes get away with charging above-average rates. Whatever you do, don't devalue your service and sabotage your business by pricing too low.

Set out details of your pricing on one sheet of paper that also mentions your payment policies. You may offer a small discount for payments made on time or a penalty for late payments. You should also make it clear that parents are liable for paying for your services even if their children are absent. Vacations are another matter and deciding when to close for summer or other seasonal vacations should be discussed with parents.

Accurately pricing the childcare services that your business provides is one important factor that will contribute towards your success in this industry.