2024 State of the Early Education Industry: Mid-Year Update

Since HINGE Founder & CEO Kathy Ligon presented her annual “State of the Early Education Industry” webinar earlier this year, a lot has changed. The world is moving at a faster pace than ever, which makes having a big-picture view of new developments in the early education industry even more important for childcare business owners. Kathy’s recent mid-year update highlights seven of the most important trends impacting the industry today.

1. Demand for Childcare Remains High
   Given low unemployment rates, it’s no surprise that demand for early education services has remained high as working parents seek childcare solutions. While this ongoing trend is a positive one, high demand coupled with a smaller pool of job seekers continues to present staffing challenges for many. In some cases, staffing challenges are preventing early education centers from operating at full capacity; however, there are strategies that can help address this issue (keep reading!).

2. Tolerance for Tuition Rate Increases Has Softened
   Historically early education providers would raise tuition rates by 3-5% annually to keep up with inflation. Since COVID, there has been such a drastic increase in expenses that providers have needed to introduce higher-than-normal tuition increases — sometimes multiple times per year — to simply stay in business. With tolerance for these increases waning, understanding your actual cost of care and setting tuition rates appropriately is key.
   “There's a limit to the amount of time that you can charge less than the actual cost of care and survive,” says Kathy. Check out Framework™ by HINGE, a free financial benchmarking tool that allows you to test alternative tuition rates and see the impact on the financial health of your business.

3. New State and Federal Legislation Is Underway
   Since the expiration of significant federal funding late last year, many states are stepping up to introduce new industry initiatives, such as paying for the childcare costs of early education teachers. This has already been introduced in six states with 15 others considering the legislation. Additionally, federal legislation was approved in February to support early education centers that accept government subsidies. The legislation mandates that within the next two years, states must enact measures to:
   - Pay subsidies “on time” — meaning in advance, alleviating the cash flow challenges of being paid 30, 60, or 90 days after.
   - Pay subsidies based on enrollment, not attendance, which will help childcare owners manage fixed costs.
   - Limit family contributions to 7% of their household income.

4. The Market Has Created an Opportunity to Revisit Discounts
   Given both high demand and rising costs, now is a good time to reexamine any tuition discounts you offer. Kathy encourages business owners to track the total amount of revenue forfeited through discounts.
   “You should understand the financial impact that discounts have on your business. If you’re losing $80,000 in annual revenue to discounts, could that money be better spent hiring an additional staff member, for example?” says Kathy. There is one discount she never suggests eliminating: tuition discounts for staff children. “Don’t mess with the well-being of your teams,” she adds.

5. Employee Pay Has Risen Sharply
   HINGE’s 2024 Childcare Staff Costs Survey shows that, on average, early education businesses have needed to increase their pay rates by 30% since COVID. As a result, the typical provider is spending 45-50% of all tuition dollars on staff costs alone, which is very difficult to manage.
   “One of the best strategies for managing staff costs is allowing staff to leave early, when possible,” says Kathy. “Those 15 minutes can add up to significant savings for your business, and it contributes to a work-life balance that many employees value.” She also advises limiting the use of management teams in classrooms, opting instead to use floaters and assistant team members as effectively as possible.

6. Rent/Mortgage Continues to Burden Many
   Real estate costs have continued to soar in the U.S. Whether you own or rent your childcare facility, it’s likely your second biggest expense. HINGE’s Framework tool allows you to compare what you pay to industry averages and set a realistic budget for renewing or renegotiating your lease.

7. Insurance Challenges Persist
   Securing a new insurance policy and even maintaining coverage continues to be extremely difficult throughout the industry. Childcare business owners need to position themselves as a smart risk and ensure appropriate risk management measures are in place, which can also help moderate large increases in insurance premiums.

Interested in more early education insights or effective strategies for managing the financial health of your childcare business in today’s environment? Reach out to our team anytime at info@hingeadvisors.com.