How to Increase Revenue For Your Early Education Center Without Raising Tuition Rates

Fall is a logical time to consider tuition rates and whether they are sufficient to cover the new cost of care, which has increased remarkably since COVID. What does cost of care mean? It refers to the total expenses involved in providing care and education to children at your early education center. Unlike market-based pricing, which primarily looks at what other centers charge, the cost of care approach is grounded in your specific operational costs. This ensures that your tuition rates reflect the actual expenses required to run your school, allowing you to maintain quality and financial health.  

The cost of care related to staff pay alone has increased 30-50% since COVID. That, coupled with rising insurance, supplies, and other business costs have necessitated a new approach for managing revenue. If you have been diligent in increasing your rates to match the rising cost of care, and feel that you have maxed out the market’s position to support it, then it is time to focus on alternative revenue-building strategies!  

Focus 1: Occupancy
Although setting tuition rates to match the cost of care is very important, nothing is more important than filling your available spaces with enrolled children. Occupancy is the most critical financial metric for the success and sustainability of early education centers. It directly impacts every center’s financial health, quality of care, and ability to serve the community. Without a healthy number of children paying tuition, the school’s fixed costs, such as management and lead teaching teams, rent, property taxes, insurance, and basic supplies, cannot be covered. 

The last one or two enrollments is where profitability and the ability to thrive financially lies. Make enrollment-building a daily focus for you and your team. Bring them into the process by training them on the benefits of full enrollment and empowering them with strategies they can use to help drive enrollment.

Focus 2: Discounts
Discounting is the greatest hidden danger in managing the delicate balance of revenue and expenses. That’s because business owners are often not armed with the information to understand the impact on their financials. Many business owners only record the discounted tuition in their billing system. As a result, it is nearly impossible to easily see the impact of these discounting decisions. 

The appropriate way to record income is to record the current stated tuition rate and then separately record the discount in the billing system. This approach makes the financial impact of your discounting decisions very clear. As salaries and operating costs continue to increase significantly, understanding this impact is vital so you can evaluate what changes might be made quickly to steady the financial picture. 

In addition, discounting tuition rates can sometimes lead to a perception in your community that your school offers lower-quality care compared to competitors that charge higher rates. This can be damaging to your school’s reputation and may make it harder to attract families who value quality over price. 

While offering tuition discounts can be a tempting strategy for attracting and retaining families, and a useful strategy in certain situations, it is essential to consider the potential pitfalls and long-term impacts on your school. Approach discounting with caution and carefully consider the ultimate impact on your school’s finances, reputation, and ability to provide quality care.

Common discounts include the following:

Staff Discounts
The majority of schools discount the cost of tuition for the children of their team members. The historic rule of thumb is to offer free childcare for management team members and half-price childcare for teachers and other support staff. This strategy greatly improves the ability to attract and retain quality team members. Some schools do not discount infant and toddler programs for staff, as these programs are likely at less than a breakeven point to begin with. Another common strategy is to limit discounts to two children per team member. But in this difficult hiring environment, I would use this discount liberally to support the team and improve your ability to recruit. 

Another strategy is to align your team members with alternative subsidy tuition sources for their children, if possible. This approach alleviates the strain of the tuition and discount for both the school and the team member. At the present time, several states have invested in paying tuition for early education teachers, and many other states are considering following suit. I personally love this investment, which minimizes the difficulty of hiring, financial stress on the teacher, and financial stress on the school.

Subsidy Discounts
Subsidy tuition (tuition paid by a non-family source such as a government agency) is generally finite. A few states currently contribute the actual cost of care, but most do not. Some states allow a contributing fee to be charged to parents to bridge the gap between the subsidy rate and the market rate, but owners often choose to not charge this fee because they perceive that families can’t afford it or that their competitors do not charge it, making competition challenging. This creates a difficult balance between revenue and the cost of care.

Vacation or “Free” Days
If your school allows enrolled students to take days off from school and not pay or pay discounted tuition, this is your first place to start in minimizing discounts. It is no longer standard practice to allow families to pay for only the days they choose to attend, as a business continues to have operating expenses, and a slot is being held, even if the child is absent. The current industry norm is to remove this discount completely. Even if your local competition gives vacation discounts, I suggest removing it. 

When it comes to eliminating a discount like this, a good strategy is to implement a “smaller than necessary” tuition rate increase at the same time. This coupling strategy could lead to a stronger financial picture compared to a larger tuition rate increase. Always be sure to communicate to families how and why you have chosen to change the tuition rate and eliminate discounts. 

Discounts for Multiple Children in the Family
Historically, the majority of the industry has offered a discount for families that enroll more than one child, with a typical discount of 5-10% off the tuition of the child(ren) with the lesser tuition rate. Recently the industry has been moving away from this discount, though this trend is newer than eliminating vacation or free days. Consider what the competition is doing in your area, but do not hesitate to be the trendsetter!

Industry Discounts
Some business owners choose to discount tuition for families that work for a particular business or in a particular industry. While I believe the early education industry’s long-term solution will include greater participation by businesses investing in their employees’ childcare, my guiding question is: Do you have a true partnership with the business? Is the business promoting your school to its employees? If the answer is no, then those families probably would have come to your school anyway. 

However, it is a great strategy to create a relationship with the business or industry you are discounting and let them know that you are providing a valuable benefit to their employees. Ask how they might contribute to the school so this can continue happening. Can they pay the discounted portion on behalf of the employees? Can they promote the school to their team members? Can they cut your grass, send a maintenance technician periodically, contribute to supplies, etc.? 

Military Discounts
Business owners may have a particular group of people that they choose to support with discounted tuition, such as military families. There are no wrong decisions with this personal choice. I just encourage business owners to make decisions armed with the information around the impact of the annual net revenue they are giving away that would have gone toward the collective health of the school.

Early Payment Discounts
Some schools choose to offer discounts to families paying a month or a year in advance, although much of the industry is moving toward monthly or annual tuition payments as a standard for parent groups that can support it. The common early payment discount is 5-10%. I personally struggle with this discount because with slim margins at 15-20%, which is needed to reinvest in the school—along with a lack of investment options that would allow the cash that is paid early to make more than 5-10%—it is difficult to justify the discount.

Enrollment Discounts
If families join your center primarily because of discounts, they may be more likely to leave once the discounts are no longer available, leading to fluctuations in enrollment and revenue. I do not have a clear preference on short-term discounts for enrollment (some schools promote a discounted month, or three months) as there are good examples of this strategy working well to promote a boost in occupancy. At the same time, there are examples that show it is difficult to maintain these enrollments once the discount runs out.

By carefully managing both occupancy and discounts, you can create a more sustainable financial model. If you’ve calculated your cost of care tuition rate but are still struggling to meet financial obligations, it might be time to explore alternative strategies. Stay tuned for our follow-up blog, “Additional Revenue Sources Every Early Education Owner Should Consider.”