The True Cost of Care: Setting Your Preschool Tuition Rates

With rising costs and difficulties hiring and retaining high quality team members, the challenge of balancing tuition rates with cost of care has become more difficult than ever in early education. At HINGE Advisors, we aim to be your advocates in charging what it costs to create excellent environments for children with top quality teams and facilities. Record tuition rate increases have been necessary in the last couple of years to counter the effects of hiring challenges and rising costs, so what practices can you implement now to ensure your tuition rates never fall behind?

Calculate Your True Market Rate

Be sure that you know the actual cost of the services you are providing by calculating the cost of your operations and including a healthy profit. A breakeven calculation is good to know for purposes of cashflow planning, but building in a healthy profit to both re-invest in your school and support yourself personally is vital. As a business owner, it is impossible to care for the hundreds of children, parents, and staff without caring for yourself first. 

It is also good to know what your “true” competition is charging, but don’t be driven by it. Just because another provider is in your market does not make them competition. Compare yourself against those with comparable services and facilities, and don’t be afraid to set the market rate by being at the top of the scale in your area! Be proud of what you offer and don’t hesitate to reflect that in your pricing.

Increase Rates as Often and as Much as Necessary

In the last few years, it has been customary for providers to increase rates in the range of 8-10% instead of the historic 3-5% annually—and often more than once a year! In addition, providers are setting infant and toddler rates at the true cost of care due to high demand and long waitlists for enrollment. While historically these age groups have been loss leaders for the majority of the industry, the demand environment is providing the opportunity for childcare business owners to correct these financial losses. 

Educate Parents on the Cost of Care

All tuition rates increases should come with a kind explanation to parents of why the increase is healthy and necessary. Educating parents about rising operating costs and increasing costs of hiring, retaining, and educating staff are vital for their support in your business development. Parents are generally supportive of any increase relating to care for their child and child’s teacher.  A letter explaining the necessity of the increase and what it will be used for is a critical strategy in getting parent support.  And as hard as it is, you might lose a family or two, but this is also necessary for the good of the school.

Create a Legacy Program

If you have fallen behind the market in charging the true cost of care—and are hesitant to increase all families to the necessary rate—consider grandfathering in your current families at a reasonable rate of increase and labeling them “Legacy Families.” Then, you can start new enrollments at a higher rate and begin improving revenue from there.  Although this strategy takes longer to get the school to a market level, it can create goodwill with current families and increase retention of enrollment.

Know Your Worth in Child Care

If you’re an owner who has held rates lower than your center can support to help the families you serve, you’re not alone. However, your delay in increasing rates will begin to impact your ability to provide strong educational programs, build quality staff and curriculum, invest in facility needs, provide salary increases to deserving staff, and take care of other financial obligations. Don’t sacrifice yourself and your financial wellbeing. Know your worth as a childcare provider. After all, how can you possibly support the many staff, parents and children in your care if you are worried about making payroll and the mortgage?

If you’ve fallen behind market rates and are struggling to meet your expense obligations, consider one of the strategies above to get your school back on track. You can also reach out to our team at any time for guidance on tuition rate setting and enforcement at info@hingeadvisors.com.