Daycare Business: Setting Your Rates
by Cindy Clark

How much should you charge for child care? This may seem like a tough decision, but it's fairly easy to figure out if you first determine how much income you would like to make. I'll get back to that in a minute.

First, you may have an idea of what you are paying for child care if you currently work outside the home. But, you may not know what everyone in your area charges or what they base it on. Call your local Child Care Resource and Referral agency or Department of Human Services. By law, they cannot tell you specifically who is charging what, but they do run studies comparing the range of rates that providers charge in your area. Ask them for this information, in addition to daycare center rates. You will be in competition with both family providers and daycare centers.

When I started daycare, the rates in my area ranged from $80-125 per week per child. I had to figure out if that range would be enough money to maintain the same level of financial comfort I was used to.

WHAT LEVEL OF INCOME YOU WOULD LIKE TO MAKE

*If you are considering quitting work, figure out what replacement income you consider essential.

Example figures:

Income I was bringing in working outside the home: $35,000

Subtract the amounts I would no longer be spending (child care $6,500, gasoline for the commute $1,050, lunches out $1,275, working clothes $2,500, miscellaneous office contributions, Christmas gifts, etc. $250). I was sure there were others but these were the major ones. So I figured an extra $500 per year for the things I couldn't think of. (I was so precise....)

I had $22,925 left. So I simply divided it by 52 weeks in year and knew I wanted to earn approximately $440 a week. I divided that by 3 and 4 (children) to see how many children I would need and what I would have to charge per child, per week. In my state, you are allowed six children with an additional five after-schoolers. So I would have continued to figure down to six children if needed.

The answer was $147 for 3 children and $110 for 4 children. Since no one would pay $147 per week, $110 per week seemed more reasonable, and four children fit with how many children I thought I could handle. $110 was also in the range of what providers charged in my area.

So I decided to charge $100 per week. Yep. Instead of going with $110, because I was na and had no idea what to base my charges on, I decided I could live with $100 because I didn't want to charge too much. Go figure. (Keep in mind these are approximate figures and not real.)

*If you don't currently work outside the home, figure what you would like your new income to cover.

Maybe you are already a stay-at-home parent who now has some new financial goals. Would you like money to pay some bills? Save up for a yearly vacation? Money for children's education? Here again, do the same steps listed above by calling and getting rates, then figuring how much you need to bring in to get you started.

Now you know what rate you would like to charge and how many children it will take to make that level of income. What next?

DECIDING WHAT TO BASE YOUR CHARGES ON

See what other providers and centers offer that are charging the higher rates. Do they offer crafts, field trips, and music, or do they have a background in child development? Are they licensed or CPR certified? Do they provide transportation to school? If you offer any of these services, you can charge a higher rate.

You may want to consider charging a higher rate for infants because they require more care. You could charge more if you provide extended hour care, evening or weekend care, sick care, or drop-in care. Not many providers do these extra hours so you would be in high demand.

CHARGING BY THE HOUR, THE WEEK, OR THE MONTH

Most people still expect you to charge by the hour. The expectation of hourly rates is that parents pay hour for hour that the child is there and they don't pay for time if they aren't there (leaving early, sick). You can lose a lot of income this way, and it makes it hard to budget.

However, if you've considered doing drop-in care, charging by the hour may make more sense. In my opinion, you should charge more for drop in care since isn't easily available and it disrupts your schedule.

Charging by the week or month lets you build in some benefits. You have the same expenses and are open for business whether or not one particular child shows up. Here the parents pay to hold the slot for their child. (See my article Where Does Your Daycare Money Go? for a more detailed explanation of paying per slot.) Weekly or monthly payment allows for a more stable and predictable income for you.

Paid holidays and vacations for daycare providers are more the norm now. Working families usually get paid holidays, so why shouldn't you? Sick leave days? Professional days? In return, you could offer the families one or two weeks of leave to use however they want - sick days, vacations, etc.

What if you don't normally take a scheduled vacation? One provider I know takes a paid vacation day the first Friday of every month. She schedules appointments, runs errands and helps at her daughter's school on these days. Or, she does nothing.

I personally take the week between Christmas and New Year's off because it's the only time of year I get to spend just with my family. The holidays are a great time to do all the fun stuff with my kids. By the time they return to school, I feel refreshed and ready to face the new year again. It gives me a new prospective on my business. We don't normally do a vacation in summer. I still do daycare during spring break, summers, and other people's vacations (since none of my daycare families take vacations at the same time). The point is, build in some time for yourself. This is a highly stressful job, and you need to take care of YOU.

After all, how many parents do you know who will take a day off from work, but still take their child to daycare so they can get things done around the house or go grocery shopping?

Once you've decided what to charge, now the question is:

WHEN TO CHARGE?

You should charge for care before you provide care. My payment schedule is that the parents pay on Friday for the upcoming week. You have expenses to pay and groceries to buy to be prepared for the week, and it's easier to budget if you have money in hand rather than after the fact. If a family leaves unexpectedly, you may not get paid for care that you've already provided.

When new parents enroll in my daycare, they also pay for the last two weeks of care up front. If your parents put in their two weeks (or if they don't), you aren't left in a tough financial situation. They are entitled to the two weeks of already paid care whether or not they choose to use it.

Make it easy for parents to pay you. Put up a poster on payday, or put out a folder or box for them to leave payment in. Consider charging a late fee if parents don't pay on time. Imagine how upset they would be if their employer forgot to pay them or had some excuse to not pay them on payday!

If you make your payment policies clear way back in the interview and in the first weeks of daycare, you shouldn't have any problems.

Once you decide what to charge, be firm. You will get parents questioning why you charge this and another provider only charges that. If they are looking for cheaper care, they will find it. Point out the services you provide and the benefits of your daycare. Say to them, You cannot put too high a price on the well being of your child and the dependability of your childcare provider. Isn't it worth the cost?

About the Author: Cindy Clark: After 16 years of working outside the home, Cindy now operates a family daycare in her home. She loves to be frugal and help others interested in doing daycare. Visit her website at:: www.geocities.com/Heartland/Prairie/2091

Email this page to a friend!