Get Ready to Raise Childcare Tuition
No one wants to pay more for the same thing they’ve been getting for less, and childcare tuition is no different. That’s why, when raising your tuition rates, it is so important to plan and communicate in advance.
Think about it. The last time Netflix announced a price increase, social media became a frenzy of customers threatening to walk away from their favorite shows (but they didn’t). When Amazon Prime raised their monthly fee by just $1, lots of people briefly considered canceling and sacrificing all that free shipping for just $12 per year. But they didn’t walk away either.
What you have that Netflix and Amazon don’t is a personal relationship with your clients. Those families, those children, they become part of your own family. When you’re a childcare or preschool professional, your business really is personal.
But when your expenses start to outweigh your childcare tuition income, you need to be all business. Try these five tops for weathering the backlash when you raise your rates:
That airtight service contract we talked about in Navigating Childcare Billing & Payments? The intake meetings to make sure parents understand your services, billing, and payments policies? This is where those come into play.
Start with your service contract. Include a section that states that your rates are subject to change, and outline the estimated percent increase parents can expect, and how and when they will be notified.
Follow through by doing exactly what you said you would in your contract. Give the proper amount of notice to families – in writing – through a letter than is sent via both email and snail mail. Notices in cubbies can get lost during the hectic pickup and dropoff times or slip down to the bottom of a backpack where they don’t get seen for weeks.
Every time a new child enrolls, you should take the opportunity to introduce your program and present the terms of service to parents. This is your chance to explain the value of the childcare and preschool services you offer, how often your tuition increases (which helps them understand that it will increase, and what the range of that increase could be.
Raise your rates every year or every other, but be aware that the news will be harder to swallow during certain times of the year. For example, increasing your rates during the holiday season or just after can put a strain on families who may already be stressing over finances.
Tax season is another tricky time for many families, even with the child care tax credits they were able to deduct using those YTD Payment Statements from your center. A childcare tuition increase just as the ink is drying on their checks to Uncle Sam may lead to some serious grumbling.
If you’re raising tuition or fees across the board, the best time to announce it is when you open registration for the next school year, before the current school year has ended. Parents will be more receptive when you make the change effective at the start of the new school year. In fact, if that was part of your intake meeting, many of them will expect it.
If raising rates mid-school year is unavoidable, be sure to give plenty of notice between the time you announce it and the time the new tuition scale takes effect. We recommend no less than 30 days, but preferably 60 – 90 days so parents can budget accordingly.
Some organizations raise childcare or preschool tuition by basing rates on each child’s age. How does that work? Take a look at how Tender Loving Kare in Smyrna Delaware handles raising their rates:
Tender Loving Kare will “raise the rate” by keeping it about the same, so the family won’t feel the impact as much. As children advance in age, their rates reduce – sort of. Basically, as they “drop down” a rate level, the rate for the level below is increased, so it’s practically what they’ve already been paying. Tender Loving Kare Executive Director Kyley Herron explains:
“Typically, we do a rate increase every other year, and it’s based on the child’s birthday. Each year the child gets older, the rate goes down. With our rate increase, instead of the rate going down, it just stays [about] the same. If I have a two-year-old and my rate’s $200, when they turn three, it goes to $190 [instead of the $175 that the original three-year-old rate was]. That way, the families aren’t feeling it as much.”
When you raise rates, make sure you’re covering your expenses above all else, and always budget in an emergency fund that helps you stay afloat when surprise expenses hit. That said, try to keep any increases within 2-5% of the total tuition parents are currently paying.
Let’s say it costs $245 per week to care for a two-year-old. If you increase that rate by just 2%, it’d be about $5 more a week, per child. For year-round care, that’s $260 more per child, each year. A 5% increase would yield $637 per child, per year. If you’re keeping on top of your budget and raising tuition a small amount each year or every other year, your increases will likely stay in the 2% range most years.
This calculator is a quick way to plug in your own rates and determine how much more you’d be asking, per child.
Parents may digest the news of a childcare tuition increase a little easier when you offer some explanation of why in the communications you send, whether by personal letter, email or school-wide newsletter.
While you don’t have to itemize every expense, it does help you maintain a good rapport with parents if they know where some of the money is going. Parents want to know what they’re paying for and won’t have as many questions if you assure them that your new rate will improve the quality of their child’s care. For example, explaining that your expanded curriculum requires more ipads for interactive learning will keep parents from speculating that your new Dodge Dart was the reason for the increase.
Six things to consider when setting childcare prices
Here are some common reasons that prompt childcare, preschool and aftercare organizations to raise tuition:
- Hiring new staff to lower staff-to-child ratios – the majority of your financial outlay each week or month inevitable goes to payroll, so more teachers means more expenses. Since many parents will question your ratios when deciding on care, this is one they will be excited about.
- Increasing staff salary – the cost of living goes up for everyone, and your staff is no different. Besides, increasing staff salaries will inevitably draw stronger, more experienced, and more skilled teachers, and that makes your program stand out.
- Cost of supplies and other materials – when I was little, gas was less than $1 per gallon. The little milk carton I bought at school was $0.25. Since then, the prices of everything have risen – including the supplies your center needs for activities and day-to-day operations.
- Adding a new service (extended hours, diaper program, etc.) – when you offer more, people need to pay more.
However you communicate your new rate to families, don’t apologize. Remember, this part is all business. You know the value of your care and what it takes to stay afloat and on top of your game.
Are you conducting regular market surveys of other area childcare, preschool or aftercare organizations to make sure your tuition and fees are in line with the going rate in your area?
If your prices are too high and you aren’t offering a big “extra” that warrants it, you may need to take a good look at your expenses and start cutting what you don’t need. If you slip in the other direction – below the market average – parents may question the quality of care and child development your program is providing.
Centers competing for the same children actually help each other by increasing tuition regularly. How? Look at it this way:
When your prices go up a bit, other centers will do the same with theirs. This means higher pay for teachers, higher quality of teachers, lower staff-to-child ratios, lower staff and child turnover, improved equipment or additional services – all of which correlate directly with elevated quality of care. Parents will happily pay for good quality – especially when it comes to their children’s education, development, and care.
However you decide to manage your rates, stick with it. It’s one thing to have to raise your rates, but it’s another to not set any expectations for how your new rates are implemented. Parents will undoubtedly groan at the thought of having to pay more, but they will at least appreciate that you were considerate, reasonable, upfront, and transparent. And you will have the peace of mind that your childcare business has what it takes to compete in the industry.
Try out our expense calculator to make sure you’re covering your costs when determining tuition for the upcoming year.