National Network for Child Care's Connections Newsletter
Peggy Patten, M.Ed.
Staff Development Coordinator
Human Resources and Family Studies
University of Illinois at Urbana-Champaign
As a small business owner you have a unique opportunity to determine
your own rates and policies. Implementing these rates and policies
(and ensuring that parents follow them) is sometimes challenging.
This article begins with a formula to help you calculate your
income goals. Next, we provide several different methods for raising
your income to this level. The final section provides hints on
how to inform parents about rate increases.
SETTING INCOME GOALS
Before you focus on how to raise your income, it is a good idea to determine how much you want to make. Most jobs pay an hourly rate. Let's determine what you would need to charge in order to make minimum wage, which is $4.25/hour at the current time. To determine this you need to know 1) how many hours you work each year; 2) how many children you care for each week; 3) the expenses your family day care business has during the year; and 4) any other income you received to offset expenses (e.g., reimbursement from the Child Care Food Program).
Let's assume your normal working hours are 7:00 a.m. to 6:00 p.m., Monday through Friday. In addition, you spend approximately five hours each week planning activities, doing bookkeeping, or buying food and supplies for your business. This adds up to a total of 60 hours each week. You operate your business for 50 weeks each year. Therefore, your total hours worked in a year is:
60 hours per week x 50 weeks = 3,000 hours per year
Next, multiply the hours worked by the wage per hour you would like to make. This gives you how much per year you would earn at this wage. To this amount, you must add the cost of doing business (e.g., expenses for food, equipment, materials and supplies, insurance, workshops and courses, mileage for business-related trips) minus any income you received to offset these expenses (e.g., reimbursement from the Child Care Food Program). Let's assume you want to make $4.25 per hour, your yearly expenses amount to $9,750 and you receive a reimbursement of $2,000 from the Child Care Food Program. Follow this formula to determine your weekly fee per child:
Wages ($4.25 per hour x 3000 hours per year) + family child care business expenses – Child Care Food Program Reimbursements = Total needed per year from parents
$12,750 + 9,750 – 2,000 = $20,500
$20,500 per year / 50 weeks worked per year = $410 per week
$410 per week / 5 children = $82.00
These calculations tell you that you need to charge $82.00 each week per child in order to make a minimum wage of $4.75 per hour.
METHODS FOR RAISING REVENUE
In doing the above calculations, you may have determined that your income is too low. There are several ways to increase your income.
– charge special fees
– change your policies
– raise your weekly rate
CHARGING SPECIAL FEES. You might consider asking parents to pay for a supply or to pay an activity fee to cover the cost of new materials, equipment, special field trips and/or occasional “enrichment” activities (e.g., someone to come to your home to offer dance, music or Spanish instruction, for example). Or, ask parents to pay for the cost of additional training and/or certification for you. Also ask parents to cover the cost of a substitute while you attend this training. Parents will be more likely to accept these charges if you help them understand how their children will benefit from these fees.
CHANGING POLICIES. The amount of income you derive from your business will depend in part on the policies you have set. Some providers charge an initial registration fee to cover the extra time and materials (contract forms, handbooks, etc.) it takes to register a child. Some providers also charge for holidays, sick days, and vacation days (yours as well as the child's). You can also charge different rates for children of different ages. Higher fees are often charged for infants and toddlers because caring for and supervising them takes more time. Charging a fee when parents are late not only raises your income, it also reduces the number of late parents! Begin by finding out what policies other providers in your area have. Provider associations and resource and referral agencies are two places to get this information.
CHANGING WEEKLY FEES. When you initially register a family, be sure to give parents advance notice of your overall plan for setting and raising fees. Let them know that your rates will increase somewhat each year and that they will be notified of the rate changes in a certain month. Put this in your contract. Be sure to give ample notice before new rates go into effect. In your letter, refer back to what is stated in the contract. For example, you could say, “According to our contract, I am to notify you during the month of _________ about rate increases for the coming year. Your new weekly rate will be $____, beginning January 1.”
JUSTIFYING RATE INCREASES
As you approach parents with your new or revised rates and policies, keep two things in mind:
1. Parents want what is best for their children.
2. Parents want their money's worth.
Parents will be more likely to accept higher fees if they understand why they are needed and also see that their child will benefit from them. Here are some ways to increase parents' understanding.
Help parents understand how you arrived at your fee. Often times parents do not understand how little family day care providers actually make. They often consider only the amount of income you get and forget to subtract the expenses. In many cases they have no idea what expenses you have. They also do not realize how many hours each day you work. Make up a simple sheet explaining how you determined your new rate. For example, you might list the following:
($82 per week per child x 5 children) = $20,500
Child Care Food Program Reimbursement = $ 2,000
TOTAL INCOME = $22,500
FAMILY DAY CARE EXPENSES
Supplies & materials for activities $1,200
Business, office expenses (postage, advertising, etc.) $500
Other expenses (maintenance, repair, etc.) $750
TOTAL EXPENSES = $9,750
HOURS WORKED PER YEAR:
Business hours = 55 hours per week (7 a.m. – 6 p.m.)
Activity planning, shopping time = 5 hours per week
60 hours per week x 50 weeks per year = 3,000 hours per year
CALCULATION OF PROVIDER'S HOURLY WAGE:
Income – expenses / hours worked per year = hourly wage
$22,500 – $9,750 / 3,000 hours per year = $4.25 per hour
You could also justify a rate increase by indicating how the rate increase will benefit the children in the coming year. For example, suppose you want to raise your weekly rate by $6 per child. You plan to use this income to purchase new outdoor equipment, provide field trips and “enrichment” visitors, and to become accredited. For example, you could prepare a handout:
QUALITY ENHANCEMENT COSTS
During the coming year, I plan to increase the quality of care provided to your child by purchasing new outdoor equipment, providing some very special activities, and by attending training sessions to become an accredited home provider. The costs of these quality enhancements will be offset by a small rate increase for families, determined as follows:
New outdoor equipment $750
Special field trips & “enrichment” visitors $250
Substitute care (to enable me to attend training) $400
TOTAL COSTS = $1,750
Rate Increase per Child =
$1,750 / 50 weeks per year / 5 children = $7 per week
If you don't want to get so elaborate in justifying a rate increase, consider offering any of the following justifications that apply to your situation:
– Specific expenses have gone up (insurance rates, etc.).
– Inflation has increased my expenses by ___%.
– I'm providing better care – I am more experienced, I have attended the following training:
– I am planning to purchase ______ for the day care.
– I need to contribute to a retirement account.
By giving detail about your rates, fees, and policies, you will help parents better understand where their day care dollar goes. You also help them appreciate what goes into providing a quality family child care program. And remember, the most important ingredient is you!
National Network for Child Care – NNCC. Part of CYFERNET, the National Extension Service Children Youth and Family Educational Research Network. Permission is granted to reproduce these materials in whole or in part for educational purposes only (not for profit beyond the cost of reproduction) provided that the author and Network receive acknowledgment and this notice is included:
Reprinted with permission from the National Network for Child Care – NNCC. Patten, P. (1993). Raising revenue in family child care using rates, fees, and policies. In Todd, C.M. (Ed.), *Family day care connections*, 2(4), pp. 3-5. Urbana-Champaign, IL: University of Illinois Cooperative Extension Service.
FORMAT AVAILABLE:: Internet
DOCUMENT REVIEW:: Level 3 – National Peer Review
ENTRY DATE:: February 1996