Tuition Pricing Strategies For Preschool and Child Care Businesses

By
Chris Bennett
September 23, 2022

Before I co-founded Wonderschool, I studied business at the Wharton School at the University of Pennsylvania, I started my own marketplace business in college, and I worked in real estate as an investor. In almost every field, I saw the same business principles applied and tested until success was achieved. 

When I began Wonderschool, I noticed these principles were not in the operations ethos of many child cares I visited. At first, I worked hand in hand with a small group of child care leaders to partner to create child care care programs. The leaders became the Directors at the programs and they knew everything about child development and how to make a beautiful school that was safe and engaging for children. 

But what surprised me is that they were never taught basic small business and economics principles. It's as if running a child care or preschool business is a separate island of economics. I shared essential business ideas, including pricing. They were hesitant but willing to try. 

After some time, the directors started to adapt different pricing strategies that were super intentional and responsive to their needs for covering costs and making a sturdy living. They began to understand pricing and pricing sensitivity. 

These programs grew to be some of the most successful programs on our platform.

I realize that pricing is a topic all program directors need to take more time to explore pricing. When they do, they’ll see that there are different ways to price the program that can cover costs, give you a strong income, and ensure your program remains high quality. 

What Causes Bad Pricing?

No one means to make random decisions about what to charge for their program. 

Providers I know have the best intentions and goals. They want to run incredible programs and earn enough money to live and prosper in the very communities they serve. Still, there is so much mystery about the basics of how much to charge or how to charge for services. And I think it's not only teachers and child care providers who suffer from bad pricing but also children and families. We know that children thrive when they have access to quality child care, but consistency and quality are key. 

For providers to keep their doors open and have the means to enhance their program, tuition is one of those factors that have to be understood. There are so many stigmas and a lack of information about different ways to price and charge for your services. I remember talking to the first provider about how she might need to alter her tuition prices to afford to live in the high market she served. 

Her fear, one I repeatedly hear from other providers, was that parents would turn away if she didn’t keep prices low. Before I jumped into different ways of looking at pricing, I asked her where this assumption came from. She said, “I don’t want people to think I’m in it for the money.” 

I told her parents could weed out those only in it for the money, whatever pricing strategy a director takes. Low prices are one strategy that makes sense when costs are low, or a program can accept many children. But if the costs are high and your program is a home based program(FCC) limited to 4-12 children, you must consider other pricing strategies to stay viable.

Before committing to a single pricing strategy, I could share with her some innovative pricing approaches and discuss the difference between price, value, and return on investment.

Pricing Problems For New and Existing Providers

Since then, my team and I have identified common pricing-related problems that providers face when starting or running their programs. Here are issues that rise to the top. 

Pricing Fears For New Providers 

One of the first problems I see for providers who want to start an in-home preschool or child care is that they’re simply unsure what price is best to attract new families. Often they lock rates in at a lower cost or assume pricing is the sole determining factor for enrolling into a program. This can be detrimental in contrast to covering start-up costs. 

Pricing Fears For Existing Providers

Existing providers are concerned that new pricing or pricing structures will upset the status quo and cause parent backlash.

They set their prices early and have not kept up with inflation. They're also unsure how much to charge for newly added services like backup care or value propositions like hiring a new employee to lower student-teacher ratios which would improve the quality of the school and prevent teacher burnout. 

Pricing Fears Child Care Directors Face Year After Year

Whether new or existing, the third and often hardest part is how to communicate with parents about prices. The last thing providers want is for parents to not see or understand the value of their program. 

This leads to child care directors being concerned about seeming too money-oriented. They are stalwarts of the community and truly care for their families. So instead of deepening the practice of pricing with intention, they avoid it, and the results can be detrimental to the program's health. 

We have to avoid the idea that pricing only means out-pricing what parents can afford or that providers are selfishly charging for services that are in need. Instead, we can go back to the start and look at simple ways to set up a program that works for all types of families and sustains the providers and their families. 

How much should I charge for my child care business?

So what should a provider charge for their business?  The truth is pricing is an art and science. What that means is that you can research and pull data to determine. But part of pricing is art, there is room for interpretation and experimentation. Here are some examples of strategies child care directors can use to price creatively and effectively.

Different child care pricing strategies

I’ll share some pricing strategies for providers. When you join Wonderschool, the team can go further in-depth with supporting providers to achieve financial success.Here are a few examples of pricing strategies I’ve seen play out well for providers and families because they offer flexibility and choice. 

Market Rate Pricing

The most common way to price your services is to look at what other providers are offering in your area.  While this is a steady starting point, it can sometimes be limiting, especially when adding new value props to your business that other programs do not have. 

Example: Find what tuition programs in your area charge, find the average, and set your rate at that number. To avoid biases, evaluate at least 3 programs (but the more, the better). 

Penetration Pricing

This is a good option for new programs looking to get first enrollments as soon as possible. You would set rates at a low cost to attract first-time families for a limited time and then increase rates after a verified period. 

Example: The new program offers  $150 off, or $1100 for the first three months of enrollment. The program charges a normal rate of $1250 after. The offer is limited to the first three families that sign up. 

Versioning Pricing

Versioning pricing is when you have different pricing tiers by age group or service. Infants, toddlers, and preschoolers are often priced at different rates because of teacher ratios and the higher level of care needed for younger-aged children. 

Example: Version 1 is $1600 per month for a full-time infant. Version 2 is $1400 per month for a full-time toddler.  Version 3 is $1200 per month for a preschooler. 

Value-Based Pricing

This means pricing based on the value you bring to parents. It relates to what problems your services solve for them, how it makes them feel, and what they are willing to pay for it. 

Example: Your program may serve healthy, organic meals. For parents, this means they know their children are eating well, and they can save time on having to prepare lunches themselves. For parents, peace of mind and saving time can be considered high-value items, and the cost of tuition becomes an excellent return on investment for them.

Cost-plus pricing

Cost Plus Pricing is a straightforward pricing strategy where you decide how much more you’ll charge after all the costs of your program are covered. It’s usually a fixed percent. 

Example: You know you must always make at least 30% profit after all costs are in. If you know that this year, the cost-per-child in your program is $600 per month, you’d add $180 to this cost (i.e., total tuition is $780 per month)

How To Make Pricing Easier To Set and Talk About 

Crunching numbers takes time and thought. Once you come up with prices that feel right, it's essential to make sure they’re clear to parents. Here are some ways to get to the correct figures to avoid misconceptions regarding cost. 

Tips and Tools To Implement Pricing

  • Take time to work out details and stay cautious. 
  • Reserve time to  review pricing structures every 6 months
  • Be aware of financially hard-hit parents but stay creative and true to your own needs
  • Test the waters with minor changes
  • Try working backward by setting a revenue goal and write out how you’ll achieve them through smart pricing
  • Use the Wonderschool Child Care Calculator
  • Employ the Iron triangle for full profitability benefits 
  • Make sure all your pricing policies are clear as day/contracts
  • Wonderschool directors, join our slack community for advice and support
  • New providers, join Wonderschool’s Startup Child Care to get even more help with pricing your program

You’re Heading In The Right Direction

Pricing can reveal a lot about how confident you are in your program. It's OK to allow flexibility and negotiation, but never under-price your services yearly; that won't work in the long run. Instead, start and grow your business by using pricing to sustain your business and keep adding value to the lives of children and the community.   

The ideal situation is for your parents to feel that they are a great return on investment by having your child attend their program and that you have a price that allows you to meet your growth goals, substantial income, or other aspirations.

If you need more in-depth support, my team and I can coach new and current Wonderschool providers. Reach out to us at info@wonderschool.com.

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