Establishing a pricing policy or reviewing fees is, arguably, one of the most problematic tasks of the nursery owner or manager. Invariably, nurseries spend differing amounts of time and energy on the process, from simply charging the same as the nursery down the road to undertaking a more detailed analysis of the local market and affordability.
In setting the price you charge for your service, you need to consider various factors, including local market rates, what people in your area are prepared to pay and your overheads. It is a complex business, but a crucial one to get right because of its obvious major effect on the sustainability of your business. Setting prices too high can reduce occupancy levels or result in a lack of enquiries for a nursery place, while undercharging can be devastating for the business.
Fee setting
When setting fees, it is important that you first understand the nature of many costs within the childcare sector and their effect on your business.
Regulatory factors such as adult-child ratios and floor space means that many nursery costs are fixed, with no direct link to the volume of 'sales'.
As a result:
* the costs of providing care for 24 children can be roughly the same as those for caring for 30 children
* some fixed overheads such as staffing and marketing may leave you with limited room for manoeuvre when it comes to pricing.
It is this tension between affordability and sustainability which continues to be one of the sector's biggest challenges.
To be sustainable, you need to aim to run your provision entirely from income generated through 'sales', and that can only be achieved by maximising fee income. For nurseries, that means reaching capacity - filling all the full-time equivalent places for which they are registered all day, every day.
Therefore, fee setting must be viewed in tandem with service delivery. Only by developing their service, perhaps by opening longer hours, will some nurseries be able to boost occupancy levels and increase income from fees, so working towards sustainability for their business. Is your nursery income restricted by your current service? Can you open longer hours? How will you staff longer opening hours?
Consider also the funding currently available to families. Have you provided your children's families with user-friendly information about funding options, such as, Working Tax Credit (WTC), Nursery Education Grant, New Deal for Lone Parents, Care to Learn funding and childcare vouchers?
Some Children's Information Services offer training to providers on childcare funding and it is important that some of your staff members know about funding options so that they can advise parents about possible financial support.
Fee models
Some local authorities and agencies have created fee development models, which nurseries may want to explore. However, it is important to recognise the limitations of these models.
While they might offer a formula to establish a break-even hourly rate, by their nature they cannot be responsive to legislative changes and developments in local markets.
Nurseries should review fees at least annually. The factors to consider are outlined below.
Expenditure
Only with a true and comprehensive understanding of your overheads for the coming year will you be able to assess what your fee levels should be.
Staff salaries will account for some 60 to 70 per cent of your total costs, but be sure also to include in your calculations:
* all other direct costs, such as food, craft materials and other resources
* indirect costs, most notably, insurance, utilities and loan repayments, but don't forget to include costs such as waste disposal, cleaning materials, accountancy fees, registration and inspection fees, professional membership fees, and travel costs
* all likely rises in costs. Be particularly mindful of costs that tend to rise above the rate of inflation, such as business rates, utility costs and staff costs.
Increases in the National Minimum Wage and maintaining differentials between pay of qualified and unqualified staff or tiers of responsibility are squeezing profits and making fee setting an ever more delicate task.
Occupancy levels
Next you need to assess future revenue, taking into account any service delivery changes that may boost occupancy.
Wherever possible, you should base your predicted occupancy levels for the coming year on sound market research.
Local authority childcare audits give detailed (often ward or smaller area-specific) information such as number of under-fives, parental employment data and current childcare take-up. It will give you a useful overview of the socio-economic make-up of your area.
In addition, you might gauge your occupancy levels by tracking previous enquiries or when children leave, as well as any planned development in your area, such as new housing or a new children's centre.
Bad debt
You will need to build bad debt forecasts into your calculations. Base your predictions on averages over the past year or years.
As part of the exercise, look at what steps can be taken to reduce this problem, such as asking parents to pay by standing order or setting up flexible payment systems on overdue fees.
Quality
Your fees should reflect value for money and the quality of your service.
So, if you consider your nursery to be the best in the area, have the confidence to set higher fees. Remember that offering the lowest fees in the area is not necessarily the best strategy. In fact, very low fees may cause parents to question the quality of provision.
The model, below, reproduced from Essential Nursery Management by Susan Hay (Balliere Tindall, 18.99), illustrates the cost-value relationship.
Local market
You will need to take into account the fees currently being charged by your competitors. When analysing the local market, you might want to:
* look up details on the local pages of the Children's Information Service (www.childcarelink.gov.uk) to gain an overview of opening hours, service and fees (if listed) of other nurseries
* obtain brochures/fee information from other nurseries, pre-schools and childminders
* raise the subject of fees at your local nursery network. Some networks are happy to share this information which enables each of the nurseries in the group to stay up to date on local fees - ultimately this is market intelligence
* Look at whether nurseries in the area include meals, nappies, or other 'extras' in their fees.
Pricing policy
Having assessed income and expenditure you will need to draw up your pricing policy which needs to address the following questions:
* What will you charge per hour, session, day and week?
* What will you include in this price?
* Under what circumstances will the price to an individual customer increase? (for example, late collection)
* What, if anything, will you charge if a child is absent?
* Will parents pay a deposit? Research shows nurseries request deposits of anything from 10 to 200 deposit, some refundable, some not
* What, if any, discounts will you offer? Will you offer discounts during holidays? For siblings? For bookings for full weeks? For parents paying by direct debit?
Fee collection
Formulating a credit control policy or fee collection procedure should go hand in hand with a fees policy. This policy should stipulate clearly the terms of payment and action in the event of non-payment, for example, reminder letters, small claims court proceedings or termination of the childcare place.
There is anecdotal evidence that it is beneficial for fees to be collected (and where necessary pursued) by someone other than the nursery manager or child's keyworker. This approach divorces payments from the caring role.
Notice
Give parents plenty of notice of any fee rises to allow them time to budget for the increases and, where applicable, apply for funding such as the WTC.
Fee setting: key points
* Understand expenditure
* Consider the service and any options for change
* Consider your fees in relation to quality
* Analyse the local market
* Draw up a clear and detailed pricing policy
* Give parents good notice of fee change and supply funding information
