Ask an Accountant: Pt 4

Childcare pricing is one of the most critical — and most misunderstood — financial decisions early childhood education business owners make. Set your childcare rates too low, and you risk losing money every month. Set them too high without understanding your market, and you may struggle to fill enrollment spots. This guide walks you through the key factors that determine profitable, value-based childcare pricing so you can run a sustainable program that serves families and staff for the long haul.

This is Part 4 of our Ask an Accountant series, where we answer the most common financial questions we hear from Early Childhood Education clients. Today’s question: “How do I set prices that reflect the value of my childcare services?”

Why Childcare Pricing Directly Impacts Profitability

Your childcare pricing structure determines whether your program thrives or quietly operates at a loss. Nationally, childcare prices now average $13,000 per year per child in a center-based setting — and they’ve been rising faster than overall inflation since 2020. That means your costs are increasing whether or not your tuition keeps pace. Some of our clients have offered “the best deal in town” only to realize they couldn’t sustain it. Getting your childcare pricing right from the start protects your program, your team, and the families who count on you.

A healthy profit margin for a childcare program is typically between 10% and 20%. To reach that target, you need to understand the true cost of care, benchmark against competitors intelligently, and build annual increases into your rate structure from day one.

Childcare Pricing Factor #1: Your True Cost of Care

Before setting a single rate, you need a complete picture of what it actually costs to care for each child. Your business costs fall into three categories:

Overhead Costs

Overhead costs are ongoing expenses not directly tied to a single child or classroom. These include mortgage or rent, utilities, insurance, business licenses, advertising, and administrative fees. One practical tip: charge a one-time enrollment fee to offset onboarding costs for each new family. The more you control overhead, the more room you have to protect your profit margin.

Labor Costs

Labor is typically the largest expense in any childcare pricing model — and for good reason. Quality teachers are the foundation of your program’s value. Labor costs include salaries, wages, payroll taxes, and employee benefits. Keep in mind that attracting and retaining qualified staff becomes harder as the cost of living rises. Your childcare pricing must account for competitive compensation — not just today’s wages, but tomorrow’s too.

Supply Costs

Supply costs cover materials required to run your program daily: furniture, educational materials, arts and crafts supplies, classroom décor, and food and beverage services. Calculate these costs on a per-child basis so you can factor them accurately into your rates. Together, overhead, labor, and supplies give you the floor — the minimum your childcare pricing must cover before any profit is possible.

Childcare Pricing Factor #2: Benchmarking Competitors

Competitor research is a useful benchmark — but it’s a starting point, not a pricing strategy. One of the most common childcare pricing mistakes we see is setting rates based solely on what the program down the road charges, without accounting for your own unique costs and program quality. If you undercut competitors without doing the math on your own expenses, you won’t generate a profit. Worse, you may eventually close — leaving families and staff without a program.

Use competitor data as context, not as a ceiling. Here’s what to investigate:

• How do competitors charge — by the hour, week, or month?
• What is the rate difference for full-time versus part-time enrollment?
• Do they offer sibling discounts?
• What fees do they charge — enrollment, late payment, or late pick-up?
• What is their capacity, adult-to-child ratio, and class size?
• How do rates differ across age groups — infants, toddlers, preschoolers, school-age?

For programs with high demand and low vacancy, supply and demand principles apply directly: an infant room with a waitlist of five or more families can support a larger rate increase than a classroom with open spots.

Childcare Pricing Factor #3: Inflation and the Cost of Living

Here’s a number every childcare owner should know: childcare costs nationally rose 8% since June 2024 — double the 4% overall inflation rate. If your tuition rates don’t keep pace, your program effectively takes a pay cut every year. We advise all ECE clients to build an annual childcare pricing review into their business calendar and to implement increases that outpace the current inflation rate.

Failing to account for cost-of-living increases creates a slow drift toward deficit. To raise rates without alarming families, provide at least 30–60 days’ written notice, explain the reasons clearly, and consider incremental increases rather than a single large jump. Including a rate-review clause in your enrollment contract sets expectations from day one.

Childcare Pricing Strategies: Which Model Fits Your Program?

Once you know your costs, your market, and the inflation rate, you can choose a childcare pricing strategy that fits your program’s goals. Three common approaches include:

• Cost-plus pricing — Calculate total cost per child and add your target profit margin (typically 10–20%). Best for new programs or low-competition markets.
• Competitive pricing — Set rates relative to local market rates. Best for saturated markets, but only after confirming your costs are covered.
• Value-based pricing — Price based on what makes your program uniquely valuable: specialized curriculum, credentialed teachers, or exceptional facilities. Best for programs with a clear differentiator.

Most successful childcare programs blend all three: start with cost-plus to establish a floor, research competitors to understand the market ceiling, and apply value-based thinking to justify rates above average when your program quality warrants it.

Get Expert Help With Your Childcare Pricing

Setting childcare pricing that is both profitable and competitive takes more than a quick calculation — it requires a full picture of your financials, your market, and your growth goals. The professionals at Honest Buck specialize in Early Childhood Education businesses. Our team can help you evaluate your current rate structure, identify gaps, and build a pricing model that supports long-term growth. Contact us today to get started.

Review Part 3 of the Ask an Accountant Series Here.