How to Calculate Full-Time Equivalency for Your Childcare Business
If you want to maximize profit in your daycare business, you will need to know the Full-Time Equivalency for students in your program. Full-Time Equivalency (FTE) is a useful tool for determining whether your daycare program is making the most of your limited schedule capacity to gain as many ?full-time equivalent? students as possible. Simply put, the higher your Full-Time Equivalency ratio, the more profitable your business. The following guide will help you understand how to calculate Full-Time Equivalency for students in your childcare program and why doing so will help you bring in more revenue than higher enrollment numbers alone.
Advantages to Knowing Full-Time Equivalency
Calculating the Full-Time Equivalency for students at your daycare center will provide a wealth of information that is well worth the time and effort it takes to crunch a few numbers. Not only is your FTE ratio going to help you analyze strengths and weaknesses in your current enrollment and scheduling procedures, but it will also give you insight into the resources and staff needed to cover your day-to-day operations, as well as guide your future enrollment, scheduling, and management decisions.
To understand how FTE impacts profitability, consider the following scenario:
Karen is the director of a daycare center in Seattle. Recently she ran a modest marketing campaign that helped her increase enrollment numbers from 42 to 59 children?a 40 percent increase in enrollment and a huge success! Naturally, Karen expected to see a substantial increase in cash flow from her higher enrollment numbers, so when the enrollment revenue started coming in, she was disappointed to learn that the numbers weren?t what she expected at all. Karen had recently learned about Full-Time Equivalency from a friend of hers who ran a daycare center in Spokane. Together, they took a closer look at Karen?s enrollment numbers to figure out her Full-Time Equivalency:
Of the 59 children now registered at Karen?s daycare center, 32 children attend on a part-time basis, while 27 children attend on a full-time basis. The children enrolled full-time have a Full-Time Equivalency of 27 students?a simple 1:1 ratio because they attend Karen?s daycare for the maximum number of hours in her weekly schedule: 40 hours, or full-time. The calculations got a little more complicated for the part-time children. Karen figured out that her part-time children attended daycare on an average of about 25-hours per week. Karen multiplied 32 by 25 to get 800?the total number of hours her part-timers attended daycare per week. Then she divided 800 by 40, the total number of hours her daycare center is open per week. The resulting number, 20, is the Full-Time Equivalency for her part-time students. She added this number to her full-time students? equivalency to get her true FTE value: 47 students.
Even though Karen?s enrollment numbers increased by 40 percent, her true Full-Time Equivalency enrollment only went up by 5 ?full-time equivalent? students?or 12 percent. Calculating Full-Time Equivalency helped Karen understand why she isn?t seeing the cash flow from her higher enrollment numbers.
Karen also wanted to know the maximum Full-Time Equivalent children she could support. Her daycare center?s maximum capacity is 80 children, so Karen divided her FTE by her maximum capacity (47/80) to get an FTE percentage of 58.75%.
An ideal FTE is 90 percent or higher, so in order to see increased profitability from FTE, Karen knows she will need to take a different approach to part-time enrollment at her childcare center.
Full-Time Equivalency and Part-Time Enrollment
As the above scenario illustrates, daycare business owners risk leaving a lot of money on the table if they do not track FTE. Karen made the unfortunate discovery that her part-time attendees are actually stifling business revenue because they contribute to a lower FTE ratio. This can be a common mistake many childcare business owners make.
One solution to a low FTE ratio is to reduce or limit the number of part-time slots you offer to a certain percentage of your total enrollment capacity, let?s say for example, 25 percent. By doing so, you will ensure a higher Full-Time Equivalency simply by providing a means to enroll more children full-time. Another approach is to offer part-time slots only for the open areas in your weekly schedule. If you have determined, for example, that you have more Monday/Wednesday/Friday attendees than Tuesday/Thursday children, then you may want to only offer part-time slots on Tuesdays and Thursdays. This approach will also help you gain a higher Full-Time Equivalency ratio.
How to Calculate Full-Time Equivalency
Full-Time Equivalency is calculated based on the number of hours a daycare provider is open per week and the maximum number of children a provider can take at any one time.
Here?s what you will need to know in order to calculate Full-Time Equivalency at your daycare facility:
- How many full-time children are enrolled?
- How many part-time children are enrolled?
- What is the average number of hours your part-time children are enrolled per week?
- What is the total number of hours your facility is open per week?
- What is the maximum number of students your childcare center can support?
Once you have these figures, you can calculate your FTE:
- Multiply the number of part-time children enrolled by the average number of hours they attend per week.
- Divide this figure by the total number of hours your center is open per week.
- Add the resulting figure to your number of full-time attendees to get the number of Full-Time Equivalent children you currently enroll.
- Divide your FTE number by your maximum capacity. The resulting number will be a percent out of one hundred. The closer this percentage is to 90 or higher, the more profitable your daycare enrollment revenue will be.
Once you discover your Full-Time Equivalency ratio, you can use this essential information to project enrollment?and profit?for your daycare business in the months ahead. Knowing your FTE ratio will give you the confidence that your business is heading in the right direction, and that you are in charge of that growth!
The Honest Buck Accounting team would love to help you calculate your FTE ratio as a part of our Profitability Coaching services. When you partner with us, you will have the peace of mind that comes from knowing where your business will be financially in three to twelve months. Plan for success in the next quarter, and the next year?we?ll help you get there! Contact Honest Buck Accounting today.