How to Calculate Student Lifetime Value for Your Childcare Business
It?s hard to overstate the importance of determining the lifetime value of the children you enroll at your childcare center. Student lifetime value is simply the total amount of money a student brings to your childcare business over the length of time the student is enrolled. In this article, we will take a look at how to calculate student lifetime value, why student lifetime value is an important indicator of the financial health of your childcare business, and how you can improve your student lifetime value.
How to Calculate Student Lifetime Value
You can determine the student lifetime value of a child enrolled in your daycare program by using a simple formula:
Length of Student Enrollment in Months x Monthly Tuition Rate ? Acquisition Cost of Student
Businesses use this formula to calculate their Customer Lifetime Value (CLV), which is the same figure you?re trying to determine for the customers of your daycare business; in this case, children enrolled.
The acquisition cost per student is the amount of money you invested to acquire and retain a child in your program (including advertising and marketing). A student lifetime value that is not significantly higher than the acquisition cost of the student poses a major issue and must be remedied quickly.
Let?s look at an example: Jordan wants to calculate the lifetime value of one of the children in her program, whom we?ll refer to as Student A. Student A has been enrolled in Jordan?s daycare program for 19 months. Jordan?s monthly tuition rate for a full-time child at her daycare is $1,000 per month.
To figure out the acquisition cost per student, Jordan takes the amount of money she spent on acquiring more students for her daycare center in a full calendar year and divides that number by the actual number of children newly enrolled that same year. Since Jordan spent $900 on marketing and advertising last year and enrolled 12 new children in her program within that year, she divides 900 by 12 to get $75 per student as her acquisition cost.
Jordan takes these figures and uses them in the Student Lifetime Value formula:
Student Lifetime Value = (19 x 1,000) ? 75
Student Lifetime Value = $18,925
Using this formula, Jordan is able to see the high student lifetime value that Student A contributes to her childcare business. If she wishes, she can continue to calculate student lifetime value for all of the children at her daycare.
How Student Lifetime Value Impacts Your Childcare Business
As the above example illustrates, you will want to make sure your student lifetime value is as high as possible. It is especially important to make sure the student lifetime value of each child in your daycare program is substantially higher than the acquisition cost of the child. If you?re paying a lot of money to enroll each new child in your daycare program and you?re not seeing a generous return on your investment with high student lifetime value, you will want to take immediate action to correct this problem, raise your student lifetime value, and give the financial health of your childcare business a big boost?your success depends on it.
Tips for Improving Your Student Lifetime Value
Here are several practical steps you can take to improve the student lifetime value at your childcare business. The time and effort it may take you to implement these strategies will be well worth it when you see the financial improvements that result.
? Recognize the Relationship Between Student Turnover Rate and Student Lifetime Value ? Your student turnover rate and your student lifetime value are closely connected. If you have a high student turnover rate, then the children you have enrolled in your program may not stick around long enough to bring a high lifetime value to your business. When you work on lowering your student turnover rate, you will see improvements in your student lifetime value. You want families to walk through your doors and stay for as long as possible?many months and hopefully years. A low student turnover rate and a high student lifetime value go hand-in-hand.
? Lower Your Acquisition Cost ? There aren?t many variables in the student lifetime value formula to improve upon, but one of the most important components you can work on to boost student lifetime value is your acquisition cost. Once you determine your per student acquisition cost, determine whether you need to lower this number and how. Are you spending too much money on marketing and advertising? If the money it takes to get new students through the door is not paying off in the lifetime value of the students, you must get your acquisition costs down. This step is essential.
? Focus on Excellent Customer Service ? Making sure you are delivering the best possible childcare, including great programming, caring staff, terrific parent communication, and genuine relationship development with the families you serve, will give parents plenty of reasons to keep their kids enrolled at your childcare center as long as possible. Again, the same factors that go into lowering your student turnover rate will also go a long way toward improving student lifetime value.
We hope this brief overview of student lifetime value helps you understand the importance of this financial measure when you are considering the overall well-being of your daycare business.
The experts at Honest Buck Accounting want to help you achieve your business goals and create a thriving, growth-oriented childcare business you are proud of. Call us today to learn more about our financial services that will take your childcare business from good to great!