Maximizing Childcare Center Income: Calculating Full-Time Equivalency

Increasing your childcare business revenue means more than increasing enrollment numbers. In order to maximize profits, you need to know the Full-Time Equivalency (FTE) of enrolled students.

Simply put, the higher your Full-Time Equivalency, the more profitable your business. It is the difference between your finances being a guessing game and being able to create a financial forecast.

In addition to getting clear about your finances, calculating the Full-Time Equivalency also can help you:

• Analyze strengths and weaknesses in your current enrollment and scheduling procedures.
• Identify resources and staff needed to cover your day-to-day operations.
• Guide your future enrollment goals and marketing strategies.

An Honest Buck client named Katherine is the Owner and Managing Director of a daycare center in Seattle.

Katherine 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, she expected to see a substantial increase in cash flow from her higher enrollment numbers. When the enrollment revenue started coming in, she was disappointed to learn that the profit wasn't what she expected at all.

To help Katherine understand the lack of a noticeable financial increase, we took a closer look at her daycare enrollment and operation numbers to figure out the daycare's Full-Time Equivalency.

Katherine's daycare data:

• Total hours the facility is open, per week: 40
• Total children enrolled: 59
• Enrolled full-time children: 27
• Enrolled part-time children: 32
• Average hours part-time children attend, per week: 25
  (total hours part-time children attend divided by the total number of part-time children)
• Maximum number of children the center can support (typically the license capacity): 80

We calculated the part-time and full-time ratio using the daycare center data with the FTE formula. We learned that her Full-Time FTE Ratio is 47.

Even though Katherine's total enrollment numbers increased 40%, from 42 to 59 students, her Full-Time Equivalency enrollment only went up by 12%, from 42 to 47 students.

The 17 additional students brought in through the marketing campaign only resulted in the full-time equivalent of 5 full-time students.

In other words, Katherine's original enrollment only technically increased by 5 students based on the Full-Time Equivalency.

Katherine also wanted to know the maximum full-time “equivalent” children she could support considering her license capacity.We used this formula and divided her Full-time FTE (47) by the maximum number of children she can enroll (80) to get an FTE ratio of 58.75%.

An ideal FTE is 90% or higher.

As a result, Katherine understood that she needs to take a different approach to part-time enrollment at her daycare in order to see increased profitability.

As the above scenario illustrates, childcare business owners risk an accurate financial forecast if they do not track FTE.

Katherine made the unfortunate discovery that her part-time attendees are actually stifling business revenue because they contribute to a lower Full-Time Equivalency ratio. This is an extremely common mistake.

One solution to a low FTE ratio is to reduce or limit the number of part-time slots you offer to a limited percentage of your total enrollment capacity, such as 25%. By doing so, you will ensure a higher Full-Time Equivalency simply by providing a means to enroll more children full-time than part-time children.

Another approach is to offer part-time slots only for the open areas in your weekly schedule.

For example, if you have determined that you have more Monday/Wednesday/Friday attendees than Tuesday/Thursday, then you may want to only offer part-time slots on Tuesdays and Thursdays.

Full-Time Equivalency is calculated based on the number of hours you are open per week and the maximum number of children you can take at any one time.

Here's the data you need to gather in order to calculate theFull-Time Equivalency at your childcare or early education facility:

• Your number of full-time children enrolled
• Your number of part-time children enrolled
• Your average number of hours your part-time children are enrolled, per week
• Your number of hours your facility is open, per week
• Your maximum number of children your center can support (typically the license capacity)

Once you have this data, use our FTE worksheet to calculate it.