Reduce Your Overhead Costs: Increase Profitability by Trimming Business-Related Expenses

Childcare overhead costs are one of the easiest places to lose money without realizing it. Many of the Early Childhood Education businesses we work with are quietly overspending on overhead — and most don’t know it until we run the numbers. In this article, we define overhead, walk through how to calculate yours, and share three practical ways to trim it. Read on to find out more.

What Are Childcare Overhead Costs?

Let’s start with a working definition.

Overhead costs are business-related expenses required to keep your business running. They include professional services like accounting and HR, facilities expenses like utilities, and administrative expenses like software and office products. In short, overhead is everything that doesn’t directly produce the service or product you sell. For a deeper definition, Investopedia’s overhead primer is a quick read.

Operating costs, on the other hand, tie directly to the service you provide or product you sell. For an Early Childhood Education business, that’s classroom supplies, curriculum, food, and other costs that scale with the children you serve.

For this article, we’ll focus on overhead.

Two Types of Overhead

First, fixed overhead. These costs stay the same regardless of how much revenue you bring in. Examples include:

• Rent or mortgage payment
• Insurance
• Loan payments
• Licenses
• Software subscriptions

Next, variable overhead. These costs rise and fall with your revenue. Examples include:

• Office supplies
• Some utilities
• Marketing
• Packaging and shipping
• Legal expenses

How to Calculate Your Childcare Overhead Costs

Calculating overhead is straightforward. Here’s the process.

First, add up all your monthly indirect expenses — accounting, HR services, software, etc.

Next, total your monthly revenue.

Finally, divide your monthly overhead by your monthly revenue, then multiply by 100. The formula is:

(Overhead / Monthly Revenue) × 100 = Overhead Percentage

The lower you can push your overhead percentage — without sacrificing service quality or essential support — the healthier your margin. As a result, even small wins compound quickly across the year.

Three Ways to Reduce Childcare Overhead Costs

So how do you actually reduce overhead? Three high-impact moves: re-evaluate, go digital, and outsource.

1. Re-evaluate Every Expense Regularly

First, walk through every overhead expense you currently carry. Ask two questions: Is this expense necessary? If yes, is there a less expensive alternative?

For example, you may notice you’re paying for a different software program for every administrative function. Do you need software for each one? Yes. Can you find one platform that handles multiple functions for a single subscription? Almost always. Our guide on finding the right payroll processing solution lists reputable platforms that bundle several services. Pair that with a broader audit of your childcare tech stack and the savings stack up fast.

Here’s another example. You look at your business insurance and realize you haven’t shopped rates in years. You carve out an hour to call your current carrier and a few others. As a result, you find a meaningfully better rate. That’s another quick win for your overhead.

Most savings come from owners who simply stay on top of overhead and re-evaluate it consistently against current needs.

2. Go Digital

The second way to lower childcare overhead costs is to ditch paper. Doing things “the old-fashioned way” with paper drains both time and money. The cost of paper, ink, printers, and storage adds up faster than most owners think.

Instead, go digital. As mentioned above, plenty of administrative platforms let you store and access your records online. In addition, digital apps and software can foster great communication with parents too — replacing paper folders, printed newsletters, and one-off paper forms.

Choose tools that bundle as many services as possible. Meanwhile, your team gets a faster workflow, and your overhead drops at the same time.

3. Outsource, Outsource, Outsource

Finally, outsource the roles you can’t afford to hire full-time. Why bring on a full-time bookkeeper, accountant, IT specialist, or marketer when you can outsource each role to a specialist who only charges for the work you need?

Working with a freelance pro or specialist firm brings real expertise without locking you into a salary, benefits, and payroll taxes. As a result, you save on payroll while gaining access to deeper experience. For more, read our pieces on the benefits of outsourcing your CFO and the benefits of outsourcing your accountant. For most childcare owners, outsourcing is one of the most powerful ways to drop overhead in a single quarter.

Recommended Reading

Want to go deeper on margin and profitability? We highly recommend Simple Numbers, Straight Talk, Big Profits and Simple Numbers 2.0 by Greg Crabtree. Both are short, practical reads that pair perfectly with the steps above.

Get Help Trimming Your Childcare Overhead Costs

The experts at Honest Buck Accounting are passionate about saving our clients money and helping them build more profitable businesses. From reducing overhead to lowering your tax bill, we specialize in helping childcare businesses hit their financial goals. Schedule a call with us to learn how we can help.