Daycare businesses can vary from small, home-run startups to child daycare centres serving about 50-100 youngsters, and in some cases, even more. If you are planning to run a daycare, it would help to know the operational costs that incur while running one.
And, now that the whole world is completely shaken by the global crisis, it will have a huge impact on how daycare businesses handle payroll, expenses, and overall spending in general.
Innovative childcare management software and automation are becoming quite popular, so stay tuned.
In this post, we will be assessing the daycare operational costs as it is today. This way, you’ll get a rough idea of how much you will need to operate a daycare facility.
Impact of the Global Pandemic on Daycare Providers
Before the global health crisis, there were about 675,000 child daycare providers in the US. These providers were primarily small startups that were already running on thin margins.
And, the pandemic has only made it worse for the daycare industry. Since the beginning of March 2020, many daycare providers had to close to their centres to follow new public health regulations, which led to revenue loss that extended for weeks to even months at a time.
As states have started to open, many providers have begun reopening. However, they still operate with increased operational costs and limited capacity. So before we jump right to the overall spend trends, let’s take a quick look at the immediate impact on daycare providers due to the pandemic.
The following findings are from a survey on Louisiana’s child daycare providers concerning the impacts of Coronavirus from June 15 to June 22, 2020:
• 77% of daycare providers experienced financial losses because of Covid-19, with average losses accounting to $110,000 for each centre as of 22nd June. This translates to a total loss of about $137.5 million statewide.
• About 81% of open providers saw a fall in enrolment rates. The number of children enrolled was 30 percent less in June as compared to January.
• 40% of childcare centres, including the ones that remained closed during the survey period, had several families (who wanted to enrol their kids) on the wait-list.
Daycare Growth Statistics
• The US daycare industry has experienced an average growth of 4.0% per year from 2004 to 2020. (IBISWorld Reports)
• In 2019, the US daycare industry made $56 billion in total. (IBISWorld Reports)
• In terms of revenue, the daycare industry’s market size is $59.4 billion in 2020. (IBISWorld Reports)
• In 2020, the daycare market size is predicted to decline by -1.5%. (IBISWorld Reports)
Payroll Costs for Childcare Businesses
As per the 2017 US Census Bureau data, there were 12,829 single proprietor daycare centres, with payroll costs of approximately $25,000 on average.
The 5,500 small daycare companies had average payrolls of around $50,000 annually. The overall payroll of the US childcare centres were slightly over $262,100 per year on average.
The largest expense for daycare facilities is the payroll costs – particularly human labour. Workforce can easily account for 60-80% of your total daycare business spending.
So how much salary do daycare centres pay their workers on average?
In terms of company spending, salary takes up a huge share for most businesses, including daycare. And needless to say, the pay of your employees will depend on their roles. For instance, the average hourly wage for general childcare employees varies from that of administrators, teacher’s assistants, and preschool teachers who are working in the child daycare industry.
• The salary of daycare employees ranges from $27,344 to $35,833 on average. (Chron)
• In May 2019, childcare employees working in the daycare sector received a median hourly pay rate of $11.65 on average. (Bureau of Labor Statistics)
• This translates to an annual median pay rate of $24,230 on average. (Bureau of Labor Statistics)
• Additionally, the lowest 10% made below $8.65 while the highest 10% made over $17.21. (Bureau of Labour Statistics)
• In May 2019, 431,350 preschool teachers were working in daycare centers, and they made an average rate of $16.66 per hour or $34,650 annually. (BLS data)
• The median pay rate per hour for preschool teachers was $14.67. (BLS data)
• Of the 103,060 teacher assistants that were working in the daycare sector in 2019, their annual wage was $29,640 on average. (BLS data)
• Daycare administrators received an average hourly rate of $25,81. This translates to an annual salary of $53,690 on average. (BLS data)
Aside from salaries, payroll management incurs other costs that are less obvious. The effort and time it takes to make sure every employee receives their pay-check increases considerably.
Payroll Management Stats
• Payroll problems impact 54 percent of the working population in America. (Zenefits)
• 17 percent of small startups spend 6 to 10 hours a month on payroll and about 11 percent commit over 10 hours per month. (Score.org)
• Just 39 percent of companies rely on cloud-based payroll software. (Deloitte)
• As per a study, 20 percent of employers utilize spreadsheets for managing attendance, instead of more advanced tools. (Workforce Software)
And here are some interesting statistics for daycare companies considering theologizing their payroll system:
• Automation helps organizations in cutting down about 80% of their payroll costs. (American Payroll Association)
• But a survey stated that only 6 percent of businesses leverage automation tools for managing their payroll. (Deloitte)
As it’s clear, relying on machines for handling menial tasks will eliminate the need to depend on human labour to get it done.
Consequently, this will offer more space for people who can contribute real value to the company.
There is no room for errors with automation as opposed to people.
• About 1-8 percent of payroll entries on papers tend to contain mistakes. (American Payroll Association)
• 35 percent of the HR department’s time is spent on correcting payroll errors. (OnePoint HCM)
This explains why payroll management tools are expected to surge by 9 percent in the coming years. (Industry reports)
Taxes, Insurance, and Legal Fees
Another major concern for daycare businesses is regarding the taxes they need to pay annually. This is closely associated with the spending of the overall organization, and specifying administrative expenses tend to take up plenty of time.
Besides taxes, another expense that every company tries to keep low is legal fees. Nonetheless, it generally surges inevitably when least expected.
The overall startup costs will depend on the way you establish and run your business. For instance, a home-based childcare centre will cost less as compared to buying or leasing an office location or building.
Plus, there are fewer overhead costs, which include rent and the expenses associated with the utilities and maintenance of the building.
• Based on the coverage you purchase, daycare insurance range between $400 and $1,350 per year for home-based daycare businesses. (Fit Small Business)
• As for commercial childcare centres, it ranges between $1000 and $3500. (Fit Small Business)
• Educational supplies and tools can account for over $4700. (Self-Help.org)
• Legal fees for daycare startups licensed for 76 children with ages ranging from 6 weeks to 5 years will be around $575 on average. (Self-Help.org)
• By adding other expenses for marketing, furniture, and administration, the collective daycare startup cost would amount to about $95,485 on average. (Self-Help.org)
Marketing & Advertising Cost Statistics
For most newly opened childcare centres, growth is the main challenge. And to encourage this growth, businesses contribute a significant amount to advertising and marketing.
• The average daycare centre accommodating around 50 children is expected to spend a minimum of $15,000 to $30,000 a year. (Circle Social Inc)
• The most affordable ads will cost around $1500 for TV. These are ads spanning around 30 seconds and another $1500 for producing the commercial. (Circle Social Inc)
• The ballpark cost for daycare ads on billboards will cost around $1000 to $6000 a month. (Circle Social Inc)
• Community events are relatively cheap, interactive, highly targeted, and boost community presence. And the estimated cost range from free to $500 for each event. (Circle Social Inc)
As you can see, businesses are striving hard to expand their brand. Whether it's by investing in TV ads, billboards, or community events, marketing budget plays a huge part in a daycare spending.
Reduce Operational Costs With Childcare Management Software
As it is evident by now, daycare centres spend significant amounts of money on everything from administrative expenses to marketing. It can be quite challenging to manage all this spending.
The typical spending breakdown for daycare shows that labour is the largest expense at 70 percent of your budget. Food, occupancy, and overhead account for 18%, leaving the remaining for other operating costs. This is where childcare management apps can help.
By investing in a reliable Childcare Management Application, you can cut down those other operating costs and help your daycare function more efficiently. This, in turn, will allow you to focus on other key areas of your company and bring in more profits.