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and value before you set an initial fee. To
suddenly change midstream and
increase the value takes time and
investment, but to cut fees to match your
perceived value may result in you not
covering your costs.
Business requirements
Here fees are calculated purely on a cost
basis plus a profit margin. This area
shows how cost control is needed to
maintain a solid basis. A nursery needs to
control its direct expenses, direct
consumables and fixed overheads. These
give you a monthly total you need to
achieve to cover each area; you then need
to add a margin on top of this if you want
to make a profit and remain sustainable.
However, what is your cost base for
different occupancy levels? There is a
breakeven figure that you have to
achieve to simply pay all your costs, but
that is a total amount of money and not
related to a fixed price per hour, per child
or per % occupied. You could assume
100% occupancy, adjust your direct
expenses and direct consumables to
match that figure then add fixed costs
– but what happens if you don’t achieve
the full nursery?
By way of warning, don’t get mixed
up in occupancy percentage as that is an
indicator of volume not profit. You could
be 100% occupied charging £1 per child
and go bust – or be 1% occupied and
charge £100,000 for that single child
and be in profit.
However, whatever the figure you
come to there is a further challenge
related very heavily to cost versus value,
and market-led forces:
D
If you need to charge more than your
perceived value then you will struggle to
make the business pay.
D
If your costs and margin mean you
have to charge way more than a
competitor then again you are likely only
to pick up parents they can’t help, unless
your perceived value is higher than theirs.
Either way the pressure on margin is
massive.
Market-led forces
This is simply looking at what others
charge, and is the way most nurseries set
fees. Unfortunatley it’s a flawed
approach, as the other nurseries might
have a lower cost base. Market forces are
significant in deciding the fees you can
and should charge; however, are you
following a trend or setting one yourself?
FINAL THOUGHTS
Setting a price point is something
multi-national companies spend millions
of pound on. They have researchers,
business analysts, market specialists in
strategy and then of course sales teams,
marketing teams, accountants and
shareholders to judge their success. For
most single nurseries, or indeed small
chains, there is just you.
However, don’t decide to do a fee
review in a day, or even a week; good
planning and execution will make the
difference between a financially sound
nursery and one nearer the brink of
cost-cutting and possibly worse. It will
never be easy – if it was there would be
lots of people delivering outstanding care
and profit – but you must try.
STATUS &
REPUTATION
CAN YOU LOSE CUSTOMERS
BY CHARGING TOO LITTLE?
Knowing the perceived value of
your care is important. It’s an
area we badly underestimated
once, when we set our opening
fees for our new nursery too
low. It meant that instead
of having lots of customers
coming in, as our fees were
cheaper than our competitors’,
our ‘value’ customers didn’t
bother to look because we
were too cheap – in their minds
we could not be any good.
The reverse applies,
however, if you start by making
big investments in quality
buildings, graduate-level
staff and produce fantastic
outcomes. As one customer
remarked to us, “I have no
issue whatsoever with a fee
increase; I’m so appreciative of
the way in which you deal with
every aspect of Georgina’s
day-to-day care.”
Chris Townson is a
Director of Toybox
Nursery, and provides
a sales consultancy
service for the sector.
