Setting Rates for Child Care Services

Setting rates is one of the hardest decisions, yet also one of the most important, that a family child care licensee makes.

Only you can decide what works for your program and the clients you are going to be providing child care services for. Here are some points to consider while setting your rates: 

  • Use the Market Rate Survey to learn what the state recognizes as the rate for care in your county.
    • What is the Market Rate Survey and how does it affect my rates? Most licensees associate the Market Rate with Child Care Subsidy. The Market Rate is more than just about subsidy. It is what the state has determined as the average fees currently charged for care by county. The Market Rate Survey is required by the federal government as part of the CCDF to be conducted biennially to measure the prices charged by providers and paid by families in a given child care market. In Maine it’s done by county.
    • The Market Rate Survey only captures data on the fee per child paid by families for child care services, not on the cost of providing child care (labor, facilities, equipment, and supplies,etc.). Other factors that states consider in setting the Market Rate are variations in market prices by age and categories of care.
    • Maine has set the maximum allowable subsidy payment rate for family child care services at the 75th percentile of the Market Rate Survey. Maine has a Sliding Fee Scale for families that regulates the family’s copayment for care. Together the family copay and state subsidy payment may not exceed the child care licensees’ set rate for their other clients for comparable care and may not exceed the Market Rate.
      • This is important to understand – example: if your set rate is $180 for infant care and the Market Rate is $220, the state and family copay only covers to $180, not $220. If you do not take subsidy, realize the state found the average rate for care in your county to be $220. You set your rates, but at $180 you are $40 below market rate.
    • It’s important to know your community as you look at the Market Rate. Counties can have significant differences between average incomes within communities.
  • Make/Review a business plan: How much do you need to earn to support your family?  What kind of care will you offer?  What is the number and ages of children you can provide care for? What is the cost of running your childcare business, such as utilities, supplies, maintenance, marketing, and insurance.
  • It’s important to know your worth. Maybe you have education in the field of child development, have been in business for a number of years or have specialized experience, all of those are assets to your business and should be reflected in your rate of pay.
  • Impact of deficits of your program, such as: location, pets, home arrangement, hours open/close, ages cared for vs need in area. Your rates may need to be adjusted to attract customers.  
  • What kind of rate structure to offer for services provided: full-time, part-time, evening, weekend, overnight, drop in. Do you provide a flat rate for a care slot, or charge by the hours of actual care provided? Charging by the actual care provided can result in irregular income for you. Charging a flat rate guarantees a regular income and also minimizes potential for argument about hours children are actually in care. Within flat rates, you can charge for blocks of time, partial days or full-time care. Or maybe you combine both offering part-time blocks with the option for extra time on an hourly basis if needed. If you charge by the hour, remember to account for days children miss due to illness, holidays and vacations. Will you have discounts for siblings? Discount for paying in advance monthly? Example of a Rate Structure Sheet:
  • How you will handle these situations within your rate structure: a child’s absence, provider is sick, child or provider has vacation, parent is late picking up or dropping off child, parent wants you to hold a spot for a child.
  • Payment schedule: Do families pay on the first day of care each week? Are you ok getting paid by week’s end? What about the idea of collecting payment the week prior to care, ie collect by Friday of week prior?
  • Enrollment Deposit: Collection of payment for the last 2 weeks up-front to avoid having parents leave while owing you money. If parents cannot pay the deposit up-front before beginning care, let them pay an extra amount per week until that enrollment deposit is reached.Have language in your contract such as, “ Child’s last 2 weeks of care will remain the amount that was held in reserve at the time of your enrollment whether a change in fees has occurred or not.” Be sure to have a signature on this that you hold in the child’s file.
  • Yearly raise in rates, whether you have new clients or not. This is to keep up with the cost of living.
    • Decide if you will increase all families, or just allow for your published rate to increase and it would only affect new clients.
    • If you are going to raise your rate yearly on all clients make sure this information is listed in your contract. Raise your rates every year at the same time, and provide parents a 30 day reminder notice.
    • If you decide to follow the Market Rate, you will raise rates as the Market Rate is released.
    • Make sure clients sign something indicating their knowledge on this policy and keep it in the file for their child when they enroll.
  • A business that doesn’t earn an adequate profit is more vulnerable to failure because it doesn’t have a financial cushion. Whatever you set your rates at, ensure that the business can withstand the normal ups and downs in enrollment that occur.  A recommendation is to be sure you can bring in what is needed for your family when only partially full. Think 2 empty full-time slots. Take the income from those extra slots when filled and bank it to build your financial cushion.

Ok, you have your rate figured…….. You’ve covered payment in your contract…….. Now it’s about the discussion of rates with clients. Maybe you are comfortable discussing rates with clients. However, for many this is not the case.

Most clients look at the lump sum that they pay either weekly or monthly, not stopping to consider what that actually breaks down to hourly and what that money covers. Using a Rate Worksheet like the example below might help clarify. You can break down the rate both monthly, hourly and weekly, and add in discounts if offered.

Still looking for more information? Tom Copeland’s blog is always a good resource. Here’s a link to a past post of his about child care rates.