191: Price Your Fall Programs for Profit, Not Just to Compete

The average profit margin for early childhood businesses in the United States is 1-4 percent. The operators who know their true cost per child and price strategically are achieving 10-15 percent — with the same families, in the same markets, often with programs that are not the most expensive option available. The difference is not the program. It is the pricing approach. This episode gives you the complete framework for escaping the competitor pricing trap and building a financially sustainable early childhood business.

Click HERE to see the Show Notes and Resource for this episode.

RESOURCES 

• Back 2 School Challenge - Free 6-Week CEO Profit Booster Challenge for preschool, childcare, play cafe, and enrichment business owners. A simple daily action plan to help you increase enrollment, control the chaos, and start operating like the CEO your business needs.
• Team Culture Blueprint – Go from constant turnover and team drama to a connected, committed team without adding more to your plate or your payroll — in just 30 days.​​
• Clarity Collective​ – Operating an early childhood business can often be chaotic and overwhelming. By following our Peake Creative, step-by-step simplified business strategies, you will gain more clarity, time freedom, and confidence to lead a profitable early childhood business.

We help early childhood business owners ditch the chaos and lead with confidence. With actionable strategies and time-saving tools, you can grow your revenue, inspire your team, and create a thriving business—without sacrificing the life you love. Ready to make it happen?
Visit kelleypeake.com and take the first step toward your dream business today! 

Transcript

The most common pricing mistake in early childhood business is looking at what competitors charge and then trying to match it. The problem is that your competitors may be underpriced too. When the entire market is built on guesswork rather than genuine cost analysis, everyone is leaving money on the table altogether. Now, the CEOs who consistently achieve 10 to 15 percent profit margins are not the most expensive programs in their market. They are the ones who know their true cost per child, set their prices to cover that cost with real margin, and then communicate their value so clearly that families choose them without shopping on price. Now, this episode is going to show you exactly how to do all three. I'm Kelley Peake. I've spent the past 26 years growing multiple million-dollar early childhood businesses. I'm here to help you navigate both the messy and magical seasons of your early childhood business with simple, actionable strategies. It is my goal to make your life a little easier working with our most prized possessions in life. If you're ready to control the chaos, ditch the exhausting overwhelm, and keep the joy, then be sure to join us at kelleypeake.com. Well, hey there, CEO. Welcome to the Early Childhood Business Made Easy podcast. I'm Kelley Peake, your host, and I'm always here to help you find more of that time, freedom, lifestyle that you so deserve, my friend. Now I want to ask you a question that might feel a little uncomfortable, and I really want you to be honest with yourself before you answer it. When you set your fall tuition rate, or maybe your summer tuition rate, any tuition rate, how did you arrive at that number. Now, if your answer involves any version of "Well, I looked at what the other programs in my area charge and I priced close to that, then this episode, my friend, is for you because that approach, as common as it is, well, it has a fundamental problem. You do not actually know whether the programs you're comparing yourself to are profitable themselves. You are pricing your business based on what your competitors charge, and your competitors may be just underpriced as you are and doing the same. So this is not a personal failure; it is a structural problem that we see all the time in the early childhood industry. The average profit margin for early childhood businesses in the United States, hovers between one and 4%. One to 4%. Meanwhile, the operators who've gone through a genuine cost analysis and set their prices based on what it actually costs to deliver their program and deliver it well, they are achieving margins of 10 to 15% and sometimes more consistently without being the most expensive program in their market. Now the difference-it's not the program. The difference is the pricing approach. So today I'm going to walk you through three things. Number one, why the competitor pricing trap keeps so many operators from reaching real profitability. Number two, how to calculate your true cost per child and set a price that reflects it. And number three, how to communicate your value so clearly that families choose you based on what you offer, not what you charge. This is what I know, my friend. After 30 years in this industry, you are not going to outprice the large corporate childcare chains, but you do not need to. You are a boutique early childhood program, mostly likely a small local business. Maybe there are one to four locations under your umbrella. Your value is not being the cheapest; it's being the best possible experience for the families you serve, and that experience will deserve to be priced accordingly. That's what it means to be a boutique preschool. The free resource for today is the Back to School Challenge one-page operations checklist. You'll find it at kelleypeake.com, where you're going to find information on podcast episode 191 And I also want to remind you that the Back to School challenge is live right now, and you'll find information about that at kelleypeake.com as well. We are going deep on pricing and financial strategy as part of the complete fall roadmap, among other things that we're talking about during the challenge. So, if you're not in the challenge yet, today's episode is a preview of some of the work we're doing together. But today, let's talk about pricing.

You are not going to build a sustainable early childhood business by competing on price. You're going to build one by competing on value, and competing on value starts with knowing your true cost per child, pricing for real profit margins, and communicating your program so clearly that the price is never the reason a family says no. So setting your tuition by looking at what your competitors charge. Well, that is not a pricing strategy. It is a pricing reaction. A pricing strategy starts with your cost. It answers the question: What does it actually cost me to deliver a high-quality early child experience, and what margin do I need on top of that cost to build a financial? Financially sustainable business. Now, a pricing reaction. Well, that skips that question entirely and substitutes the market average for the answer. And the problem with the pricing reaction approach is invisible until it's not. You can run a program for three or four years at market rate, stay busy, keep families happy, and feel like the business is working, and then something changes, maybe a rent increase, a payroll adjustment to attract better team members, a supply cost spike, and then suddenly those margins that were already thin they become negative, and you have no pricing room because you have spent years training your market to expect a specific rate. Now the CEOs who price for profit from the beginning have flexibility when costs change, and the ones who price reactively are always one expense increase away from a financial crisis. According to the U.S. Department of the Treasury, the average profit margin for early childhood businesses in the United States, again, is that one to 4% and that is not a typo. One to 4% in a business where the owner is typically working 50 to 60 hours a week, managing licensed care for children, navigating team ratios, and building a program she's deeply proud of, that can be a problem. Compare that to the 10 to 15% margins that are achievable in the same industry when pricing is based on true cost analysis rather than competitor comparison. Now that gap between 1% and 10% on a program generating $200,000 in annual revenue or more is $18,000 per year. That is the difference between paying yourself a meaningful salary and paying yourself almost nothing. Now those numbers completely change the larger your program is. I wanted to share with you kind of the basic. Now it's the difference between building a financial reserve and living one slow enrollment month away from a cash crisis, and it's entirely a pricing problem, not a capacity problem. There's a preschool director that we work with and had operated her program for six years at market rate tuition. Her program was exceptional by any measure: long wait lists, families who referred enthusiastically, low team member turnover, a curriculum that was genuinely distinctive in her community. She had every reason to believe her business was succeeding, and in many many ways it was. But her profit margin was consistently around 3% not because her program was inefficient, but because she had price to match three competitors whose cost structures were completely different from hers and whose programs were remotely not comparable in quality. The year she did her true cost calculation for the first time, she discovered that her cost per child was $1,150 per month, and her tuition she was charging $1,075 a month. She was operating at a loss on every single child she enrolled. After working through the value communication strategy and adjusting her pricing over two enrollment cycles, her margin reached 11% She has not lost a family to price since, because the families who choose her program, well, they choose it for what it offers, not for what it costs, and this is so key in our industry. So let's dive into that first strategy, the competitor pricing trap, and how to escape it. The competitor pricing trap works like this: you research what programs in your area charge. You look at three to five competitors. You get a sense of the range, and you set your pricing somewhere within or slightly above that range. It feels responsible because you are looking at the market, and you should do that. I am not saying don't do that.

It feels safe because you're not asking families to pay more than what they might already be paying somewhere else, and it feels logical because pricing at market rate should mean you can fill your enrollment. So I do want you to do that. That is not something that you should take off your list. You definitely want to know what your competitors are pricing at. However, what it does not tell you doesn't tell you anything about whether that price is profitable for your specific program. Now here's something most directors and managers do not think about: the programs you are comparing yourself to, they may have completely different cost structures than you do. A program in a building they own has dramatically different rent exposure than one that's in a leased space. A program that has operated in the same location for 15 years has different insurance rates, different team compensation norms, and different economies of scale than a program that just opened three years ago. A corporate childcare chain is spreading overhead across hundreds and hundreds of locations in ways that a boutique program simply cannot. So when you price yourself relative to these programs without understanding your own cost structure, you are essentially saying whatever makes sense for them financially is what's going to make sense for me, and my friend, that is almost never true. So the escape from the competitor pricing trap is not to ignore the market entirely. I don't want you to do that. Your tuition does need to be within a range that families in your community can access, but the starting point is. Your costs, not your competitors. You calculate what it actually costs you to deliver your program. You determine the margin you need to build so you can have a financially sustainable business, and then you set a price that reflects both. Then you look at the market to confirm that you're not wildly outside of that range. It's okay if you're above the market; that's great, but you do not let the market determine your profitability. Now, the confident early childhood operator is not afraid of knowing her numbers. She is more afraid of running a beautiful program that is slowly going broke because nobody ever did the math. Now, my friend, here are two action steps. Number one, I want you to write down your current tuition rate for your primary program. Then write down this question: Do I know whether this price covers my true cost per child with a 10% margin on top? If the answer is no, it is a gap in your financial literacy that strategy two, what we're going to talk about next, is going to close. Okay, action step number two: Identify the three programs you most often compare your pricing to. This is your competition. Then write down one specific way your program is meaningfully different from each of them. The things that make you different are the things that justify your price. Now we will come back to those differences in strategy number three, and we talk a lot about this in our preschool business blueprint. If you're part of our Clarity Collective, where we work together to help you identify what makes you stand out, that's where we do it. On to strategy number two. You're going to calculate your true cost per child and price for real margins. Now, this is the strategy that most changes the financial trajectory of an early childhood business, when an operator actually does it, and most directors and managers never do it because nobody has ever showed them how. So today, I'm going to show you. The true cost calculation has four steps. Step number one: I want you to add up every monthly expense in your business, not just tuition, not just payroll. Every expense, payroll including benefits, taxes, substitutes, rent, mortgage or leases, utilities, insurance, supplies, consumables, food and snacks, programming materials, marketing, advertising, software, administrative tools, professional development, licensing fees, cleaning, loan payments, owner compensation. If you're paying yourself the total the total monthly expenses and I want you to write that number down. Number two, I want you to divide that number by the number of children currently enrolled. Now this is not your license capacity. This is not your wait list. This is the number of children you're actually serving right now. This gives you your cost per child per month.

Now, this number, most directors and managers have never calculated, and it's always a surprise. Now, I will tell you, you can make this more complicated than it needs to be. Yes, you can find more information if you have half day versus full day, part time versus full time. That is true. For right now, I just want you to do this for your program as a whole, and as you get deeper into understanding your financials, then you can break it out into more specifics and get more detailed. But for now, let's just do it for your entire program. Step number three: I want you to add in your target margin. So to achieve a 10% profit margin, you multiply your cost per child by 1.11 To achieve a 15% margin, you multiply by 1.18. This is going to give your minimum viable tuition a specific rate for your current program and enrollment level. Now, step number four: compare that number to your current tuition. So, if your minimum viable tuition is higher than what you currently charge. You have identified your pricing gap. If it's lower, you are in a stronger position than you thought, though there may still be some room to improve. So let me give you a concrete example. Let's just say there's a program with 15 enrolled children and a total monthly operating cost of about 16,500 That is about 1100 per month per child. So for a 10% profit margin, the minimum viable tuition is going to be $1,221. For a 15% profit margin, it's going to be $1,260 So if the current tuition is only $970 then this program is operating at a loss on every child enrolled. If the current tuition is $1,150 it's operating at a margin that's just under 5% which is better than the industry average of one to 4% but still falls short of our goal of 10 to 15% That target range. Now most operators who do this calculation for the first time, they fall into one of two camps. The first camp discovers they are underpriced and operating at a margin of zero to 3% which explains why the business always feels financially tight despite being full. Now, the second camp discovers a more significant gap, sometimes finding that their tuition doesn't even cover the cost of their. Monthly expenses without considering margin at all. Now both camps have the exact same next step: close that gap. Now we're going to talk about how to do that without losing families in strategy number three. So your two action steps here: number one, I want you to set aside one hour this week and do the true cost calculation for your program. Pull your last three months of bank or bookkeeping statements. Add up your total monthly expenses across the categories. Divide by your current enrollment and calculate the result. Now, this is where it gets a little bit different as well. For those of you operating a school year program and a summer program, your numbers probably are going to be different. So then, calculate your numbers for the school year and calculate your numbers for the summer. For those of you operating a year-round program, you can just continue on. Now write down your cost per child and your minimum viable tuition at both 10 and 15% margins. That number is the foundation of every pricing conversation you will have going forward. Action step number two: If you have not yet joined the Back to School Challenge. This is the work we are doing together in our live event. So go to kelleypeake.com and download the information and sign up for our free Back to School Revenue Roadmap Challenge. This challenge is going to include some guided support for things like this, as well as marketing, team communication services and strategies, all things to help you communicate with families with confidence. Okay, on to strategy number three: Stop competing on price and start competing on value. So once you know your true costs and your minimum viable tuition, the next question becomes: How do you close the gap between your current price and your profitable price without losing the families you have worked so hard to build relationships with, and the answer, my friend, is value communication.

So we talk in another episode all about your expenses and how to really evaluate the expenses you have, and maybe it's as easy as cutting some expenses. Today's episode, we're going to talk about your value communication. This is a different way. So we're not talking about just cutting expenses. We're talking about how it starts with understanding something very fundamental about how families choose early childhood programs. And my friend, price is almost never the primary reason that a family chooses you or leaves you. It is a secondary consideration that becomes primary only when the perceived value is unclear. So think about this from your own experience as a consumer. There are things you spend more money on than the cheapest option without hesitation because the value is so obvious. You do not want to shop for the least expensive version of the things that you value most. Families are the same way about their children, and a family that genuinely believes your program is the best possible experience for their child, they are going to pay more than market rate. Now, a family that is not sure what makes you different from the next program, they're always going to look for a lower price. So your job is to make the value so clear that price stops being the deciding factor. So again, this is a very different conversation than the one we talked about with expenses. Now this requires three things. First, you need to know and be able to articulate your unique value with specificity. So not we provide high quality early child education because every program says that, but something more like our program is the only one in our community that uses specific nature based curriculum where children spend 40% of their days in outdoor learning, or maybe something like we provide daily written observations for each child's learning that families receive before pickup, so they never feel out of touch with their child's day. Now, I will tell you, I have operated our Peake Academy Play Boutique programs for 20 years now, and we do not have an outdoor playground. We have an indoor playground, and that is what sets us apart from our competition. Because in the state of Oregon, as many of you may know, the reputation that we have, it rains a lot, and in the summers when it's hot, it gets too hot. So even though yes, kids can go outside when it's raining, they are not getting the full gross motor. They are not running and climbing and doing all the things they need to do. So, having an indoor playground in a rainy environment is very beneficial and really sets us apart. We do still go outside. We still have opportunities for that. But again, having that ability to give kids that gross motor that they need every day, multiple times a day, it is very different from not being able to do that. Second, when you're adjusting your pricing, so I want you to frame it around the value your program delivers, not around your cost increases. So our tuition reflects the investment we make in your child's daily experience, my friend. That's going to land very different than we had to raise prices because our rent increased. Families are paying for their child's experience. Keep the communication centered on that experience. Third, and perhaps most importantly, deliver unreasonable hospitality to every family touchpoint. The welcome experience when a family tour is the first day transition support. The quality of your weekly communication. The way your team greets. Children at morning drop off. The detail of your end of year celebration. These are not extras. They are the evidence that supports your price. When families experience a program that genuinely exceeds their expectations at every turn, when the tuition increases, that conversation becomes significantly easier because they already feel what they are getting is worth more than what they are paying. As you know, we talk about this all the time in our Clarity Collective. How to make magical moments, and these magical moments, these memories you're creating-that's what they're paying for. Now, families do not leave programs because tuition went up; they leave because the experience. Well, it no longer justifies the price. So, build an experience that justifies your price. Communicate your value clearly and raise your rates with confidence. That is what leading your business financially looks like.

So your action steps here: number one, write one paragraph describing what makes your program genuinely irreplaceable for the families you serve. Not just your value statement, not just your philosophy, but the specific, concrete things a family gets from your program that they cannot find in a program across the street. Now, this paragraph is the foundation of every value communication you do, from your website to your price increase letter to your tour conversation. Action step number two: Look at your next tuition increase or maybe your pricing adjustment, and rewrite your family communication to lead with value, not cost. Draft one sentence that describes what the investment in your program delivers for families and children, followed by the specific rate, followed by a clear enrollment confirmation. That sequence, my friend, value first, then price. That is going to change how families receive the information. That was a lot, but those three strategies-escaping the competitor pricing trap, calculating your true cost per child, and pricing for real margins, and competing on value instead of price-those are the complete framework for building a financially sustainable early childhood business that earns what it's worth. So here is what you need to do this week: do the true cost calculation. Take an hour, your bank statements, a spreadsheet. Calculate your cost per child, your minimum viable tuition at 10 and 15% and compare that number to where you are today. Find the gap, fix the gap. Knowing it is the first step to closing it. If the calculation reveals a gap you are not sure how to close, remember join us in the back to school challenge. We're live right now. We're doing work like this together. We're covering different types of strategy, from pricing and revenue to team to communicating with families. Your sales strategies, all of it, all to get you ready for fall, so you can have your program full and fabulous this fall. So join us at kelleypeake.com, my friend. I want to leave you with something that I believe so deeply. You built this program because you are exceptional. What you do, the children you serve, the families you support, the team you have built around a mission that genuinely matters. That program it deserves to be financially sustainable. It deserves margins that allow you to invest in your team, invest in your space, invest in your own compensation, invest in the future of the business you are building, and most importantly, allow you to live the time, freedom, lifestyle that you so deserve. So stop competing on price and start competing on value. You have more of it than you know. You are or becoming the confident early childhood operator and leading like a CEO. So lead your finances like it. I'll see you next week. Take care. Thanks for tuning into our podcast. Are you ready to take your early childhood business to the next level? Then head over to kelleypeake.com to join a community of other early childhood professionals who are ditching the chaos and the overwhelm and creating a business they love. I can't wait to see you there. Bye for now.