Why Nurseries Charge What They Do

[HOOK]

Why do nurseries charge more for babies, yet charge less for preschoolers compared to the true cost of care? And why do so many nursery owners feel frustrated with government funding? In today’s video, we’re going to break down how nurseries set their fees, why babies cost more to care for, and why government funding often doesn’t match the reality of those costs. By the end of this video, you’ll have a clearer understanding of how nursery fees work and why the system can be so difficult to navigate.

Stay tuned because, at the end, I’ll share how understanding these dynamics can help you manage your nursery’s finances more effectively. Plus, I’ll explain how I can support you with this process. Let’s dive in!

[INTRO]

Welcome back to the channel! If you’re new here, I’m [Your Name], the creator of the course ‘Open Your Nursery in Just 6 Months Without a Massive Budget.’ Over the years, I’ve helped many nursery owners understand the complexities of the nursery business, from setting fees to managing finances.

Today, we’re going to discuss a key issue that many nursery owners face: Why do nurseries charge more for babies than for preschoolers? You might be surprised to learn that this is all about managing the costs of staffing ratios and resources, while keeping the fees reasonable for parents. We’ll also talk about how government funding doesn’t always reflect these costs, which is a huge frustration for many nursery owners.

But before we dive into all that, be sure to subscribe and hit that bell icon so you don’t miss out on future videos that can help you run a successful nursery. Let’s get into it!

[SECTION 1: The Cost Breakdown – Babies vs. Preschoolers]

Let’s start by discussing the key difference between babies and preschoolers in terms of cost. This is where things can get tricky, and it’s important to understand why nurseries charge more for babies than for preschoolers, but still charge less than what babies actually cost.

1. Staffing Ratios:
   In the UK, nurseries are required to maintain a staffing ratio of 1:3 for babies (under two years old), meaning there is one adult for every three babies. For children aged three to five, the ratio is 1:8, meaning one adult cares for up to eight children. This significantly impacts the cost because babies need more staff for a smaller group, which increases the overall cost of care.
2. Space and Resources:
   Babies also require more space and resources. They need cribs, soft play areas, additional safety features, and more toys suited to their developmental needs. All of this increases the cost for nurseries.

Now, let’s look at the real cost comparison: If you were to charge for babies based on their actual cost, the price would be much higher than what nurseries charge for preschoolers.

[SECTION 2: Example – The Cost of Babies vs. Preschoolers]

To make this clearer, let’s use an example of the costs for babies and preschoolers:

Let’s say you have a baby place that costs you £250 per week to run (just for staff salaries, not including space or resources). Babies need 2.66 times more staff, so to cover the cost of a baby, you would technically need to charge £300 per week to break even—still undercharging when compared to their actual cost.

Now, compare this to a preschooler. A preschooler’s cost, including staffing, is much less—let’s say around £75 per week. However, nurseries often charge £250-£260 per week for preschoolers. This is significantly more than the actual cost of caring for a preschooler.

But here’s the key point: even though nurseries charge £260 for preschoolers, they are still charging less than the actual cost of a baby at £300. The reason for this pricing model is simple: if nurseries charged what babies actually cost, it would be financially unfeasible for parents to afford. So, nurseries charge more for preschoolers in order to offset the higher cost of babies.

For example, a nursery might charge £300 for babies but only £250 for preschoolers. This pricing structure allows nurseries to balance the books—while still providing an affordable fee for parents of preschoolers and covering the higher costs of looking after babies.

Now, here’s where it gets interesting: many nursery owners don’t fully understand why they charge what they do, and instead, they often simply copy their competitors’ pricing. They assume that since everyone else is charging similar amounts, it must be the right way to do it. But the truth is, if you don’t fully understand the reasons behind your pricing structure, you might end up making some big mistakes.

For example, if you pack your nursery with babies, thinking that you’ve hit your “full” capacity, you might find that you’re not actually making enough money to survive. You’ll look at your books and see your nursery is full, but here’s the catch: you’ve relied too much on that baby age group that doesn’t generate enough revenue to cover your costs. Yes, babies cost more, but you haven’t made enough off the preschoolers, who balance out your pricing. Without enough preschoolers to offset your costs, your profits won’t be enough to sustain the business long-term.

This is why understanding your fees and cost structures is so crucial. If you’re relying too much on one age group, like babies, and not charging enough for the preschoolers to cover the difference, you might find yourself stuck in a situation where your nursery is “full,” but not financially viable. This is where many nurseries run into problems, which is exactly why it’s so important to get a clear picture of how pricing works for the different age groups.

[SECTION 3: Why Government Funding is Underpaid for Nurseries]

Now that we’ve established how and why nurseries charge what they do for babies and preschoolers, let’s look at how government funding fits into this.

Nursery owners often complain about the government funding, but it’s important to understand how the funding is calculated. The government provides funding for 3- and 4-year-olds who qualify for the free 15 or 30 hours of childcare. However, the key issue is that the government funding only takes into account the cost of preschoolers and does not consider the adjustments nurseries make to balance out the higher costs of babies.

Here’s the issue:

• Government funding for 3- and 4-year-olds is based on the cost of a preschooler, which is typically much lower than the cost of caring for babies. For example, if the cost for a preschooler in your area is £75, then this is what the government will reimburse nurseries based on that amount with an additional amount to enable nurseries to make a profit.   Which ends up being less than what a nursery will typically charge.
• The government does the same for the costs of babies—for example, a baby might cost you £200 a week, so the government will pay based on this with an additional amount to make a profit.  Which ends up being more than what a nursery will typically charge. Causing a mismatch between what you charge for babies and what you receive in funding. This forces nurseries to fill the gap between what they charge parents and the government reimbursement with their own fees, which leads to financial stress.

Before nurseries received funding for babies, this meant that nurseries would lose out a lot when accepting funding.

The frustration arises because many nurseries charge less than they should for babies to make childcare affordable for parents, but they were receiving preschool funding that didn’t take this into account. That means nursery owners feel that they are underpaid for preschoolers, but in reality, this could be due to the way the government calculates the funding. 

The Big Problem:

Now, the government has made some adjustments for babies with the recent funding changes, and it’s important to recognize that government funding is better than some nursery owners think. In fact, with the extended hours for 3- and 4-year-olds, nurseries are now receiving more funding for babies than they were before. However, managing this funding still presents a challenge.

The core issue is that the amount given by the government for babies is now more than what nurseries charge, but there are complications when it comes to how this funding is split between age groups. The difficulty lies in planning and budgeting, especially since nurseries essentially receive two very different fees for babies and preschoolers.

[SECTION 4: The Impact of Extended Government Funding]

Let’s dive deeper into the impact of the extended funding. The government has recently expanded the free hours for 3- and 4-year-olds, which has led to an increase in funding per child. While this is a positive change, it still doesn’t fully address the challenges nurseries face.

How Funding Has Changed for Babies and Preschoolers:

• For preschoolers: The funding remains closer to what nurseries charge, but it’s often still less than the actual cost. For example, if a nursery charges £8 per hour for a preschooler, the government might reimburse £5-£7 per hour for the 30 hours of funded childcare. However, this reimbursement doesn’t cover the full cost of running the nursery, which is why many nurseries charge a top-up fee for to parents.
• For babies: The government has increased its funding for babies so that nurseries now receive around £11-£12 per hour for babies, which is more than what nurseries charge. However, there’s a major complication when trying to balance the books because nurseries still have to charge less than what babies actually cost in order to keep it affordable for parents.

This is where things get tricky:

The Mismatch in Government Funding vs. Fees Charged:

1. Preschoolers:
   When you offer the 30 hours funding stretched, nurseries are receiving around £5-£7 from the government per hour for preschoolers, but they’re charging £8 per hour for the remaining hours. So, if you’re offering this you get two different fees—one from the government and one from the parents.
2. Babies:
   On the other hand, for babies, nurseries are receiving £11-£12 per hour from the government for the funded hours, but they still charge £9 per hour for the remaining hours. This creates a mismatch that makes it difficult to budget properly—you essentially have two separate fee structures to manage at the same time.

This financial balancing act means nurseries need to carefully plan their age groups and be strategic about how they allocate space for babies and preschoolers. It’s not as simple as just filling the nursery with babies and preschoolers and expecting to break even. You have to consider:

• How much funding you’re receiving for each age group.
• How much you’re charging parents for the non-funded hours.
• How to manage the overall capacity of your nursery so you’re not running at a loss by relying too heavily on one age group or the other.

[The Complication of Stretched vs. Non-Stretched Hours]

Another complication in managing this funding comes with the difference between stretched and non-stretched hours. I won’t dive into the full details of this in today’s video, but it’s important to know that whether you’re offering stretched hours or non-stretched hours for your funded places can affect how you balance your funding.

For example, stretched hours spread the 30 hours of government funding across the year, which means you’ll get less per week but spread out over a longer period. Non-stretched hours give you more per week, but they only last during term-time, which can affect your cash flow during different times of the year.

This adds another layer of complexity to your financial planning. If you’re not aware of how to manage both, you could end up undercharging for one age group or not getting enough funding to cover your costs.

[SECTION 5: Why This is Important for New Nursery Owners]

For those of you just entering the field, it’s important to understand the financial dynamics that go into nursery fees. Knowing that nurseries charge more for preshoolers to offset their true cost and why government funding doesn’t match the reality of nursery costs will help you make better financial decisions when setting your fees.

Understanding this will also allow you to manage your financials effectively. You need to set your fees around the reality of the costs involved—charging appropriately for both babies and preschoolers while also understanding how government funding fits into the equation.

[CALL TO ACTION]

As you can see, managing nursery finances, especially when it comes to government funding, can be complicated. Understanding how fees are structured, how to balance the costs of babies and preschoolers, and how to use government funding efficiently is crucial to running a successful nursery.

If you want help navigating these complexities and creating a financial plan that works for your nursery, I’m here to guide you. Click the link below to get access to personalized consultations and resources that will help you manage your nursery finances effectively.

Plus get support with any aspect of setting up your nursery.  Just click the link that will appear on the screen shortly where you can let me know your plans and we can figure out how I can best support you.

But before you go over there don’t forget to like, comment, and subscribe for more insights on nursery business management. If you have any questions, feel free to leave them below, and I’ll get back to you as soon as I can!

[OUTRO]

Thank you for watching! I hope this video helped clear up the complexities behind nursery fees and government funding. Whether you’re opening your first nursery or managing an established one, understanding these financial dynamics will help you succeed. See you in the next video!