The COVID-19 pandemic has affected childcare more than almost any other industry. According to Child Care Aware of America’s recent report titled Demanding Change/Repairing Our Child Care System, 8,889 licensed childcare centers and 6,957 licensed family childcare home daycares in the US closed permanently between December 2019 and March 2021. This is especially worrying given that, before the pandemic, 51% of America’s young children already lived in a childcare desert: a place where few to no childcare centers exist!
As we moved further from the beginnings of the pandemic, more childcare centers were open for business, although enrollment levels remained well under pre-COVID numbers. In the fall of 2021, there was an increase in parents going back to work, however childcare centers still struggled with hiring and retaining qualified staff.
COVID-19’s impact on childcare center revenue
It is estimated that the industry lost about 300,000 childcare professionals at the beginning of COVID (1/3 of its US workforce!) and approximately 125,000 have never returned. This is extremely concerning as we look towards revenue growth in the future.
Childcare centers need staff to be able to operate, never mind opening additional classrooms and centers!
At the onset of the pandemic, two things became apparent to US leaders:
- Childcare professionals are ESSENTIAL because without them the other ESSENTIAL workforces cannot go to work.
- With drastically reduced enrollment, and therefore revenue, the pandemic was pushing the industry’s financial situation from fragile to outright broken.
Fortunately, Congress reacted to the situation by making a historical investment in childcare to ensure its stability during the pandemic. The American Rescue and Relief Plan (ARPA) provided $24 billion in childcare stabilization grants and an additional $15 billion to the Child Care and Development Fund.
This is the largest single investment in childcare funding in US history. This allowed the industry to remain afloat and persevere during the years following the onset of COVID-19.
A little over ⅓ of the centers surveyed in our 2021 Childcare Benchmark Report reported revenue growth from 2020 to 2021. This was more than likely due to centers being closed at the beginning of the pandemic and then reopening in 2021.
However, 41% of centers showed a decline in revenue even though most businesses started to open back up in the late summer or early fall of 2021. Unfortunately, staffing shortages have kept the majority of centers from growing back to their pre-COVID enrollment rates.
Revenue growth strategies
As we near the halfway mark for 2022, the clear consensus is that customer satisfaction is the most important factor for a childcare center’s success. Ensuring parents and caregivers are happy with the care their children receive is the most straightforward way to ensure continued revenue growth.
Focusing on employee retention and education/programming follows closely behind on the list of childcare center director priorities this year. If a center has satisfied parents and a team that is committed and happy to come to work every day, they’re setting themselves up for continued success.
Here’s a quick summary of the revenue growth strategies centers are pursuing this year:
- 57% of centers are considering a price increase
- 21% of centers are adding additional products and services
- 17% of centers are considering expanding their locations
- 11% of centers are looking at acquiring new locations
We are currently seeing the following trends in revenue growth strategies:
1. Price increases are needed to cover the cost of rising supply prices and wages.
2. Franchise companies have continued to add new locations throughout the pandemic. These are typically built in higher-end markets that can demand the price required of a new build.
3. Regional and large childcare companies are growing capacity during the pandemic by purchasing single and small multi-site childcare businesses. They know the need for childcare will return in full force at some point, so they are taking advantage of the opportunity to buy what they can now to be prepared for later.
It will be interesting to see how those expanding their locations or acquiring new locations will recruit the number of staff needed to accommodate their growth.
Risks to childcare center revenue growth
When it comes to risks, it should be no surprise that those surveyed ranked financial performance and labor at the top of the list.
Staff shortages are keeping centers from filling to capacity, and when a building isn’t fully utilized, revenue goes down while fixed costs remain the same. Moreover, the cost of food, supplies, wages, gas, and other operational expenses are continuing to rise in this inflationary economy. In many cases, the only reason many centers are still open under these circumstances is due to the money they have received from government stimulus packages.
It goes without saying that this is a difficult time for revenue growth within the childcare sector, but difficult is not impossible. By using the strategies outlined above and minimizing your risk factors as much as possible, you can ensure that your business will thrive.
