How Much Should I Spend on Marketing for My Child Care Program?

Marketing is a key component to any successful business. It is critical that businesses advertise and market their products and services. In your case, you offer a service and you need to be sure that local parents know about it. No one will enroll their child in your preschool if they don’t know you exist! Seems obvious but despite that…

Many child care centers don’t market themselves. They expect that word of mouth will be enough. Big mistake. It won’t.

First things first, you need to be online. 80% of parents begin their child care search on the internet so you need to be there. Otherwise, you are really dead in the water. You must, must, must have a web presence. Period. Ideally, you should have a nice-looking, user-friendly website with photos and contact information. If you can’t afford your own website (yes, they can be expensive!), join a website like CareLuLu where parents search for child care and preschool. You can create your free online profile here.

Once you’re online, you will need to advertise your daycare. There are many things you can do: newspaper ads, radio, flyers, and many others things. Whatever you decide to try, you just can’t expect that word of mouth will be enough. Even if your program is wonderful and your parents love you, you simply can’t leave it to them to talk to other people about you. That’s leaving your entire business up to the chance that parents will happen to talk to other parents who happen to need care for their kids.

If you still aren’t convinced that you need to do marketing, consider this:

For each unfilled opening, you lose $200 – $500 per week. So it actually costs you more money NOT to market.

How much businesses should spend on marketing depends on how much each customer is worth (i.e. how much they will spend with you over the term of your relationship with them.) This is called the Customer Lifetime Value (CLV). Here’s the good news: as a child care provider or preschool director, your CLV is very high!

If you were, for example, running a dry cleaning business or a coffee shop, customers would maybe spend $10 on their first visit, and you might hope to keep your customers returning. Even if they returned once a week, they’d only be “worth” $520 per year in revenue. However, with a child care program, the value of each customer will be in the tens of thousands. Why? Because most of your customers will be coming back so parents will be paying tuition for 1 to 4 years (parents just don’t change child care or preschool every week!)

If families stay for 1 year (and assuming an average tuition of $250/week), that would be a Customer Lifetime Value of $13,000. For a family that would stay 4 years, that would be $52,000! And we’re not even considering families with siblings!

In short, because your customers will spend a great deal of money over time (between $10,000 and $50,000 on average), you can afford to spend a lot to attract them.

Here’s a simple calculation to figure out your Customer Lifetime Value (CLV):

  1. Calculate your annual revenue for your center (for instance, let’s say it’s $500,000).
  2. Calculate your annual revenue per enrollment by dividing your total annual revenue by the number of children you can have at most (if you have 50 spots, then this would be $500,000 / 50 = $10,000)
  3. Multiply your annual revenue per child (step 2) by your average enrollment length in years. This will be an estimate, of course. (For instance, if you average family stays 3 years, this would be $10,000 x 3 = $30,000.)

Whatever number you come up with will be your estimated CLV. In the example above, the CLV is about $30,000.

Now that you know your average Customer Lifetime Value (CLV), here’s how much you should spend on marketing:

Depending on your expenses, you may have a profit margin around 15%, which means your net revenue per child enrolled will be $30,000 x 15% = $4,500. Typically, companies spend up to 25% of profits on marketing. If this sounds like a lot, remember it’s 25% of your profits, not 25% of your revenue. If your profit margins are 15%, you’re only spending 3.75% of revenue (15% x 25% = 3.75%).

If we continue with the example above, this means that, you should spend $4,500 x 25% = $1,125 on marketing to get ONE enrollment. Yes, $1,125 for one single enrollment! That may seem like a lot, but if you think about the fact that this one enrollment will bring a total revenue of $30,000, it’s not that much!

Aside from customer lifetime value, you should also consider:

  • Your competition. How many child care centers are in your area? How competitive is the market? How much are they advertising?
  • How empty are you? How many slots do you need to fill? If you need to fill, say, 10 spots then you should probably be more aggressive with you marketing. Remember, for each unfilled opening, you lose $200-$500 per week!
  • Do you run promotions? If you choose to run back to school promotions, for example, you may want to set aside some portion of your marketing budget for that.

Of course, it all depends on your tuition rates and your profit margins (i.e. how high your expenses are compared to your revenue.) In a small home-based child care program, your profit margin might be lower than in a large preschool. In a highly transient city, parents might stay on average 1 year, as opposed to 4 years in a less urban area. You should of course adjust the numbers above.

Here are a few examples to help you get a sense of what YOU should spend on marketing to get ONE enrollment. We’ve done the calculation for tuition rates between $100-$500/week, enrollment lengths from 1-4 years, and profit margins between 10% and 20%.

Your average weekly tuition

How long do parents stay,
on average

Your Profit Margin

How much you should spend on
marketing to get ONE enrollment

$100

1 year

20%

$260

$300

1 year

20%

$780

$500

1 year

20%

$1,300

$100

2 years

15%

$390

$300

2 years

15%

$1,170

$500

2 years

15%

$1,950

$100

4 years

10%

$520

$300

4 years

10%

$1,560

$500

4 years

10%

$2,600

The bottom line: If you are not marketing, you need to start. You simply can’t afford NOT to market your business. With that said, if you use some simple math and put some real consideration into your marketing budget, you will be much more pleased with the returns. Simply guessing how much you need to spend is almost as reckless as not marketing at all.

 

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