Occupancy levels need to be monitored in all childcare settings as they give you an indication of how a business is doing. By monitoring occupancy levels you can also predict the sustainability of your childcare business in advance.
A setting with permanently low occupancy levels will be unsustainable, this can be understood more clearly if you have already read ‘How Much Do Nurseries Make?’
In short, you need to be able to afford the service you provide.
As a business, you have costs which need to be paid for, such as your bills – staff wages, energy supply, food, equipment etc. If your costs cannot be paid for, then you cannot afford to provide your service and will eventually have to close it down, unless you can change your circumstances.
As many childcare providers only look at the number of children they have on roll they have the illusion that they are okay, but this is not a good indication of a successful business.
In short, looking at only the children on roll, can be very misleading. The example below explains why.
A nursery has 20 places and offers 2 sessions a day, AM and PM. Which means in a week they actually offer 200 sessions or 600 hours.
20 children x 2 sessions x 5 days = 200 sessions available a week
or
20 children x 6 hours x 5 days = 600 hours available a week
But they have 29 children on roll. Which looks like they have more children than places, i.e. 29 children for 20 places. However, if each child only attends for an average of 3 sessions a week, then only 87 sessions are filled out of the 200 available.
29 children x 3 sessions = 87 sessions used
To work out the occupancy level – you divide the actual sessions used, by the sessions available:
87 sessions used /200 available sessions which gives you 43% occupancy.
This is less than half the sessions available being used, meaning you are losing money and may not be able to cover all your costs, let alone make a profit.
It is therefore important to ensure your occupancy levels are calculated correctly and monitored monthly. By working them out on a spreadsheet or using a specially designed childcare bookkeeping system, you can run your business profitably and ensure it lasts longer.
The figures should be compared month to month, to gauge which months are worse than others, so that you can predict what could happen the following year, and which months you need to compensate for or reduce costs in.
It is also important to take into consideration, that most nurseries are only open 38 weeks of the year and not the whole year as a result of holidays etc. However, their expenses are incurred over the full 52 weeks of the year.
How to work out your minimum occupancy levels and costs
In order to remain in business, you should work out your minimum occupancy levels to ensure you do not go below this threshold.
You can use the example below to help you work out this minimum level:
If we look at the nursery which is registered for 20 children and has annual outgoings of £60,000 over 38 weeks, their weekly costs would be:
£60,000 / 38 weeks = £1578.95 per week
If the business runs 6 hours a day, 5 days a week, with 20 registered places the total number of hours available are:
6 hours x 5 days x 20 places = 600 hours available
As you should aim for at least 80% occupancy this means:
600 available hours x 80% = 480 hours should be filled
The hourly charge should therefore be at least:
£1578.95 weekly costs/480 = £3.29 per hour minimum charge
Using this rate – our minimum occupancy should be no less than:
480 filled hours /6 hours / 5 days = 16 children a day
Or you need at least 16 children each day to cover your bills. If you have more than 16 children you will be in profit, with less than 16 children you will be at a loss.
However if you would prefer to see this in terms of 3 hour sessions as above then:
200 available sessions x 80 % occupancy = 160 sessions need to be filled
£1578.95 weekly costs / 160 minimum sessions = £9.87 per 3 hour session
Using this rate – our minimum occupancy should be no less than:
160 / 2 sessions / 5 days = 16 children a day
As can be seen you still need 16 a day to cover your weekly costs.
In other words, this nursery needs 16 children each day, paying £3.29 per hour, to make £1578.95 a week, to cover their weekly costs. anything above that is a profit, anything below this occupancy is a loss.
Obviously you will need to use your own figures to calculate your own occupancy levels and each time one of the factors change, you will need to recalculate this figure.
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