Planning for the Minimum Wage Increase in the Early Education Industry
As an owner, or someone on the management team, you know that payroll costs are the single largest expense for any childcare center or preschool. With President-Elect Joe Biden calling to raise federal minimum wage to $15/hour in his stimulus plan speech last night (January 14th, 2021), many owners are concerned about this potential wage hike. It is difficult to keep your business running profitability when there are unexpected increases to expenses without an increase in revenues. To help offset the added expense of a federal or state wage increase, we have provided a few options that may be able to help!
1. Determine the businesses full payroll expense under the new minimum wage requirements. Do the math, determine each employee’s total salary based upon projected hours worked and subtract that by what they would earn for the same about of hours at their current rate. The sum of the difference for each employee will be a majority of the total additional wage expense incurred and will be the amount you need to supplement going forward to keep profits from declining.
2. Raising your rates. Raising rates is where most of the additional wage expense will be made up. Parents are going to be aware of the raise in minimum wage rates so a raise in tuition rates shouldn’t come as a shock. Depending on your demographic, it may be more difficult if parents are on a tight budget. Rather than 1 rate increase to cover the additional expense, break up the rate increase into multiple, small quarterly or bi-annually increases to help parents adjust. In addition, you can charge fees for new student registration, ancillary programs, field trips, supplies, etc.
3. Offer referral discounts/refer-a-friend program. Adding additional enrollment not only strengthens the overall business, it will also provide additional revenue to help cover added expenses. This method of marketing will also only cost you when you have a new enrollee, rather than purchasing adds that may not reach your target demographic. Offering a few a week’s tuition for new enrollees or those who bring in a new student is a small price to pay for continues revenue from a new student.
4. Ensure you are getting the best price from your vendor. More often than not, owners haven’t revisited their vendor contracts since they entered the relationship. Vendors will raise rates over time and with all the technology available today, you have a lot of options to choose from, competition leads to better prices for the consumer. Do some research and talk with other owners in the industry for vendor recommendations, shopping vendors can lead to immediate and often significant savings.
5. Discuss with the staff and ask their suggestions to reduce costs. Your teachers and staff are the most hand in the day-to-day business and most likely to have a few ideas. Perhaps offer an incentive or bonus for those who come up with a successful way to save the business money.
6. Take a deep breath. The best business owners are those who don’t stress about things that are out of their control. If your state or the federal government raises the minimum wage, take a deep breath and start working on ways to supplement that additional expense. This will simply be a bump in the road as it takes time to see results from implementing new strategies.
Even if the minimum wage isn’t raised in your state for months, or possibly even years, it is always smart to make sure your business is operating as efficiently as possible. With the tips above, the team here at SchoolWise Partners hope we gave you some ideas to think about and help prepare for a minimum wage increase.