Cost Modeling & Cost of Care Studies
Cost of care studies, sometimes called cost estimation models, explore the actual costs child care businesses experience when caring for children. Understanding the true cost of providing child care is critical to developing a child care system that meets the needs of children, families, and providers. First Children’s Finance can help government and Tribal systems think comprehensively about systems-level policies and funding that impact the sustainability of child care businesses.
Why Cost Modeling?
Cost modeling provides critical data to child care systems administrators and can inform strategic planning and budgeting, understanding of systems-wide costs, and subsidy rate setting, among other uses.
Most states now conduct cost studies in conjunction with market rate surveys/market rate studies (MRS) to inform child care subsidy rate setting. Cost of care studies are different from MRS in important ways. While the MRS provides information about the prices charged for child care services, a cost study focuses on the actual expenses associated with caring for children.
Studies show that for many child care programs, the price of tuition does not reflect the full cost of providing care, especially high-quality care. Most child care programs set tuition rates based on what local families can afford and rely on various cost-cutting measures to balance their budgets. Some cost-cutting strategies – such as depending on donated facility space, fundraising, or volunteer labor – limit child care supply in communities where these resources are not readily available. Other measures, such as offering low wages and few benefits to staff, limit child care supply and impact the quality of care.
The difference between child care price and child care cost is experienced inequitably. Setting policies like subsidy payment rates based only on price, without understanding costs, can perpetuate underinvestment and inequity.
Our Approach
First Children’s Finance has developed an approach to cost studies that is guided by the goals of the client and the experience of child care businesses. We build deep understanding of the priorities, questions, and uses that systems leaders have for their cost studies. This end use informs each step of study design and model development.
The approach we take for our studies is rooted in the experience and expertise of those who live and work in child care every day. Entrepreneurs know the cost of doing business and how these amounts change. FCF has decades of experience working with child care businesses that guides our modeling work. As is appropriate for each project, our approach prioritizes child care program experience through:
- An advisory group of child care business owners that guide the study
- Direct engagement with child care providers with opportunities to ask questions, give input, and share concerns
- Data collection directly with child care programs to inform cost models
FCF understands the sensitivity of business information and maintains high data security standards and commitment to provider privacy and confidentiality.
Examples of Our Work
Current Projects
Vermont: FCF is currently partnering with the Vermont Department for Children and Families (DCF) to update their cost models. Check back for opportunities to inform the Vermont Cost Study in 2025 & 2026!
Minnesota: FCF will be updating the 2023 cost models with the Department of Children, Youth and Families (DCYF). Provider engagement and data collection will be launching in 2025.
Past Cost Models
Minnesota: In fall 2023, DCYF released the 2023 Minnesota Child Care Cost Modeling Report, completed by First Children’s Finance. This report calculates how costs for providing care varied based on the age of children served, geographic location, license type, and quality of care. DCYF will use the study to explore new approaches to setting Child Care Assistance Program (CCAP) payment rates. This study predates the 2023 legislative directives to develop potential plans to set CCAP rates using the cost model. This study serves as a foundation for future iterations of the cost model, which will be updated and adapted to meet this directive.
What are Provider Briefs?
FCF has developed a provider brief to share some of what we learned in the Cost of Care study. These briefs summarize business data analyzed throughout the study and outline key findings and average costs for family child care providers.
FCF has developed a provider brief to share some of what we learned in the Cost of Care study. These briefs summarize business data analyzed throughout the study and outline key findings and average costs for family child care providers.
