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.
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.
Family Child Care Provider Briefs
Why It Matters
Most states use a Market Rate Survey to determine the price of child care services. Studies have shown that for many child care businesses, the price of tuition does not reflect the cost of providing care. Many providers set tuition rates based on what local families can afford and may balance their budgets by offering low wages, or by not paying themselves.
Setting subsidy rates based only on price, without understanding costs, can perpetuate the underfunding of child care, especially in low-income and historically disenfranchised communities.
Our Approach
The approach we take for our studies is rooted in the experience and expertise of those who live and work every day in child care. The entrepreneurs running their businesses know the cost of doing business and how these amounts change. Our approach prioritizes provider input in the following ways:
- An advisory group of child care business owners guide the study
- Providers will have opportunities to ask questions, give input, and share concerns through community conversations which will be hosted across the state
- Providers can to contribute to the study through a short survey or private, one-on-one conversations
- FCF understands the sensitivity of business information and maintains high data security standards and commitment to provider privacy and confidentiality.
