Why Do Daycares Use Waitlists Instead of Raising Prices to Meet The Demand?

[Alwaysgreener]

I'm not waiting for an opening right now, but I would have to be if I decide to have a child in Seattle. I'm also surrounded by people who've recently moved to the city and are struggling to find daycare.

This isn't an issue when it comes to other expenses: for example its fairly easy to find a property to buy/sell, although it's very expensive compared to the rest of WA state. And there aren't queues in IKEA for baby cribs or other child expenses

So is that what is bothering you? That you feel waitlist as turning children into names, not numbers? I get that, I would never want to feel like my child was a number to her teacher. (although they are assigned a number every year)

Well, it sounds like you may be very passionate about this, my question is, outside of posting here, what is your next step to fix the problem that you are seeing?

Others have suggested that you write the lawmakers, is that what you are planning on doing?

[Snowmom]

The need would still be there, but you won't have to wait for it. Just like you can always buy a plane ticket for Christmas, even if it costs a lot more than on other days. Likewise it is easy to buy a house in Seattle, although you need a lot of money to afford one.



Having a long waiting list means parents who both want to work full-time are unable to do so, even if they have the funds to pay for childcare. I personally know people who are struggling with this issue. Increasing the price would increase the profitability of daycares and make access to their services easier to plan for.



It is easy to demonstrate why this is true with an exaggerated example. Let's say you increase your daycare price to $100,000 per week. At those rates only someone like Bill Gates would be able to afford it and the waitlist would be gone. Obviously you can't charge $100k per week, but there is always a price point at which the waiting list would become minimal without hurting your profitability. In economic theory this is referred to as the "supply and demand" curve.



I completely agree that overregulation is the root cause of the daycare deficit! However that doesn't explain the business practices of daycares in the existing legal environment

Ok, let's break this down into real-world.

Your supply and demand theory is seriously flawed when it comes to this particular issue (waitlist) and this industry.

Let's pretend for a moment that Provider Amy does as you suggest and raises her rates- double what she currently charges. She lets everyone on her waitlist know that's what she's doing.
Likely, nobody on her waitlist will drop because they are not currently paying her that rate until they enroll. They will wait to make that decision until they know if they have a spot.

Provider Amy then lets her current clients know she's doubling their rate. For argument's sake, let's say 3/4 of them can't afford that and leave.
Amy then goes through her waitlist only to find that 1 of them will pay double fees.... she's not making any additional profit with this new fee.
She's lost 3/4 of her clients who used to pay reasonable fees and only gained one who pays more.
She's now working TWICE as hard in the future to find those clients who will fill those premium $ spots, because those clients are few and far between. She also takes a higher risk when those clients leave for the inevitable name brand preschools (the spots will be vacant-making $0).

While those spots are vacant- insurance and utilities are still due, licensing costs money and zero is being contributed to her retirement funds.

Had she kept her reasonable fee, her clients likely stay longer in the long run (in-home typically costs less than centers and less than formal preschools), which means less turn over, less advertising, less effort and supplies used to fill vacant spots (that again- make $0). She would also be making a nominal fee from waitlists (IF she charges one) and again, working less to fill spots when children age out or leave. Job security.

Sure, your waitlist may be gone but Provider Amy did not profit and works harder to find the $ in the haystack. You may think that "well, when the clients DO come, there won't be a wait for them". True. But Amy took a loss waiting for them.

There are so many behind the scenes intricacies of this business that so many outsiders don't realize.

[Myst_Seattle]

Let's pretend for a moment that Provider Amy does as you suggest and raises her rates- double what she currently charges. She lets everyone on her waitlist know that's what she's doing.
Likely, nobody on her waitlist will drop because
Provider Amy then lets her current clients know she's doubling their rate. For argument's sake, let's say 3/4 of them can't afford that and leave.
Amy then goes through her waitlist only to find that 1 of them will pay double fees.... she's not making any additional profit with this new fee.
She's lost 3/4 of her clients who used to pay reasonable fees and only gained one who pays more.

Thank you for the response, now we're finally getting to a real answer So you're saying people won't drop off the waitlist but would refuse the spot eventually and leave you with no clients in the end? Or in other words daycare providers don't have a stable supply of customers and prefer a long waitlist to maintain job security?

However your example is flawed as it represents a bad business practice. Real life businesses do this differently:

1. You start with a price of $100/week and a waitlist of two years
2. You keep the same price for existing customers but raise the price for anyone joining next year to $120
3. As you go through the waitlist it shortens and now your waitlist is 1.5 years long
4. Next year you raise your price for new customers by another 20% to $150
5. After going through the waitlist you've now shortened it to 1 year only and stop raising your fees

That's how my local barbershop which suddenly became very popular did this. I still pay the same fee as I did a few years back, but new customers have to pay 50% more. They are now considering increasing the price even more, as they still have more customers than they can handle.

An alternative option is to have a fee to skip the waiting list. So for say $5000 you'd get to be the first family to get offered a spot. That's how Disneyland works - if you stay at their very expensive hotels you get to skip some of the lines. This is also how airports work - if you buy a business class ticket you can skip the regular line to the security check.

[Cat Herder]

Real life businesses do this differently:

No.

Real-life business owners do whatever they want.

How long have you owned and operated your own business?

[Myst_Seattle]

No.

Real-life business owners do whatever they want.

How long have you owned and operated your own business?

Obviously they do! If they didn't, I would have been here asking this question However I'm curious why they do this - both small daycare centers and large corporations like Bright Horizons. Daycare represents one of the few examples of hard to get products in the Western world and is therefore a curiosity.

I don't run a daycare myself but my family runs assisted living facilities so I'm well familiar with what service providers have to deal on a daily basis.

[Rockgirl]

Thank you for the response, now we're finally getting to a real answer So you're saying people won't drop off the waitlist but would refuse the spot eventually and leave you with no clients in the end? Or in other words daycare providers don't have a stable supply of customers and prefer a long waitlist to maintain job security?

However your example is flawed as it represents a bad business practice. Real life businesses do this differently:

1. You start with a price of $100/week and a waitlist of two years
2. You keep the same price for existing customers but raise the price for anyone joining next year to $120
3. As you go through the waitlist it shortens and now your waitlist is 1.5 years long
4. Next year you raise your price for new customers by another 20% to $150
5. After going through the waitlist you've now shortened it to 1 year only and stop raising your fees

That's how my local barbershop which suddenly became very popular did this. I still pay the same fee as I did a few years back, but new customers have to pay 50% more. They are now considering increasing the price even more, as they still have more customers than they can handle.

An alternative option is to have a fee to skip the waiting list. So for say $5000 you'd get to be the first family to get offered a spot. That's how Disneyland works - if you stay at their very expensive hotels you get to skip some of the lines. This is also how airports work - if you buy a business class ticket you can skip the regular line to the security check.

You know, it sounds like you have it all figured out, so go for it! Put these ideas into practice and open a daycare! Another quality daycare will surely help shorten a few waiting lists.

[Myst_Seattle]

You know, it sounds like you have it all figured out, so go for it! Put these ideas into practice and open a daycare! Another quality daycare will surely help shorten a few waiting lists.

I'm not trying to convince anyone I know more about their business than they do! Obviously I don't know jack about how to run a daycare. Otherwise I wouldn't be here asking the sages of Daycare.com for their opinion.

All I'm asking is why daycare businesses follow an unusual pricing strategy. So far the answer seems to be "because daycares are extremely risk averse and prefer having very long waiting lists instead of trying to maximize their long term revenue".

[Cat Herder]

Have you ever worked overtime and had your check come out to less than if you just worked your normal schedule?

[Snowmom]

Thank you for the response, now we're finally getting to a real answer So you're saying people won't drop off the waitlist but would refuse the spot eventually and leave you with no clients in the end?
Or in other words daycare providers don't have a stable supply of customers and prefer a long waitlist to maintain job security? No, I'm saying with your approach, there is no money. While yes, job security is important to absolutely everyone who HAS a job, maintaining profit along with longevity is the goal.

However your example is flawed as it represents a bad business practice. The example I gave is what would happen with YOUR approach. YOUR approach is what's bad business practice because it leads the provider down a path of more work, less profit.
Real life businesses do this differently:

1. You start with a price of $100/week and a waitlist of two years
2. You keep the same price for existing customers but raise the price for anyone joining next year to $120
3. As you go through the waitlist it shortens and now your waitlist is 1.5 years long
4. Next year you raise your price for new customers by another 20% to $150
5. After going through the waitlist you've now shortened it to 1 year only and stop raising your fees

Most daycares already raise their prices for new clients, so your point is moot.
As long as there is a shortage of providers, nothing changes the wait for a daycare. Price gouging only shifts the wait to other daycares. But hey, it's not illegal in your state (although it is in others).

That's how my local barbershop which suddenly became very popular did this. I still pay the same fee as I did a few years back, but new customers have to pay 50% more. They are now considering increasing the price even more, as they still have more customers than they can handle.

An alternative option is to have a fee to skip the waiting list. So for say $5000 you'd get to be the first family to get offered a spot. That's how Disneyland works - if you stay at their very expensive hotels you get to skip some of the lines. This is also how airports work - if you buy a business class ticket you can skip the regular line to the security check.

^ THAT is actually not a bad idea, although considered unethical in our line of work. However, in my experience, the clients who have the most money, aren't always the best ones. But for $5000, I'd consider it.

Replied above

[Myst_Seattle]

Price gouging only shifts the wait to other daycares. But hey, it's not illegal in your state (although it is in others).

THAT is actually not a bad idea, although considered unethical in our line of work. However, in my experience, the clients who have the most money, aren't always the best ones. But for $5000, I'd consider it.

Got it. So essentially daycares are trying to avoid being accused of unethical behaviour and thus losing clients in the long term. Otherwise everyone would maximize their prices or charge fees to skip the waitlist. This pretty much answers my original question.

[jenboo]

Got it. So essentially daycares are trying to avoid being accused of unethical behaviour and thus losing clients in the long term. Otherwise everyone would maximize their prices or charge fees to skip the waitlist. This pretty much answers my original question.

My question is, where are all of these families going who are now priced out of the waitlist?

[Snowmom]

Done.

[Myst_Seattle]

My question is, where are all of these families going who are now priced out of the waitlist?

In Seattle the average daycare price is somewhere around $2000/month which already prices out a large percentage of families. People deal with in various ways, just like my grand grandparents dealed with their children back in the day when daycare was not as common

[e.j.]

In Seattle the average daycare price is somewhere around $2000/month which already prices out a large percentage of families. People deal with in various ways, just like my grand grandparents dealed with their children back in the day when daycare was not as common

It sounds as though you've just disproved your own theory. From what you've just said, Seattle providers have already raised their rates to the point where a large percentage of families can't afford care and yet, there are still long waiting lists that still exist. Once day care becomes too expensive, you're right...many people will decide to stay home and raise their own kids. Working won't be a viable choice for them. That won't result in shorter waiting lists. They will still exist because most of the providers who exist currently will have priced themselves out of business. Fewer providers doesn't equal shorter wait lists for the parents who still need/choose to work.

[LostMyMarbles]

Wait list are needed due to the child care need/ provider ratio. The are more children than providers. The only thing that could change that is birth control or more providers.