Running a Profitable Preschool in an Increasingly Competitive Texas Market

For many years, a well-located preschool with a good reputation could remain successful without being particularly aggressive about marketing, enrollment, staffing, or financial management. In many Texas markets, those days are disappearing.   Private preschools today are competing for children from multiple directions. Public school districts are expanding programs for three- and four-year-olds. School districts are also keeping more elementary-age children on campus through after-school programs. Organizations such as the YMCA and Boys & Girls Clubs compete for school-age children, often at prices that a private, tuition-based preschool cannot match. And, of course, every preschool still competes with other private childcare centers, church programs, Montessori schools, franchise schools, in-home providers, and other alternatives.   The result is simple: running a good preschool is no longer enough. You also have to run a good business. And for a for-profit preschool, success ultimately has to include profitability.  

Enrollment Must Be Managed Every Day

The single biggest mistake we see owners make is assuming enrollment is something that simply happens. It doesn't.   Enrollment needs to be managed just like sales in any other business. Texas Workforce Commission resources for childcare operators emphasize what is sometimes called the childcare industry's "Iron Triangle": full enrollment, full fee collection, and revenue that adequately covers the cost of caring for each child. TWC even suggests that operators establish realistic enrollment targets rather than simply looking at licensed capacity.   Every owner should know, at minimum:

• Licensed capacity
• Current enrollment
• Enrollment by classroom
• Available openings by classroom
• Tours scheduled/completed
• Applications received
• Children leaving
• Children expected to age into another classroom

  Don't wait until enrollment drops 15% to start marketing. Your director should be able to tell you every Monday morning exactly where enrollment stands and where the holes will be 30, 60, and 90 days from now. An empty classroom seat is perishable inventory. You cannot sell yesterday's unused childcare capacity tomorrow.  

Stop Trying to Compete With "Free"

A private preschool generally cannot win a price war against a taxpayer-funded public school program.   So don't fight that battle. Instead, answer a much more important question:   Why should a family pay us when another option costs substantially less—or nothing? Your school needs a compelling answer.   It might be longer operating hours, smaller classes, lower child-to-teacher ratios, continuity of care, better communication, convenience for working parents, stronger academics, enrichment programs, meals, transportation, summer programs, extracurricular activities, exceptional teachers, superior facilities, or simply a warmer and more personal environment.   Whatever your advantages are, parents need to understand them. A private preschool needs to sell value, not just childcare.  

Convenience Is a Competitive Advantage

Working parents don't necessarily organize their lives around the school day. That creates an opportunity.   If public Pre-K ends in the middle of the afternoon, what happens until parents gets off work? What happens during school holidays, teacher workdays, spring break, Christmas break, and summer? Instead of viewing public schools only as competitors, look for the gaps they create.   Transportation, after-school care, holiday camps, summer programs, drop-in care, extended hours, and programs designed specifically around working parents can become important revenue sources. Make your preschool the easiest solution for a working family.  

Your Director May Be Your Most Important Employee

A preschool owner cannot personally solve every problem. A strong director should be able to manage staff, parents, licensing, enrollment, tours, collections, scheduling, and day-to-day operations while maintaining the culture of the school.   Owners should therefore ask themselves an uncomfortable question: If I disappeared for 30 days, what would happen?   If enrollment would decline, employees would leave, parents would become unhappy, and bills would stop getting paid, you don't own a self-sustaining business—you own a job.   Develop your director. Give that person measurable goals. Create systems and accountability. A strong management team doesn't just improve profitability today. It can also significantly improve the attractiveness of the business when it is eventually sold.  

Labor Has to Be Managed as Carefully as Enrollment

Payroll is generally one of the largest expenses in a preschool. You obviously must maintain required ratios and provide quality care. But there is an enormous difference between appropriate staffing and inefficient staffing. Owners should continually compare staffing levels with actual attendance and enrollment.   If enrollment falls, payroll cannot remain structured as though every classroom is full indefinitely.   That doesn't mean cutting teachers indiscriminately. It means intelligent scheduling, cross-training, using floaters effectively, managing overtime, combining groups when legally and operationally appropriate, and scheduling employees around actual demand.   A preschool can be busy every day and still lose money. Busy and profitable are not the same thing.  

Know Which Children and Classrooms Actually Make Money

Owners frequently know their total monthly revenue but don't know their economics by age group. That needs to change.   Calculate revenue and direct labor requirements for infants, toddlers, twos, threes, fours, and school-age children. You may discover that one program produces excellent margins while another barely covers its costs. That information should influence tuition, staffing, marketing, classroom configuration, and future expansion.   Texas also has programs that may be worth evaluating. For example, Texas Rising Star provides enhanced reimbursement rates at higher certification levels for eligible programs serving children through Child Care Services, along with mentoring and other resources. Three- and Four-Star programs may also be eligible for public pre-K partnerships.   The point isn't that every program is right for every school. The point is that owners need to understand every potential revenue source available to them.  

Marketing Is No Longer Optional

If your marketing strategy is putting a sign in front of the building and waiting for the telephone to ring, you are putting your business at risk. Successful schools need a repeatable enrollment system. That includes a strong website, Google presence and reviews, social media, community involvement, referral programs, relationships with nearby employers and neighborhoods, prompt responses to inquiries, professional tours, and systematic follow-up.   Most importantly, answer the phone. A parent looking for childcare may call five schools in an afternoon. If your school doesn't answer or takes two days to return the call, another center may enroll that child before you ever speak with the parent.   Treat every inquiry like a valuable sales lead—because it is.  

Retention Is Just as Important as Enrollment

Replacing a child who leaves costs money. Talk to parents. Survey them. Watch online reviews. Address complaints quickly. Communicate frequently.   And don't forget employee retention.   Parents develop relationships with teachers. Constant teacher turnover can become parent turnover. Competitive compensation matters, but culture, management, recognition, scheduling, training, and working conditions matter too. The goal should be to create a school where good teachers want to work and families want to stay.  

Know Your Numbers

Every preschool owner should receive timely financial statements and understand them.   At minimum, it's important to monitor:

• Revenue
• Payroll Percentage
• Occupancy Cost
• Food Cost
• Enrollment Percentage
• Tuition Collection
• Marketing Expense
• Operating Profit

  Don't wait until tax-return time to discover whether you made money. A $1.5 million preschool generating $50,000 of owner benefit is not performing well simply because it has substantial revenue.   Revenue may impress people. Profit creates value.  

Be Willing to Change—or Consider Selling

The Texas preschool industry is changing. Owners who operated successfully for the last 20 years cannot assume that the same business model will work for the next 10.   The successful private preschool of the future will be professionally managed, financially disciplined, aggressively marketed, properly staffed, differentiated from public alternatives, and relentlessly focused on enrollment and customer service.   That requires work.   Some owners will embrace that challenge and build stronger, more profitable schools. Others may be tired. Perhaps you've operated your school for 20 or 30 years. Maybe you don't want to learn digital marketing, constantly recruit teachers, monitor enrollment every week, adjust programs, compete against government-funded alternatives, and continually change the way you've always done business.   There is nothing wrong with making that decision. But doing nothing is also a decision—and potentially an expensive one. If you are no longer willing to make the changes necessary to operate a profitable preschool, this may be the right time to consider selling while the business still has value.   At Gateway School Sales, we specialize in helping preschool and childcare owners understand the value of their businesses and navigate the confidential sale process. We understand childcare financials, real estate, licensing, financing, buyers, and the unique challenges involved in selling a preschool.   Whether your goal is to make your school more profitable and continue operating it for years to come—or begin planning your exit—the first step is understanding where your business stands today.   In today's market, standing still isn't really standing still. Your competitors are moving. The question is whether you're going to move with them.