Before You Invest in Childcare – A Must-Read Article to Avoid Costly Mistakes

Childcare Market Analysis for Investors – (VIC)

Why Medium-Sized Centres Are Currently the Most Profitable Model

Childcare business is funded by the government. The early childhood education and care sector in Victoria remains a large and essential industry, serving children from 6 weeks to 5 years old, funded through parent gap fees and the Child Care Subsidy (CCS).

While the childcare industry continues to grow, market dynamics have shifted significantly in recent years, and seriously impact on investors’ decisions, particularly regarding centre size and profitability. Increasingly, medium-sized centres (around 25–80 places) outperform large centres (81–101+ places) in financial sustainability, occupancy, and resale value.

1. Typical Childcare Fees in Victoria

Average long day care fees in Victoria are approximately:

• $140 – $170 per child per day before CCS

For financial modelling we can assume:

Average fee used for modelling:
$150 per child per day

Operating days:

• ~260 days per year (5 days × 52 weeks)

Annual revenue per fully enrolled place:
$150 × 260 = $39,000 per place per year

2. Rental Costs in the Market

In Victoria, childcare rent is commonly calculated per licensed place.

Typical lease ranges:

Example Rent/annual Calculations

60-place centre

• $2,500 × 60

= $150,000 per year rent

120-place centre

• $4,000 × 120

= $480,000 per year rent

Large centres therefore carry more than 3× the rental burden.

3. Regulatory Staffing Ratios (Victoria)

Under the National Quality Framework educator-to-child ratios:

This ratio structure has a major financial impact on staffing requirements.

4. Staffing Requirements (Real Operational Model)

Typical Room Structure

Most long day care centres operate four age groups:

• Nursery: 0–2 years
• Toddler: 2–3 years
• Pre-Kinder: 3–4 years
• Kindergarten: 4–5 years

Each room normally has:

• 1 Room Leader
• Assistant educators

In addition, each centre must appoint an Educational Leader, who is usually a room leader or kindergarten teacher but requires 2–4 hours per week of non-contact programming time.

Operational Reality of Staffing

Two major factors increase staffing requirements:

1. Long operating hours

Most childcare centres operate approximately 12 hours per day (e.g., 6:30am–6:30pm). However, full-time educators typically work 7.6–8 hours per day.

Therefore centres must roster:

• Opening staff
• Mid-shift staff
• Closing staff

This requires additional educators beyond minimum ratios.

2. Programming and planning time

Under the National Quality Framework, room leaders and educational leaders must have time for:

• curriculum planning
• documentation
• family communication
• team meetings

Typically:

• Room leaders receive 2–4 hours per week off the floor
• Educational leaders receive additional planning time

When educators are off the floor, replacement educators must maintain ratios.

Example – Medium Centre (60 Places)

Typical age distribution

• 20 children under 3 years old
• 40 children over 3 years old

Minimum ratio calculation

Under 3
20 ÷ 4 = 5 educators

Over 3
40 ÷ 11 ≈ 4 educators

Minimum educators required for ratio at any moment:
9 educators

However, due to long operating hours, programming time, and staff breaks, centres typically require 30–40% additional staffing.

Realistic Staffing Structure (60 Place Centre)

Total staff:

15–16 employees

Explanation:

• 9 educators required for ratio
• +4–5 additional staff for shift coverage, breaks, and programming
• room leaders and educational leader receive non-contact planning time

This staffing level allows:

• compliance with ratios
• smooth opening and closing shifts
• staff breaks and programming time

Example – Large Centre (120 Places)

Typical age distribution

• 40 children under 3
• 80 children over 3

Minimum ratio calculation

Under 3
40 ÷ 4 = 10 educators

Over 3
80 ÷ 11 ≈ 8 educators

Minimum educators required for ratio:
18 educators

Again, because of 12-hour operation, planning time, and breaks, additional staff are required.

Large centres also require more management staff due to operational complexity.

Realistic Staffing Structure (120 Place Centre)

Total staff:

25–43 employees

Explanation:

• 18 educators required for ratios
• +7–15 additional staff for:
  • opening and closing shifts
  • programming time
  • lunch breaks
  • staff leave
  • management support

Key Operational Difference

Large centres therefore require roughly double the staffing costs, but occupancy is often extremely harder to achieve.

Operational Implication for Investors

Staff wages represent the largest cost in childcare operations, typically accounting for:

• 60–70% of total operating expenses.

Because large centres require:

• more educators
• additional management layers
• more relief staff
• High rent

their break-even occupancy is significantly higher.

This is a key reason why many large centres struggle to reach profitability unless enrolment exceeds 70–75% occupancy, while medium-sized centres can often become profitable at around 50–55% occupancy.

5. Wages – Market Estimates

Based on industry recruitment platforms and award rates, approximate annual employer costs:

Estimated Wage Cost

60 Place Centre

Total wages:

~$945,000 per year

120 Place Centre

Total wages:

~$1.9M per year

6. Other Operating Costs

Common expenses include:

• Public liability and professional insurance
• Utilities (electricity, gas, water)
• Food and kitchen supplies
• Nappies and wipes
• Cleaning chemicals and hygiene products
• Educational resources and toys
• Software systems
• Maintenance and repairs
• Training and compliance
• Accounting and administration

Typical estimate:

7. Revenue Comparison

For financial modelling purposes, we assume:

• Average childcare fee in Victoria: $150 per child per day
• Operating days: 260 days per year

Annual revenue per licensed place:
$150 × 260 = $39,000 per place

Medium Centre Example – 60 Licensed Places

Annual capacity revenue

60 × $39,000
= $2.34M

At 80% occupancy

$2.34M × 0.8
= $1.87M revenue

Estimated expenses

Rent
≈ $150k

Wages
≈ $950k – $1.05M

Other operating expenses
≈ $200k – $250k

Including:

• insurance
• utilities
• food supplies
• nappies and hygiene products
• cleaning services
• maintenance
• educational resources
• software systems
• administration and compliance costs

Total estimated costs
≈ $1.35M – $1.45M

Estimated annual profit
≈ $420k – $520k

A well-performing medium centre at around 80% occupancy can therefore generate $400k–$500k annual profit, which is considered strong performance in the current Victorian market.

Large Centre Example – 120 Licensed Places

Annual capacity revenue

120 × $39,000
= $4.68M

At 60% occupancy (60% is already a high performing center for large sized center)

$4.68M × 0.6
= $2.81M revenue

Estimated expenses

Rent
≈ $480k

Wages
≈ $2.0M – $2.2M

Large centres experience significantly higher staffing costs due to:

• higher minimum educator numbers
• more room leaders and bachelor-qualified teachers
• additional management roles
• the regulatory requirement that at least 50% of educators must be Diploma qualified or higher

This requirement substantially increases payroll costs, particularly for large centres with more rooms and more staff.

Other operating expenses
≈ $400k – $550k

Total estimated costs
≈ $2.88M – $3.23M

Estimated result

At 60% occupancy (can hardly reach), a 120-place centre is likely operating at break-even or a financial loss.

At 40–50% occupancy, which is common for many large centres in oversupplied markets, the business may experience significant annual losses.

8. Occupancy Required for Profitability

This difference is primarily driven by:

• Much higher rent per place
• larger staffing structures
• higher qualification wage requirements
• more complex operational management

As a result, large centres carry substantially higher financial risk.

9. Market Behaviour and Sale Prices

Many investors new to the childcare industry are confused about the selling price of a childcare business.

Childcare businesses are typically valued based on EBITDA multiples, commonly ranging between:

4–5 × annual profit

Example – Medium Centre

Annual profit:
≈ $450,000

Estimated valuation:
$450k × 4–5
= $1.8M – $2.25M

Example – Large Centre with Low Occupancy

Many large centres currently operating at 40–50% occupancy produce minimal or negative profit.

As a result, their sale price may be significantly lower, even that’s large sized center, but perform with loss, often selling:

$400k – $600k

Buyers understand that substantial time, marketing investment, and operational challenges will be required and faced after taking over a large sized center.

10. Why Medium Centres Are More Successful and Mostly Profitable

Several structural factors currently favour medium-sized centres in the Victorian market.

1. Lower rental exposure

Medium centres typically pay $2,000–$3,000 per place, while large centres often exceed $4,000 per place.

This creates a much heavier fixed cost burden for large services.

2. Easier occupancy growth

Filling 60 places is significantly easier than filling 120 or more places, particularly in competitive areas in VIC

3. Stronger family relationships

Many families prefer smaller centres where educators know the children and families personally very well through strong professional relationship, rather than large services where the environment may feel more institutional.

4. Lower staffing complexity

Managing 15-25 staff in a medium centre is operationally much simpler than managing 30-45 or more staff in a large service.

Staff turnover, recruitment, and compliance risks also increase significantly as centre size grows.

5. Word-of-mouth enrolment growth

Medium-sized centres often grow enrolments through community reputation and family referrals, which can be highly effective in building occupancy.

Large centres may require more significant marketing investment to achieve similar results also this is an additional cost with minor effects.

11. Current Market Reality in Victoria

Based on current market observations:

• 25–80 place centres reaching 60%–85% occupancy are typically extremely and highly profitable
• 81–101+ place centres often operate below 60%-70% occupancy with significant loss, no profits

As a result:

• profitable medium centres commonly sell for $1.5M – $2M+
• underperforming large centres may sell for $400k – $700k

despite being much larger physical facilities

Conclusion

Over the past 5–10 years, a lot of large childcare centres were developed across Victoria. At that time, the thinking was simple: build bigger centres, offer modern facilities, and enrol more children. But the market has changed significantly after overloaded large centers were developed in the market. Today, many experienced operators and investors are realising that medium-sized centres often perform far better financially than large centres.

When investors first look at opportunities in childcare, it’s very natural to be drawn to the big, new, beautiful centres. They look impressive — large buildings, modern playgrounds, stylish interiors. And sometimes the asking price may even look attractive compared with the cost to build it.

But this is where experience matters.

Very often weI see new and less experienced new investors looking at a 120-place centre that is only running at 40% occupancy. The common thought is: “If I buy this and bring the occupancy up to 70%, the profit numbers will look fantastic.” On paper, that sounds reasonable. In reality, it is much harder than it looks.

If experienced franchise operators with strong marketing systems are already struggling to fill that large sized centre, a new operator will usually face the same challenge — most of the time even more. Families nowadays no longer choose a childcare centre just because the building is new, or it looks big and luxurious. They learnt the negative feeling that their children experienced in the big centers before and now choose based on trust, reputation, educator relationships, and recommendations from other parents.

What can happen in these situations is that investors unknowingly buy what looks like a good deal and outlooking of the size or facilities but is actually a value trap. The centre looks modern and impressive, but with low occupancy and very high operating costs — rent, wages, utilities — the business starts burning cash from the first day you take over, mostly cannot even afford its own rent. And filling another 30 or 40 places is not something that happens overnight. It can take years, if it happens at all.

On the other hand, many smaller or medium-sized centres may not look very impressive when you first walk in. The building might be much older, the playground equipment might not be the newest. From an investor’s first impression, it might not feel exciting.

But how much would you spend on renovation for a small medium center, not much at all compared with a continually lost large sized center, instead, you start noticing something important.

You see parents chatting comfortably with educators at drop-off.

You hear families saying, “My older child came here, now my younger one is here too.”

You hear parents recommending the centre to friends.

These centres often have something that cannot be built overnight — community trust and reputation.

In a smaller centre, children are known personally by educators. Families feel their child is not just another number in a large industrial look center with facilities. Parents often say they prefer a place where their child does not feel lost in the crowd, where educators have time for real conversations and educational interactions with the children.

Because of that, these centres often grow through word of mouth. One happy family brings another family, and that family brings another. Over time, the centre becomes part of the community.

From an investor’s point of view, that means something very important: cash flow stability.

You may buy a medium-sized centre that already has good occupancy and a loyal family base. The building might need some refurbishment, maybe a bit of painting, new furniture, or playground upgrades — but those improvements usually cost far less than trying to fill 40 empty places in a large centre while paying high rent and wages every month.

In other words, you are not just buying a building. You are buying:

• a stable enrolment base
• a trusted reputation in the community
• and a business that can generate cash flow from day one

In our experience working with childcare operators and investors for more than a decade, the most sustainable and lower-risk investments today tend to be centres in the 25–80 place range.

These centres usually offer:

• more manageable staffing structures
• lower rent exposure
• easier occupancy growth
• stronger relationships with families
• and more stable profit margins

At the end of the day, successful childcare investment is not about buying the most beautiful building. It is about investing in a centre that families trust, educators want to work in, and the community continues to support