Understanding the financial model of a childcare centre is not optional for anyone managing one seriously. Whether you are an owner-operator, an investor reviewing an acquisition, or a management company overseeing a portfolio, the numbers determine whether the service is viable — and they do not forgive mismanagement.

This article outlines the key financial metrics for a centre-based long day care service and what they look like when a service is performing well versus struggling.

Revenue: how a childcare centre makes money

A childcare centre's revenue is driven by three variables: licensed capacity, occupancy rate, and daily fee (or hourly fee rate). Understanding the interplay between these three is the starting point for any financial analysis.

Revenue per licensed place per year is a useful benchmark. At a daily fee of $150 for 250 operating days, a fully occupied place generates $37,500 per year. At 85% occupancy, that drops to $31,875. At 75%, it drops to $28,125 — a 25% revenue reduction that directly impacts whether the fixed cost base is covered.

As of the December 2025 quarter, the national average long day care hourly fee was $14.40 per hour (approximately $144 for a 10-hour session), with year-on-year fee growth of 4.6%. Fees vary significantly by location, with metropolitan centres in high-income catchments typically charging well above the national average.

The government's CCS hourly fee cap sets the ceiling above which the subsidy is not calculated, which limits the effective out-of-pocket cost for families but also constrains fee setting for operators targeting CCS-eligible families. As of December 2025, 61.1% of centre-based day care services had average hourly fees at or under the fee cap.

The cost structure

The cost structure of a long day care service is dominated by one line item: staff.

Labour — salaries, on-costs, and agency or casual labour — typically represents 60–75% of revenue in a well-managed service. This is not a target to minimise without limit; the staffing ratios required by the National Regulations (1:4 for under-2s, 1:5 for 2–3s, 1:11 for 3+) set a floor that cannot be reduced without breaching compliance.

The remaining cost categories:

  • Rent/occupancy costs: typically 10–15% of revenue, though this varies significantly depending on whether the property is owned or leased and the lease terms
  • Food, consumables, and educational resources: typically 5–8% of revenue
  • Administration and management fees: variable — internal for owner-operators, explicit for managed services
  • Insurance, utilities, maintenance: typically 3–6% of revenue

The occupancy breakeven

Every childcare centre has a minimum occupancy level at which it covers its variable and fixed costs. For most services, this breakeven is in the range of 70–80% of licensed capacity, but the specific number depends on the fixed cost base relative to capacity.

A large-capacity service (90–130 places) typically has better unit economics than a small service (50–60 places) because the fixed costs (rent, management, administration) are spread across more revenue-generating places. This is one reason the sector has consistently moved toward larger purpose-built facilities — a 130-place centre at 85% occupancy generates significantly more EBITDA than a 60-place centre at the same occupancy percentage.

The EBITDA margin benchmark

Earnings before interest, tax, depreciation, and amortisation (EBITDA) as a percentage of revenue is the primary profitability metric used for childcare centre valuation. A well-run, stabilised service typically achieves an EBITDA margin of 15–25% of revenue after a market-rate director salary.

Services below 10% EBITDA margin — after appropriate salary adjustments — are usually carrying at least one of the following: below-market occupancy, above-market labour costs (often from excessive agency/casual usage), or below-market fees relative to their cost base.

Valuations in the Australian childcare sector are typically expressed as a multiple of EBITDA, with multiples for stabilised, quality-rated services having ranged from 5x to 8x+ in recent years depending on size, location, quality rating, and lease terms. These multiples should be treated as approximate guides — professional valuation advice is essential for any material transaction.

Cash flow timing and CCS payments

One operational complexity specific to childcare finance is the timing of CCS payments. Services claim CCS fortnightly through their Child Care Management System. Payment timelines and reconciliation can create cash flow timing differences that require working capital management, particularly for growing services or those with high CCS-dependent enrolments.

Payroll, by contrast, is typically weekly or fortnightly — so the mismatch between when labour costs are incurred and when subsidy revenue is received needs to be managed actively, particularly in the first year of operation for a new or recently acquired service.

Key financial ratios to monitor

  • Labour as % of revenue: target 60–70%; above 75% suggests occupancy is too low relative to staffing, or the staffing model is over-rostered
  • Revenue per licensed place: compare actual to maximum theoretical to identify occupancy gaps
  • EBITDA margin: 15–25% after market-rate management salary for a stabilised service
  • Gap fee collection rate: the percentage of invoiced gap fees actually collected; persistent shortfalls indicate accounts management issues

The Department of Education publishes quarterly CCS data reports with national average fee and utilisation data. IBISWorld produces annual industry reports on the childcare sector including revenue and margin benchmarks.