The Calculation Most Nursery Groups Have Never Done

Every nursery group in the country knows how much they receive for a funded hour. Very few know what it costs them to deliver one.

This is not a minor oversight. It is the single most consequential blind spot in the financial management of multi-site early years groups. And it explains why so many operators feel the tension between full settings, busy staff and a P&L that does not reflect the effort going in.

The funding rate is published. It is clear, it is known, and it arrives on time. The cost of delivering against that rate is not published, it is not clear, and most groups have never calculated it at setting level. The gap between the two numbers is where margin is made or lost. And because nobody measures it systematically, nobody manages it.

Why This Number Is Hard to Find

The cost per funded hour is not a number you can pull from a standard management report. It sits underneath the P&L, in the interaction between staffing ratios, room occupancy, qualification mix, session structure and the specific funding conditions of each local authority.

Consider a single setting delivering funded hours across two age bands, with three different local authority rates, variable staff deployment depending on the day of the week, and a fee structure that cross-subsidises funded sessions with paid sessions. The cost of delivering a funded hour in that setting is different on a Tuesday morning than it is on a Thursday afternoon. It is different for a two-year-old than a three-year-old. And it is different depending on which local authority is funding the place.

Now multiply that by 20 settings. Or 50. Or 100. The variability is enormous, and it is invisible to anyone looking at the group-level P&L.

What Happens When You Do the Calculation

In every margin diagnostic we have run, the funded hour economics have been the area that changes the conversation. Not because the numbers are surprising in aggregate, but because the setting-level variation is so much wider than anyone expected.

A typical finding: the cost per funded hour ranges from 85% to 115% of the funding rate across settings in the same group. Some settings are generating healthy margin on funded hours. Others are delivering them at a net loss. The difference is not random. It maps directly to staffing decisions, room configuration, session structure and local authority terms.

Once you can see this variation at setting level, the decisions that follow become much clearer. Which settings need their staffing model adjusted. Where the session structure is creating unnecessary cost. Which local authority negotiations should be prioritised. Which rooms are generating margin on funded hours and which are consuming it.

The Cross-Subsidy Question

Every nursery group runs cross-subsidies. Funded sessions are subsidised by fee-paying sessions. Morning sessions subsidise afternoon sessions. Younger age bands subsidise older ones, or vice versa. This is not inherently a problem. Cross-subsidies are a normal feature of any multi-product business.

The problem is when they are accidental rather than deliberate. When a group does not know the true cost of delivering a funded hour, it cannot design its fee architecture around it. The cross-subsidies are there by default, not by design. And they tend to compound over time as funding rates change, fee structures drift, and staffing patterns evolve without reference to the underlying economics.

The groups that manage this well can articulate exactly what each session type costs, how the fee structure compensates for below-cost funded provision, and where the overall margin comes from. The groups that don't are running on feel rather than data, and feel gets less reliable as the group grows.

What This Means for Boards and Investors

For PE-backed groups, the cost per funded hour is an EBITDA lever. If you can identify the settings where funded delivery is running above cost and adjust the model, the financial impact flows straight to the bottom line. In a group running 50+ settings, even a 5% improvement in funded hour efficiency across the underperforming tail represents a material EBITDA gain.

For owner-operators, the same data answers a simpler but equally important question: am I pricing my business correctly? If funded hours are being delivered below cost and the fee structure is not designed to compensate, the group is eroding its own margin every time it fills a funded place. Understanding this at setting level turns a general anxiety about margin pressure into a specific, actionable plan.

Starting the Calculation

The data already exists in every nursery group. Staffing rotas, room registers, qualification records, local authority funding schedules, fee tables, session structures. The problem is not data availability. It is the analytical framework that brings these data sources together into a cost-per-funded-hour model at setting level.

This is what our Margin Diagnostic does. Five areas of the P&L, examined at setting level, with funded hour economics as the starting point because it is the calculation that reshapes everything that follows. Two to four weeks. Fixed price. Board-ready output.

If you run a nursery group and you have never done this calculation at setting level, it is worth a conversation.