The short answer: pricing a placement to make a margin
The fee that makes a margin is the one built from your own numbers: take the home's true weekly running cost, divide it by the beds you can realistically keep filled across a year, add a void allowance for the empty ones, then add the margin you want. That gives you a floor. Only after you have that floor do you look at what the market is paying, and decide whether to sit above it, on it, or walk away from a placement that will not cover the wages.
Most owners do the opposite. They hear that a nearby home is charging £4,500 a week for a similar placement, quote something close to it, and assume a busy home must be a profitable one. It often is not. A children's home is a high fixed-cost business, and the single biggest cost, the staffing rota, barely moves whether a bed is full or empty. So a fee that looks healthy against the market can still leave you short every week once voids and a wage rise are in the picture. If you want the wider financial picture for an Ofsted-registered setting, our children's home accountants page covers registration, payroll and monthly reporting alongside fee modelling.
The rules that shape all of this are not optional. You cannot operate a children's home in England without registering with Ofsted first, and once registered you run under The Children's Homes (England) Regulations 2015, which set the quality standards, including a leadership and management standard requiring the home to have sufficient staff to care for each child. That standard is what makes staffing the cost it is, and why fee-setting has to start there rather than with the market rate.
Cost-plus or market rate: which one sets the fee
Both matter, but only one sets your floor. Cost-plus tells you the lowest fee that keeps the home solvent. The market tells you the ceiling a placing authority will realistically pay. A sustainable fee lives between the two, and if your cost-plus floor sits above the local market ceiling, that is not a pricing problem to fudge, it is a signal that the placement, or the cost base, needs to change.
Start with cost-plus because it is the part you control. You need three things: an accurate weekly running cost for the whole home, an honest view of the occupancy you can sustain, and the target margin you are pricing for. Get those from real figures, not a spreadsheet of guesses. This is exactly where monthly management accounts earn their keep, because they turn the bank statements and payroll runs into a live cost per occupied bed you can actually price against, month after month.
For the market side, the most reliable public benchmark is still the Competition and Markets Authority's 2022 children's social care market study. It found the average children's home price rose from £2,977 to £3,830 a week between 2016 and 2020 across the largest providers, an average real increase of about 3.5 percent a year, while those providers earned an average operating margin of 22.6 percent over the period. Two things follow from that. First, the headline £3,830 is a 2020 figure and predates two big rounds of wage rises, so a current cost-based fee will usually sit well above it. Second, the 22.6 percent margin belonged to large, well-occupied groups, not a single home running at 80 percent, so do not treat it as a target you are entitled to.
The weekly fee build-up, line by line
Here is the build-up worked through for a single occupied placement in a four-bed home, using a mid-range fee of £4,800 a week. The point of the exercise is not the exact pounds, which vary by region and need, but the shape: where the money goes, and how little of it is left at the end.
Staffing is the first and largest line. Once you add care staff on shift, waking nights, sleep-ins, agency cover for gaps, the registered manager, and employer's National Insurance and pension on top, staffing typically runs at 55 to 65 percent of the fee. In this model it is 57 percent, or £2,736 of the £4,800. The registered manager and wider management sit at around 12 percent, premises and maintenance at 11 percent, food, activities and education at 6 percent, and insurance, Ofsted fees, training and compliance at 5 percent. What remains, the surplus you are actually pricing for, is 9 percent, or £432 a week.
Look at that green slice and the whole business becomes clearer. A 9 percent surplus on a £4,800 fee is £432 a week per bed, but that number only holds if the bed stays full. The moment it empties, you lose the whole £4,800 of revenue and keep almost all of the £2,736 of staffing, because the rota still has to be covered for the children who remain. That is the trap the market-rate approach hides, and it is why the next number, break-even occupancy, matters more than the fee itself.
Break-even occupancy: the number that decides it
Break-even occupancy is the percentage of beds you must keep filled just to cover costs, and in a children's home it sits high because the costs barely flex. Split the home's weekly cost into a fixed part and a variable part. The fixed part, the staffing rota, the manager, the rent or mortgage, insurance and compliance, runs at about £15,000 a week whether one bed or four are filled. The variable part, the food, activities, education and personal spending that follow each child, is about £600 a week per occupied bed.
Now the arithmetic writes itself. Each filled bed brings in £4,800 and costs £600 to serve, so it contributes £4,200 towards the £15,000 of fixed cost. Divide £15,000 by £4,200 and you need 3.57 beds filled to break even. Round it up and a four-bed home has to keep about 3.6 of its 4 beds occupied, close to 89 percent, before it makes a penny. Three filled beds is a £2,400 weekly loss. Two is a £6,600 weekly loss. The chart below plots that as a monthly figure.
This is the operator insight nobody puts on a rate card: your fee is charged per child, but your cost is carried per rota. An empty bed does not save you a carer, because the two or three staff on shift are there for the children who remain. So the void does not shave a slice off your costs, it deletes a whole placement's income while the wages carry on. Price as if every bed will always be full and one quiet quarter can wipe out a year of surplus.
Void allowance and the staffing pass-through
Two adjustments turn a fragile fee into a durable one: a void allowance and a staffing pass-through. Both come straight out of the numbers above, and both are the parts owners most often leave out.
The void allowance is simply the recognition that you will not run at 100 percent. If your realistic sustainable occupancy is 85 percent, then you should spread the fixed cost across 85 percent of your beds when you price, not across all of them. In the four-bed model, pricing the £15,000 of fixed cost across 3.4 filled beds rather than 4 lifts the fixed-cost recovery per bed from £3,750 to about £4,410, and that difference is your void cushion. It feels like charging more for the same room. It is really charging enough that the funded beds carry the empty one through a normal year.
The staffing pass-through matters because staffing is 57 percent of the fee and the wage floor keeps rising. The National Living Wage rose to £12.71 an hour from April 2026, a 4.1 percent increase for staff aged 21 and over. If more than half your fee is wages and your wages climb 4 percent while your fee stays flat, your margin does not hold, it shrinks every April. So build an annual uplift into the placement agreement, tied to the wage floor and to inflation, rather than absorbing the rise and hoping to renegotiate later. The regulations give you the backing for the cost: the Department for Education's guide to the children's homes regulations, including the quality standards, requires sufficient, suitably qualified staff and a registered manager holding a Level 5 diploma, which is precisely why you cannot thin the rota to protect a fixed fee.
Negotiating the fee with the placing authority
Negotiation goes better when you arrive with a cost model instead of a demand. Local authorities place children and hold the budget, and they will benchmark hard, often to older averages like the CMA's £3,830 a week, because that helps their position. Your job is not to argue the rate in the abstract. It is to show, line by line, what this placement costs to deliver safely under the quality standards, and to let the numbers make the case.
Three moves help. First, quote the current cost stack, not last year's, so the wage floor and inflation are visible rather than assumed. Second, price the specific placement: a child needing two-to-one support or waking-night cover costs far more than the baseline model, and that should be itemised, not buried in an average. Third, build the annual uplift into the agreement at the outset, so you are not returning cap in hand every spring. A home that can evidence its break-even occupancy and its staffing pass-through is negotiating from data, and that is a far stronger place to stand than a home quoting a round number it hopes will hold. Owners who want to see how uplift negotiation plays out over a full cost cycle can read our note on the cost of care model and fee uplift negotiation, and if voids are the recurring problem, our piece on occupancy and voids accounting covers the same mechanics from the care-home side.
Here is how the three common approaches to setting and defending a children's home fee actually compare:
| What you need | DIY / spreadsheet | Generic accountant | LOYALS specialist |
|---|---|---|---|
| True weekly cost per occupied bed | ✗ Estimated | ● At year end only | ✓ Live in monthly accounts |
| Break-even occupancy modelled | ✗ | ✗ | ✓ Built into the fee model |
| Void allowance priced in | ✗ | ● If asked | ✓ As standard |
| Staffing pass-through and uplift clause | ✗ | ● | ✓ Wage-floor linked |
| Cost stack ready for fee negotiation | ✗ | ✗ | ✓ Per-placement build-up |
| Open Mon to Sat for urgent placement calls | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why most children's home owners who price on cost, not on the market rate, move from a generic accountant to a care specialist.
What to do before you quote your next placement
None of this is exotic. It is sequencing and honest numbers. Before you send your next fee to a placing authority, work through these:
- Pin down your real weekly running cost. Pull the actual staffing rota cost, the manager, premises, insurance, compliance, food and activities from live figures, not a budget you set at registration.
- Set your sustainable occupancy honestly. If you have averaged three of four beds, price around that, not around a full house you rarely have.
- Calculate your break-even beds. Fixed cost divided by contribution per bed. If it lands above your sustainable occupancy, the fee is too low or the cost base is too high.
- Add the void allowance. Spread the fixed cost across the beds you can keep filled, so the funded beds carry the empty one.
- Write in the uplift. Tie an annual rise to the wage floor and inflation at the point of agreement, not as an afterthought.
- Itemise higher-need placements. Two-to-one support, waking nights and specialist input are separate lines, never folded into an average rate.
Do these six things and the fee stops being a hopeful round number and becomes a floor you can defend, uplift and live on. LOYALS is a King's Cross firm of accountants and business consultants that runs the bookkeeping, payroll and monthly management accounts behind exactly this model for children's homes and supported accommodation across London and the UK, so the cost per occupied bed is always current when you sit down to price.
If you would rather not build and maintain this yourself, working with specialist children's home accountants gets you the whole picture from day one: an Ofsted registration financial pack for £950 before you trade, then monthly management accounts, payroll and a live fee model from £995 a month once you are running two or more homes, or from £500 a month for a single home. The point of the fee is the margin, and the point of the numbers is to protect it.