Venting and advice please!

Hi there,
So I have this family that I have had for three years in September their child will be going to school(not their actual school but wanted to send their child there and then I can still watch their son) so I gave them my new contract/childcare agreement. They are paying $20 for before and after school but depending on the bus pick up they may not really need before so their hours would be a total of one and a half to two hours after school. Yes I get that it sucks that they are paying 20$ for this but what am I suppose to do give them a huge discount just because they are only using two hours? That's not fair to me, and I've raised my prices with everyone else because of bill 10 and frankly if I didn't have this long standing connection to them I wouldn't have agreed to watch their son because I'm missing out on $15 a day by taking him never the less I agreed to watch him that's fine. So last night the mom picked up proceeded to tell me it was unfair that I close at 5 (who can I close at 5 do I really expect parents to be able to pick up by then?)said she spoke to her friends babysitter and she closes at 5:45 (well good for her) and that I'm not a real daycare ( and said that basically I'm just a babysitter) but here's the thing I've always closed at 5 she finishes work at 2:50 and then will do school work (fine) or go to the grocery store or go for a run and not grab her son until 5:15/5:20 that was a long running issue that I never nipped in the bud but want to put a stop to it starting now, so she told me she shouldn't have to pay the $10 late fee if she is late, but by the end of the conversation said she'd make other arrangements to get her kid if she's going to be late and that She hopes we are okay now and she's so glad we had a chance to talk about this and that she hopes I don't think she takes advantage of me.....so what was the point of all this? To see if I'd cave? Make me feel like crap and put me in 'my place'?
The whole conversation left me feeling like absolute shit and made me sad.. She's totally right I'm not a real daycare centre but I'm sure as hell not a babysitter! Like if you don't like my rules don't stand there and argue leave my care and we will both feel better. It's hard too because I consider(Ed?) Us Friends but now I don't know. I just felt like she treated me so poorly.
Am I at off feeling like this? Am I mean for charging a late fee, when basically it was put in place for her because she's the one who abused leaving her kid her the last three years and never feeling bad? Help me :( I'm so bummed now I regret even handing out any new contracts.

I would turn them away. You are a business. You are losing money giving one of places to her child vs full day client.
To come into your home, make you feel bad when you doing them a favor is not okay. Bill 10 will make daycare more expensive not cheaper. You set your hours and terms and certainly not your client or worse your clients friends! I would e-mail her, tell her you have taken on board all her comments about your hours, your fees. Let her know that you are saddened she feel you just a "babysitter" since her years with you should have shown that you so much more but you are still a business. Let her know that you were already taking a huge hit of $15 a day which is $75 a week, to allocate a place to her child based on your business history but will not waiver late fees since having her take a place and reducing your income, you certainly are not willing to be in a situation of late pick ups without penalty impacting your personal time without compensation.
I would let her know that since it's clear that you no longer meet their needs, you feel it best that she finds someone who can meet the longer hours, for less money where she won't have to pay a late fee and wish her all the best and to take as formal notification from you that her care contract is ending.

I agree with Suzie. I couldn't have said it better myself.

Next. You are going out of your way to keep them in your care, at your expense the LEAST they can do is be thankful. As said above write up a letter of notice, you clearly don't meet their needs anymore. Fill both spots with a family that can pick up on time and appreciate you.

Thank you so much ladies! You have no idea how much better I feel just to be validated in my feelings! Ugh this job is so trying sometimes!!! But I do really like it :) not having such a shitty day anymore thanks again!

New contract - you pay for the space period no matter how many of the hours you use. Release and replace. At minimum you should be able to find another school age child needing B/A or even have the opportunity to fill with a full time or two part timers. She sounds like she has no reason to pull her child given that you have already planned on him and she is goading you into either agreeing to her demands or letting her go so she can go to her friend's daycare. For the dab you would lose compared to the hassles I would say fine if your friend's daycare is so much better than maybe you should go there. As of XXXX date you no longer have a space in my daycare.