This brief describes how Child Care and Development Fund (CCDF) Lead Agencies can use cost data when setting payment rates. It covers two main topics: Analyzing gaps between costs and payment rates; Exploring strategies to close gaps. This brief draws on our discussions and interviews with Child Care and Development Fund (CCDF) Lead Administrators and experts within and outside the Office of Child Care (OCC). We also reviewed state examples of narrow cost analyses (summarized in appendix A). We define italicized key terms in a glossary at the end of the brief. This is the third in a series on narrow cost analysis. (author abstract)