Why Your Business Model Determines Your Margins
And why pricing is rarely the first problem.
When agency owners begin questioning profitability, the conversation almost always turns to pricing.
Should I raise my placement fee?
What are my competitors charging?
Am I undercharging?
But pricing is rarely the first lever that determines your margins.
Your business model is.
Before adjusting your fees, you need clarity on the structure underneath your agency. The way your agency is designed determines your revenue rhythm, operational load, risk exposure, and income ceiling.
In my article, “5 Business Models for Your Nanny Agency,” I outline the primary structures most agencies operate within. What many founders do not realize is that each of those models carries a completely different margin profile.
Let’s walk through why.
A Real Example: Megan the Hamster
For years at Preferred ChildCare, we were billing nearly $2 million annually in hourly childcare. That’s a lot of childcare hours at $15/hour!
From the outside, the business looked strong. We had volume. We had longevity. We were busy.
But internally, I felt like a hamster on a wheel.
No matter how much we billed, I could not get ahead.
So we hired a fractional CFO to evaluate our numbers objectively.
When we calculated our true gross profit margin, we discovered we were operating at 11 percent.
Eleven percent on nearly $2 million in billings.
Most successful service businesses that employ operate at 25-40% profit margins.
That is when the issue became clear.
The problem was not effort.
The problem was structure.
Our hourly childcare model required significant infrastructure:
• Ongoing payroll processing
• Scheduling coordination
• Client communication
• Compliance oversight
But our pricing had not kept pace with that operational weight.
The math was not sustainable.
If we did not change something, we would eventually cease to exist.
So we made two strategic shifts.
First, we raised our prices significantly to reflect the true cost of our model.
Second, we introduced a membership option that allowed clients to access discounted hourly rates while providing us with consistent recurring revenue.
The membership stabilized cash flow and created monthly revenue that went directly to the bottom line.
Volume adjusted slightly after the price increase, but not enough to offset the margin improvement.
Profit improved fairly quickly.
More importantly, the business became more stable.
Not easier.
But stable.
And stability changes everything.
That experience permanently changed how I think about margins.
Margins are not created by working harder.
They are created by aligning your business model, pricing, and revenue structure.
Your Model Determines How Revenue Flows
In the 5 Business Models framework, agencies typically operate within one of these structures:
• Placement-only
• Hybrid placement plus backup care
• Membership or sitter-based
• Corporate or contract care
• Payroll or ongoing management
A placement-only model may produce strong lump-sum revenue, but cash flow depends heavily on consistent sales.
A membership model creates recurring income, but requires ongoing service infrastructure.
Corporate contracts may bring predictable volume, but often at thinner per-placement margins.
Your margin potential is directly tied to how revenue enters your business and how frequently.
If your income feels inconsistent or reactive, it may not be a pricing issue. It may be a structural one.
Your Model Determines Your Operational Load
Each business model carries a different administrative weight.
A hybrid backup care model demands real-time coordination and responsiveness.
A payroll or ongoing management model increases long-term compliance responsibilities.
A sitter membership model requires scheduling systems and customer service capacity.
If your pricing does not account for the operational demands of your model, your margins quietly erode.
Many agency owners believe they need to charge more.
In reality, they may need to redesign or refine their structure.
Your Model Determines Your Risk
Margins are not simply revenue minus expenses.
They must also reflect risk.
A placement-only agency carries risk during the matching process.
An employed caregiver model carries extended liability.
Backup care models carry unpredictability and sometimes urgency.
If your margin does not compensate you for the level of risk your model carries, you are absorbing stress without protection.
Over time, that leads to burnout disguised as “low profit.”
Alignment Creates Stability
Strong agencies are not simply charging higher fees.
They are aligned.
Their chosen model supports:
• Their desired revenue rhythm
• Their operational capacity
• Their risk tolerance
• Their long-term vision
When those elements align, margins feel stable.
When they do not, founders feel like they are constantly pushing uphill.
A Leadership Question
Before adjusting your pricing this year, revisit your model.
In the 5 Business Models framework, which structure are you operating within?
More importantly:
Is that model designed to support the income, lifestyle, and leadership level you want long term?
Or are you trying to force profitability onto a structure that was never designed to carry it?
That distinction matters.
If You Want to Evaluate Your Alignment
Start by identifying which of the five models most accurately reflects your agency.
Then ask:
• What does this model require operationally?
• What does it cost me in time and infrastructure?
• Does my pricing truly reflect that?
Inside Agency Atelier, we walk through model alignment, cost mapping, and pricing clarity so you are not building on assumptions.
Because structure first.
Then margin.
Always.
