If You Don't Understand Margin, You Don't Understand Business

Want to SCALE your business? Go here: acquisition.com
Want to START a business? Go here: skool.com/games
If you’re new to my channel, my name is Alex Hormozi. I’m the founder and managing partner of Acquisition.com. It’s a family office, which is just a formal way of saying we invest our own money into companies. Our 10 portfolio companies bring in over $200,000,000+ per year. Our ownership stake varies between 20% and 100% of them. Given this is a YT channel, and anyone can claim anything, I’ll give you some stuff you can google to verify below.
How I got here…
21: Graduated Vanderbitl in 3 years Magna Cum Laude, and took a fancy consulting job.
23 yrs old: Left my fancy consulting job to start a business (a gym).
24 yrs old: Opened 5 gym locations.
26 yrs old: Closed down 6th gym. Lost everything.
26 yrs old: Got back to launching gyms (launched 33). Then, lost everything for a 2nd time.
26 yrs old: In desperation, started licensing model as a hail mary. It worked.
27 yrs old: "Gym Launch" does $3M profit the next 6 months. Then $17M profit next 12 months.
28 yrs old: Started Prestige Labs. $20M the first year.
29 yrs old: Launched ALAN, a software company for agencies to work leads for customers. Scaled to $1.7mmo within 6 months.
31 yrs old: Sold 75% of UseAlan to a strategic buyer in an all stock deal.
31 yrs old: Sold 66% of Gym Launch & Prestige Labs at $46.2M valuation in all-cash deal to American Pacific Group. (you can google it)
31 yrs old: Started our family office Acquisition.com. We invest and scale companies using the $42M in distributions we had taken + the cash from the $46.2M exit.
32 yrs old: Started making free content showing how we grow companies to make real business education accessible to everyone (and) to attract business owners to invest or scale their businesses.
34 yrs old: I became co-owner of Skool.com to help the many people who want to start a business online do so.
Today: Our portfolio now does $200M/yr between 10 companies. The largest doing $100M/yr the smallest doing $5M per year. Our ownership varies between 20% and 100% ownership of the companies. Many of them we invested in early and helped grow (which is how we make our money - not youtube videos).
To all the gladiators in the arena, we’re all in the middle of writing our own stories. The worse the monsters, the more epic the story.
You either get an epic outcome or an epic story. Both mean you win.
Keep crushing. May your desires be greater than your obstacles.
Never quit,
Alex
FULL DISCLOSURE
I make content to make money - just - on a longer time horizon than most. I want to build trust with business owners so we can find the best ones and help them scale. And if they’re awesome, write them a check and go all the way as partners.

[@grantstewart4513]

Accountant here, this info is absolutely golden! Entrepreneurs need to put this to heart.

[@forbes4007]

I’m in grad school for accounting rn and I’m kind of upset because idk about you but I feel like we just learn how to calculate these figures robotically. They don’t teach it conceptually aswell to understand how that truly benefits the CEO/company

[@grantstewart4513]

@@forbes4007 school is designed just to get you to pass the CPA exam. The real learning happens on the job.

[@AZANlA]

@@forbes4007 why would you do grad school for accounting

[@forbes4007]

@@AZANlA I was in the accelerated grad program called the MSA. It makes you eligible to sit for the CPA exam and also get your master's and bachelor's degree at the same time. LOL, update; I withdrew from the program, it isn't really in line with what I truly want to do and focus on.

[@nonefvnfvnjnjnjevjenjvonej3384]

Liar liar tongue on fire

[@DonCarlosHormozi]

Another gem from Alex Hormozi!!!! Every time I see him, he looks like he's put another inch on his arms!!!!

[@AlexHormozi]

Ha. Appreciated James.

[@MrScottSenior]

Looks like one sharp edge grazed and he will explode!

[@jakemeier1211]

All those inches…and still struggling with a marker cap…we have all been there! Hahah great content!

[@wolfuck]

It's the TRT he and his wife is taking

[@raymondayala5355]

@@AlexHormozi I’m a private self defense trainer. I’m not sure how I calculate my cost of what I do? I charge all my students in series of 10sessions every time. I charge $3000/10. Would the cost of gas/travel be my cost? Thank you in advance

[@mattpiccirillo5697]

Takes a simple concept like margins, simplifies it for any non-finance majors, but also presents it in a tangible way that can make a significant difference for people…bravo

[@forbes4007]

I’m in Grad school for Accounting and I’m mind blown that this is the power of gross margin. I understand it far more in-depth now than just vaguely

[@TonyLewis42]

The new

[@anitha6249]

Hi, can someone please explain how 26% net margin @4:05?

[@nickwongmusic]

@@anitha6249I’m sure you know now bc it’s been 7 months, but just incase: The increase to 26% net margin was possible because he was able to increase his gross margin 14%, and that directly translated into his net margin.

[@toughlovetom6887]

15% increase to 20% Net Margin is a 33.3% increase. 20% down to 15% would be a 25% decrease. 12:00

[@GrzegorzWierzowiecki]

Exactly!

[@MT-cy4fg]

How are you getting 33.3%?

[@rafi10539]

@@MT-cy4fg 20 divided by 15 = 1.333 so it is a 33.33% increase

[@marwanelhadi9030]

Yeah but lets keep in mind that also increasing the margin wether by increasing profit or decreasing the cost comes with ether losing clients or employees so it’s not always that easy

[@AJohnson0325]

It depends on what you are selling. Some things people will pay more for even if you keep increasing the price. It’s called pricing power. Luxury purses could go up 20% in price and women would still buy them. I don’t agree in cutting an employees pay though.

[@gorkagarcia8715]

This is clearly focused towards service-based businesses (Really helpful though), would like to see another version where you focus on product-based businesses instead

[@jamie_gelaskins]

Alex, it's a 33% increase. Teacher is testing to see if we're paying attention ;) My products have great margin and I've never considered the true take home value that a slight increase in this way (likely for all the same reasons your clients give you). Thanks for the enlightenment, amigo! 💚

[@jjwolfcreative]

At 12:03" Alex says going from 15% to 20% margins is a 25% increase. It's actually a 33% increase if I'm not mistake. Amazing video!

[@TWEQDvideo]

Tw7 7 0:40

[@a7xfanben]

One of your best videos I've seen so far. Will watch again, thank you!

[@chriswood5940]

Thanks Alex!! I’ve been in business for 10yrs and this is enormously helpful!!

[@lizziesophiaTV]

Love these old videos where you dove into the nitty gritty details Alex! So appreciate you breaking down the concepts and making them accessible for all entrepreneurs. Any chance Caleb might work some of these “boring work” videos into the KZbin strategy going forward? I know they’re not popular topics that are going to get the same sort of views and reach as the newer stuff, but they are so so valuable.

[@IZSIN222]

Hopefully that’s what the Mozi Media channel is for!

[@LukaBendzo]

Thanks man! I think this is also important for people when trying to negotiate their salary. It's always important how much someone will make off of you so you can get compensated properly... I'm running my own business and your content is super helpful! I've read your $100M offers book, loved it! Looking forward for more content!

[@dannywarnock8822]

So good! It's kinda hard to believe it until you see it for yourself. Even at 50% Gross margin our business was under water for years.

[@Emeryx]

Did I understand this wrong or does increasing the monthly price from 400 --> 420 not get you to 80%? 420*40 = 16.8k, 16.8k-4k = 12800 and then to find the % you do 12.8k/16.8k = 76.2%. So if we went with what he said above we would need to charge each client an extra 100 / month ==> 500*40 = 20K, 20K-4K = 16K, Then to finally get your margin 16k/20k = 80%. Just wanted to make sure I understoodd this correctly! Thank you so much for sharing this informations for free!

[@raduiuonac4800]

I noticed the same mistake also. He did not change total gross/month thats why his numbers came "right", I also came up with 500 cost to reach 80%

[@DavideDileoofficial]

@@RadicalSelfImprovement how you calcolate the 33% increase?

[@justinmckibben4534]

@@DavideDileoofficial One way is in microsoft excel: goal seek analysis. Build a table and tell the spreadsheet you want the 75% to change to 80% by changing this or that value

[@nickspaulding1511]

I did the math also. Yea have to raise it by almost $150 a month not $20

[@TheNathanielWoods]

Alex,We want you to deep dive more on this topic, more examples of models for people starting to grow a team, along with suggestions of how your would build for hiring first 1-3 coaches in a organization

[@ericwest1152]

Alex took business 22 years ago thanks for your videos. you will be continually successful bc you help people

[@soul598]

this is really great , it is good to see it implemented in your type of business , i use the same formula in a different way because i have a different business . i sell goods , so my cost is fixed monthly rents salarys ِetc... no matter how much sales i make , and with the harsh competition i just target more sales and that’s will automatically lower my cost and for my clints i keep the price or lower the price to keep up with the competition . my average margin is 26% to 27% , and my cost is 5% and i try to keep it like this so at the end of the year my net margin is close to 22% and with more sales the cost can be low as 3% .

[@ramikhandakji3710]

In the last example, the 3rd option is to make the trainer handle more people. Volume is another way to increase gross and net margins

[@quantumsystems9382]

This can reduce quality of service , best option here is to increase the price. $4k for 40 clients is already a low wage so can’t really lower it. More clients & higher price

[@michaelgephart1515]

That doesn’t increase profit margins., You’d simply be adding more work with the same profit margins. Get your margins right and then scale my friend.

[@matei.chelbegean]

It’s so great that both your heart is gold and your material is gold. kudos to you for helping us all out man. Super helpful and inspiring material. I started with your new stuff and am working my way backwards. Your production has improved in the newer stuff, but your energy and value brought seems to have always been there! Thank you.

[@fredhoffman3833]

Great explanation of margins. Completely in la la land as to practical application in 95% of the real world.

[@bozjohnson4915]

Super appreciate your videos. 😀Thank you for your consistent, solid information. You are one of the few business people I listen to. Thanks!

[@deyraga]

Love ya Alex! But 20% is a 33% (+5 percent) increase from 15. Still awesome though! My accountancy professor never actually explained this stuff well, out here you sharing gold!

[@thorsvenson3530]

I'm an investor. I have always maintained that people who know business make the best investors. Alex clearly knows his stuff. He did not read this yesterday in a book, he clearly KNOWS it and lives it. I'm sure he enjoys developing businesses, but the shift to making a good investor is very small.

[@MrJustinmyers7]

Praise Jesus ! This is exactly what I needed at exactly the right time. Thank you!!!

[@DougHolt]

Keep them coming - would love to learn mire about how you evaluate a business as it’s overall health. Thank you

[@jeremybedford5098]

I now have 3 employees in my bed bug heat treatment company and this really summed up how to set my goals and expectations with sales targets. I appreciate your content man, glad I found you

[@pawelkapica5363]

In your scenario, is the COGS, cost of good solds simply the manhour you pay to your employees? I a having trouble to understand this term in a service based model.

[@felixg.7752]

Hey its been a year how has business been?

[@jeremybedford5098]

@@felixg.7752 business is booming, unfortunately lots of bed bugs to kill 😅

[@wiljonguarin5866]

That’s amazing. Keep up the good work man! Wish the best for you and your three co-workers.

[@brunomaximilianolovera7469]

Wow!! Thanks Alex. Amazing content👏👏

[@AnebiXD]

This is gold! Literally had to do this with my web design business.

[@andrewdavidcourtney7665]

This is my tenth Hormozi video today and the gems just keep coming! 🔥

[@RickMitchell-Invictus]

Super glad I ran across your channel. This information and explanation is amazing.

[@thatbusinesstrainer1414]

The single best business video I have ever seen...thank you so much!

[@richardraymond8]

Dude. Thank you for everything you put out.

[@ryanbresnahan1411]

Wowza! So valuable. Thank you Alex! I’m using what you are teaching me now everyday.

[@jjranly123]

watched it once, not stopping till it makes sense!!

[@dougmurray3692]

Good job! It all starts with the nucleus of this thinking. Thank you for doing this. The impossible is becoming more possible on this planet.

[@garilique]

Interesting and thought provoking stuff, Alex! Coming from an engineering background I am enjoying learning about the business world, and so your channel has been awesome to delve into. I must say though, you should check your math before hand because you undersold your own punchline at the end there! Strictly speaking, going from 15% to 20% net margin is a staggering 33.3 percent increase (not 25%) which is even more impressive! Point taken though, and well done.

[@JoeyBolohan]

This was a great simple way to look at a business! Thank you for your valuable insights and sharing this information! 🎉

[@CreativeInvestorU]

Love this and the practical, real example. More like this please!

[@jeffreyspiker]

Great information. Thanks for making it easy to understand. The challenge is most businesses don't operate on anything close to 80% margin.

[@michaelbacile8439]

Most business owners I talk to are at 20-45%. I think 25-35% is very healthy and attainable for most businesses. I can’t seem to push past 22% in my service business

[@HIDDENADHD]

Yeah I was thinking / wondering the same thing

[@CanaanIuli]

So sick dude. The game needs guys like you.

[@danielrodriguez8670]

Steps that I can go and actually apply today! Thank you for this.

[@SaadAldousari]

This is a gem. Thank you Alex. This is highly appreciated. Saad from Kuwait.

[@lukehood5546]

This man is the truth. I'm proud of his continued success. Humble beginnings shows thru out his demeanor. Can't help but root for a guy like that. Godspeed

[@shantilus]

Jesus is the truth.

[@warretw]

Most underrated entrepreneur information on KZbin. Mozi nation baby!

[@rdkproductions8206]

So easy to grasp and very necessary information. Thank-you!

[@willyisaac3955]

Very cool, the numbers and process seemed scary until you challenged us by saying “you just don’t want to do the thinking to understand it” lol great video man! Thanks for this.

[@Badhans2007]

Most I've EVER learned about business. You're a great teacher bro!

[@fullaclip]

This man is a Gem. Gaining it and then sharing it back, thus helping both parties involved. Respect!

[@DanielPekic]

Still one of the best videos. Deserves more views

[@tanuki88]

Thank you for the recap near the end!

[@9svm]

BRO you just opened my eyes. Ive been wrongly priced at the cost of my life savings for so long. Ive been trying to run at 6% yearl margins for. Holy crap

[@Truckboy383]

Super valuable as usually Alex. Thanks for sharing!

[@HASSANDARU]

Awesome content. I need to take a course from this guy

[@BetterVersionByCreativeInsight]

Opened my mind to reality of the necessity for at least 80% gross margin being reasonable.

[@kaysuave94]

This really worked! 🙏🏾 Thank you!

[@catsndogs21savage]

This was very interesting and clear for someone starting to get i touch with financial and business concepts. Thank you very much !

[@Cannella11]

Alex! Thanks for all your help these past couple years

[@AlexHormozi]

Glad I could provide value

[@MV-wb2cz]

@@AlexHormozi you've changed my outlook on selling my services, so thank you. Opened my mind to other possibilities to get those Margins up as well.

[@HIGHCLASSBOSS]

And they say you need to go to college to learn this SMH. Appreciate you Alex for this info.

[@thedoble]

In the coaches example, you could also increase their efficiency, so they could service 42 clients per month rather than 40.

[@jordanroberts2929]

smart

[@bchettle1068]

Good idea! Then he gets the $800 extra needed without dropping the coach's pay or having to raise the monthly fee to $500 per month to get 80% although if he did sell for $500 per month that 80% margin would equate to $16000 total rather than $400 per month at $12800 total, might be a hard sell though.

[@dr.strattonpoulson]

Only problem is that it’s easier to reduce cost, or increase price, than it is to improve your Human Resources.

[@forbes4007]

I was thinking the same thing during the video. That’s another option

[@radonsmith4386]

well technically, improving efficiency is the same thing as reducing cost, as by improving output while maintaining the same costs results in lower costs per unit. But you are right, thats another solution.

[@Abdullah-pj6sp]

I liked it and found it valueable. Thanks for the return on my attention Alex

[@CliffordStarks1]

Thank you for the amazing value Alex!

[@mickeymico7089]

Thankkkk youu ill be rewatching this until i master it...the game 💕

[@DaveInPA2010]

Pure gold! Thanks Alex!!!!!

[@ryszardwieczorek6428]

love this dude for real...wish so bad he would help my business out...we're a film production company from germany that really stands out in quality, but our sales and marketing aint good :) - hormozi will change! im learning

[@jesusvalentino7047]

Ty

[@AnthonyRayShane]

Wow! This is amazing! My friend Scott linked me....what a gift!

[@shadijuma8430]

Thanks Alex, very profound and helpful 👍

[@xRetracted]

You're doing God's work out here. Amazing content!

[@polisticyoga]

Thanks Alex! Always inspiring

[@henryferguson48]

Thanks! , never thought of it that way. Brilliant 💪

[@AlexHormozi]

Glad you liked it

[@HavenatLee]

Excellent information and presentation!

[@lumi_lt]

Watched it a few time to fully comprehend it. Very well explained, just a hard to swallow pill

[@dcase20]

It’s one of those works in theory videos. Try selling something for 100 when everybody else is selling it for 60 to 80. And that’s where reality comes in

[@philmaturanodrums]

Thank you for this Alex!

[@radonsmith4386]

Every increase in Gross Margin is an exponential increase on the net margin. Lower cost Increase price Increase gross margin to minimum 80%, better 90%.

[@LS-xz9wq]

Love that he couldn't get the lid off the market lmao. Great info as well

[@lukeinman9293]

He nailed it with that extra every month. this is key for increasing marketing, which leads increasing to exponential growth (scale)

[@nicholasfoli6112]

This is gold, thank you Alex

[@mylesp89]

WOW! I had no idea i could make more money by cutting my expenses and charging more! I am now an expert business man. I can definitely see how this guy became a $100mil CEO. This is not a scam at all!

[@keysncoffee7733]

Love this video, Alex! I’m going to have to keep track of my margins going forward. Btw the bottom right calculation toward the end is a 33% increase, not 25%. Even better!

[@claycruckosha]

lol when i saw that i thought to myself "am i the only one catching that?" lol

[@tapfilms6806]

Could you enlighten me on your math? How does bumping the extra 5% net margin increase = making 33% more loneyb

[@keysncoffee7733]

@@tapfilms6806 because it’s 5% increase from 15%. So 5/15 is 0.33 which is 33% of an increase from 15%. If you were making $15 and now making $5 more that is a 33% increase in your profit.

[@GavinDavidson]

Thank you! Awesome content.

[@KlaasVictor]

Thank you Alex!

[@cavemanjoe7972]

This is interesting to me, because I'm in a service industry that has hourly costs for labor plus materials and consumables. (Job shop machinist and welder-fabricator).

[@cedricl.marquard6273]

The last example is actually a 33% increase in take-home-money, but that makes the point even stronger

[@christopherstone91]

This is killer! awesome content Alex 🤙

[@nickspaulding1511]

Raising $20 only makes it to 76% the only one that works is paying $3200 you would have to raise price by almost $150 per month per client to get to 80%. What were not doing is assuming that the trainer would quit if he got an $800 a month pay cut and the clients would quit if you raised it by $550. Would take years longer to raise that margin without losing more than half clients putting your revenue under

[@ryanmcneil5772]

not really sure how I ended up watching this video but well presented. One note in the example at the end - it's actually even more than 25% increase it's a 33% increase because your original basis is only 15% so an addition 5 is 5/15 = 1/3

[@coreylogsdon4656]

You have great advice. Quick tip to take your videos to the next level: look at the camera instead of your notes or script. Makes it more personal and therefore believable.

[@zacksizov7563]

Love your content

[@pushapt]

This was eye opening. Thank you.

[@brainiac8005]

Thank you so much your content helps me out a lot and inspires me to go for me dreams THANK YOU

[@lorencharnley9262]

This video underscores how critical it is to select/define your market in a way that allows you to achieve high gross margins. It's easier to accomplish this with Software and Learning products than with physical products. If you have a physical product, usually, the only way you can achieve reasonable gross margins is to "wrap it" in some service with recurring revenue.

[@ethanthebrave2895]

Im gobsmacked at why people don't understand the importance of the gross margin, then gross to net. Im a software product manager. Im always looking at GPM on my products year on year. I also look at what the targets are set at over 5 years or towards the end of business lifecycle (product exit or product retirement/morph). Fine tuning the GPM in a messy product team is what I do - software product scaling with great GPM is really tricky as a one to many model. Trying to get people in the current company to accept and understand it is tough too. :)

[@ethanthebrave2895]

ps my son hacked my youtube. im a product mgr mum. :)

[@nathanyeo2621]

🔥 Wow, ive never done these numbers this way in my business. Thank you. 🙏 Price rise is happening July 1st haha.

[@AlexHormozi]

Good!!

[@neilhansen49]

yup Alex it was awesome like all the content you give. Cheers Dude

[@nikelombambo]

Woooow.. Game changer.. thank you!!

[@neil1636]

That was very illuminating...I'm embarrassed to say I had no idea about this

[@sac856]

Nice effort mate. Of course this is basic business accounting but never the less a worthwhile effort. 👍

[@michaelelvidge6616]

Hey Alex, thanks so much for the video. Can you use lawnmowing services as an example in an upcoming vid ? Thanks so much!

[@kapalawatts]

You are a very good teacher!