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Alex Hormozi: If You Don't Understand Margin, You Don't Understand Business

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updated 11 May 2023

In the video lecture, Alex Hormozi emphasizes the importance of understanding the difference between gross margin and net margin in small and medium-sized businesses. Gross margin is the direct cost of fulfilling goods or services minus the cost of goods sold, and net margin is the money left over after everything is paid. The speaker explains that gross margin is the more important of the two because it creates the net margin. By improving gross margin, businesses can increase their profits. The speaker provides an example of a business that charges $60 per hour and has a cost of goods sold of $20 per hour, resulting in a 66% gross margin. By increasing the gross margin to 80%, the net margin doubles from 12% to 26%, which significantly impacts profitability. Hormozi concludes that understanding and improving gross margin is crucial for the health of a business and its potential for investment.

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

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