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

How I got here…

21: Graduated Vanderbilt 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)
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.

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.

[grantstewart]

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

[mattpiccirillo]

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

[DonCarlosHormozi]

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

[epic-controller]

In the last example he gives, there are 2 ways of increasing Gross Margin Ratio from 75% to 80%
1- Increase the COGS-Cost of Goods Sold- Monthly cost of the program from $400 to $500. Wich is a 25% increase in price to the customer.
or
2- Decrease the salary of the coaches from $4, 000/mo to $3, 200/mo.

Of these 2 options, decreasing the salary of the existing coaches or hire new coaches at a lower salary might compromise the quality of the product, on the other hand, increasing the perceived value of the product and therefore justifying the 25% increase in price might be easier.

Great stuff! I was thinking about pursuing an MBA but the experience of running a business in addition to studying these videos and implementing the knowledge will help me advance a lot more.

[toughlovetom]

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

[marwanelhadi]

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

[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!

[gorkagarcia]

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

[thorsvenson]

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.

[josiahalby]

I don’t even have a business and I’ve watched this at least 10 times in the last few years. This vid should have a million views easy

[jeremybedford]

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

[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 YouTube 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.

[dannywarnock]

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!

[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

[thedoble]

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

[ramikhandakji]

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

[dcase]

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

[lukehood]

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