---
title: Gross margin targets (80%+ for services) and why small gaps are huge
slug: gross-margin-targets
summary: Hormozi's 80% minimum gross margin for service businesses, the math showing 70% vs 80% vs 90% means $233 vs $400 vs $900 profit per customer, and why low margins usually signal a commoditized offer.
domain: marketing
tags: [unit-economics, gross-margin, pricing, services, offers]
related: [pricing-by-close-rate, ltv-to-cac-by-human-touchpoints, cac-payback-and-30-day-cash]
sources: [yt:A_tx40lNpf8]
updated: 2026-10-24
---

# Gross margin targets (80%+ for services)

## TL;DR
- Gross margin = price minus cost to deliver. **Net margin can never be higher than gross margin.** Every other cost (ads, sales, rent, admin, you) comes out of the gross.
- Hormozi's floor for human services is **80% gross margin**. He won't invest below it.
- With a $100 delivery cost, the price is $333 at 70%, $500 at 80% and $1,000 at 90%. Gross profit is $233, $400 and $900. The percentages look close but the dollars aren't.
- Low margin is usually a symptom of a **commoditized offer** or a broken sales process. Decommoditize the offer rather than accepting "industry-normal" margins.

## Details
**Why it dictates everything.** If gross margin is 50%, a 50% net margin means zero spend on acquisition, overhead or staff outside delivery, which can't happen. At an 80% gross margin and a 50% net target, rent, ads, insurance, marketing and sales all have to fit into the remaining 30%.[^1][^2]

**The math.** Alex Hormozi's example uses a service that costs $100 to deliver. Price = cost ÷ (1 − margin): 70% → $333, 80% → $500, 90% → $1,000.[^3][^4] Profit per customer is $233, $400 or $900, so going from 70% to 90% roughly quadruples it. That's why he dismisses "we're at 60%, close to 80%".[^5] One of the first things he did when fixing gyms was reprice them to at least 80% gross margin.[^6]

**Why owners underprice.** Small owners "sell out of their own wallet". They feel bad charging more than they could afford themselves, and they undervalue a skill because it comes easily to them. Price instead on the value of the customer's life with the problem solved.[^7]

**Commodity vs decommoditized.** If a buyer can compare you with the shop down the street and see the same thing, you're selling a commodity, and the margin follows. Pink Himalayan salt is still salt but sells at a premium. His *$100M Offers* book is about rebuilding the offer to get out of that comparison.[^6][^8]

**Ignore industry averages.** Hormozi rejects "that's good for our industry". His example is a friend who builds automation machinery. A machine costs about $17k to build, sells for about $400k because of the know-how in it, and the business runs ~70% *net* margins.[^9][^10]

## Disagreements / caveats
- Physical products and manufacturing have real COGS, so 80% is often unreachable. Hormozi concedes margins differ there and still prefers 80%+ businesses.[^11]
- The heuristic suits founders choosing or repricing a business. A DTC brand with 60–70% gross margins can still be healthy with strong repeat purchase. Use it as a diagnostic, not a pass/fail.

## See also
- [[pricing-by-close-rate]] — evidence you can charge more
- [[ltv-to-cac-by-human-touchpoints]] — LTV is measured in gross profit

[^1]: yt:A_tx40lNpf8 @ 34:18 — Alex Hormozi
[^2]: yt:A_tx40lNpf8 @ 38:54 — Alex Hormozi
[^3]: yt:A_tx40lNpf8 @ 36:17 — Alex Hormozi
[^4]: yt:A_tx40lNpf8 @ 37:13 — Alex Hormozi
[^5]: yt:A_tx40lNpf8 @ 38:06 — Alex Hormozi
[^6]: yt:A_tx40lNpf8 @ 39:42 — Alex Hormozi
[^7]: yt:A_tx40lNpf8 @ 35:24 — Alex Hormozi
[^8]: yt:A_tx40lNpf8 @ 40:51 — Alex Hormozi
[^9]: yt:A_tx40lNpf8 @ 58:21 — Alex Hormozi
[^10]: yt:A_tx40lNpf8 @ 1:01:01 — Alex Hormozi
[^11]: yt:A_tx40lNpf8 @ 43:20 — Alex Hormozi