SSubida Skills

Esc to close · results from all notes, skills and people

Marketing›Funnels & offers

Gross margin targets (80%+ for services) and why small gaps are huge

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.

Updated 2026-10-24·1 source·unit-economicsgross-marginpricingservicesoffers

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%.12

The math. Alex Hormozi’s example uses a service that costs $100 to deliver. Price = cost ÷ (1 − margin): 70% → $333, 80% → $500, 90% → $1,000.34 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.68

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.910

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

Footnotes

  1. The Mathematics of Business, Explained @ 34:18 — Alex Hormozi ↩

  2. The Mathematics of Business, Explained @ 38:54 — Alex Hormozi ↩

  3. The Mathematics of Business, Explained @ 36:17 — Alex Hormozi ↩

  4. The Mathematics of Business, Explained @ 37:13 — Alex Hormozi ↩

  5. The Mathematics of Business, Explained @ 38:06 — Alex Hormozi ↩

  6. The Mathematics of Business, Explained @ 39:42 — Alex Hormozi ↩ ↩2

  7. The Mathematics of Business, Explained @ 35:24 — Alex Hormozi ↩

  8. The Mathematics of Business, Explained @ 40:51 — Alex Hormozi ↩

  9. The Mathematics of Business, Explained @ 58:21 — Alex Hormozi ↩

  10. The Mathematics of Business, Explained @ 1:01:01 — Alex Hormozi ↩

  11. The Mathematics of Business, Explained @ 43:20 — Alex Hormozi ↩