Alex Hormozi: The #1 Way To Increase Profits

The video discusses the concept of arbitrage and how it applies to all businesses, and also explains the difference between economic profits and accounting profits.

This video by Alex Hormozi was published on Dec 10, 2020.
Video length: 09:01.

In this video, Alex Hormozi discusses the concept of arbitrage and how it applies to all businesses.

He explains that arbitrage is taking advantage of an inefficiency in a marketplace by buying low and selling high in different markets.

He also talks about the difference between economic profits and accounting profits, and how understanding the opportunity cost of using resources can help entrepreneurs make better investment decisions.

• Arbitrage is taking advantage of market inefficiencies.
• Businesses arbitrage to make money.
• Economic profits are revenues minus explicit and implicit costs.
• Market One is where a business buys labor or raw materials, Market Two is where it sells its products or services.
• Examples of arbitrage include buying low and selling high, buying in one market and selling in another, and buying property in a low-cost area and selling it in a high-cost area.

The #1 Way To Increase Profits - YouTube

Introduction to Arbitrage

• Arbitrage is taking advantage of an inefficiency in a marketplace.
• It involves buying in one market and selling in another market.
• All businesses arbitrage to some extent.
• The extent to which a business can arbitrage will dictate how much money it can make.
• A supply chain is a series of markets in a row of markets buying and selling.

Economic Profits vs Accounting Profits

• Accounting profits are revenues minus all costs.
• Economic profits are revenues minus explicit and implicit costs.
• Implicit costs are the opportunity cost of using resources in a particular market or path versus another opportunity.
• Opportunity cost is the cost of the next best alternative use of money, time, or resources.
• Economic profits are important for entrepreneurs when deciding what to invest in.

Market One and Market Two

• Market One is where a business buys labor or raw materials.
• Market Two is where a business sells its products or services.
• The inefficiency between the two markets is where arbitrage happens.
• A business owner is technically arbitraging all of the markets in a supply chain.
• A supply chain is a series of markets in a row of markets buying and selling.

The #1 Way To Increase Profits - YouTube

Examples of Arbitrage

• Buying from a manufacturer for a dollar and selling it to another market for five dollars.
• Buying labor in the labor market and selling it to another market for a higher price.
• Buying raw materials from farmers and selling them to manufacturers for a higher price.
• Buying a product on eBay for a low price and selling it on Amazon for a higher price.
• Buying a property in a low-cost area and selling it in a high-cost area.

The Concept of Arbitrage

• Arbitrage is the process of buying low in one market and selling high in another market.
• Arbitrage opportunities exist in all businesses.
• The growth of the marketplace overall dictates whether or not there will be more arbitrage opportunities.
• Entrepreneurs should find markets where there is more demand for the same things that they can buy cheaply.
• By finding the best arbitrage opportunities that fit their skills, talents, and team, entrepreneurs can answer the question of what they can be the best in the world at.

The Difference Between Economic Profits and Accounting Profits

• All big businesses run off of extraordinary degrees of arbitrage.
• The price that you charge should never be in any way relation to what it costs you and only related to what the market will allow.
• Entrepreneurs should look at which arbitrage opportunities exist between marketplaces that best fit their skill sets.
• By doing that, entrepreneurs will find themselves in the best opportunity vehicle for them to grow in the long term and probably make the most money.
• There is no limit to how much more you can charge for something, it is simply based on the market demand.

Watch the video on YouTube:
The #1 Way To Increase Profits - YouTube