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Both the nipple and a large portion of the darker area around the nipple (areola) should be in the baby's mouth for proper latch. The baby's lips should be flared outward, not folded in (inverted).
A proper latch is important to prevent sore nipples and overfull breasts (engorgement), help milk flow properly, stimulate a good milk supply, and satisfy your baby's appetite.
WebMD Medical Reference from Healthwise