“Each of us is busy every day working on all the tasks associated with our own individual jobs. We are focused on getting our products out the door and meeting our customers’ needs, which we must do on a daily basis. However, at the end of the day, to stay in business, it is also critical that CSS consistently produce positive profits every month and year. Therefore, in addition to doing our own jobs well, it is very important for each of us to understand the big picture of the addition and subtraction behind how CSS makes money.”
This is why at CSS we play the Great Game of Business (GGOB). The purpose of the GGOB is to teach us how to play and win this game of business. The goal is for all us to know how CSS makes money. Armed with this knowledge, all CSS staff have the ability and responsibility to look at what they do every day and suggest how those tasks may be completed to produce more revenue and less expense (more addition and less subtraction). We agree with those who created the GGOB - this is simply the best way to run a company!
Recently, we shared the graphic below at a CSS Huddle. We will continue sharing this data each month going forward. Please look at and study this information. We should all know by memory approximately how much money the company makes on each product we sell. This is also referred to as “net income” per product. We should all also know the net income percentage per product so we may compare the relative results produced by one product versus another.
Each week at our CSS Huddles, we also share the monthly revenue, gross margin, and net income resulting from our collective efforts. This goes back to the previous math reference. Net income (profit) per product is produced by the amount we charge the customer for the product less our cost to produce the product. Our cost is broken down into Cost of Services (“COS”), (for example: the amount we pay an appraiser to produce an appraisal or an abstractor to produce a title search) and General and Administrative Costs (“G&A”), (all of our wages, rent, and other business expenses).
Let’s use an appraisal as a simple example from the graphic. Our revenue is the $495 we charged the customer for the appraisal. Our COS is the $392 we pay the appraiser. Our Gross Margin is the difference - $103. The Gross Margin Percentage is $103/$495 or 20.8%. Out of that $103, we must pay all of our G&A expenses attributable to that appraisal. After doing so, we have $7 left over, which is our profit or net income on that one appraisal. The Net Income Percentage is then $7/$495 or 1.4%.