A revenue center is the business operation responsible for generating a company’s sales revenue. These centers may be departments, divisions or business units that have direct interaction with consumers to sell goods and services. For example, a hotel might add a snack bar or a coffee counter to generate extra sales. Companies usually break down their business operations into revenue centers to determine the profitability of each good or service it produces. Company size, the number of product or service lines and industry standards are all factors companies use when choosing or adding additional centers for their operations.
While retail and wholesale companies are traditional revenue center businesses, service companies may also add additional centers to improve the profitability of current business operations. For example, hotels may add a small restaurant or snack bar for guests, gas stations may add convenience stores stocked with various food and sundry items, and gyms or health clubs may add small shops marketing trendy workout clothes or vitamin supplements. Each revenue unit addition adds a potential profit line to the company’s overall profit potential.
Companies may add revenue centers as a means to enter new markets or industries. Starting small is usually a better way to build and expand business operations without incurring large amounts of debt or other expenses. These centers may also take time to become profitable and recover the initial start-up expenses. For this reason, starting multiple revenue units may exacerbate the potential downside to these new business operations.
Business technology and advancements in business software allow non-retail companies to add revenue centers to service or production operations. Internet Web sites and mobile computing devices offer companies multiple opportunities for advancing revenue unit operations. Consumers may be willing to buy certain products direct from manufacturers rather than using traditional middlemen operations. Companies can use business technology to advance their revenue centers with lower costs than previous supply chain operations.
Businesses tend to pay close attention to sales operations. The term revenue center is a slight misnomer; no one exists or operates without expending business resources. These centers may be more appropriately called profit centers since the operations must earn a profit to be considered valuable for the company. Company management will review the sales generated from revenue centers and compare them to the expenses used to generate these sales. Using a traditional profit accounting system helps managers determine the value of each revenue unit.