What is a Revenue Center?

A revenue center is a distinct operating unit of a business that is responsible for generating sales. For example, a department store may consider each department within the store to be a revenue center, such as men's shoes, women' shoes, men's clothes, women's clothes, jewelry, and so forth. A revenue center is judged solely on its ability to generate sales; it is not judged on the amount of costs incurred. Revenue centers are employed in organizations that are heavily sales focused.

Advantages of Revenue Centers

The key advantage of a revenue center is that it clarifies the primary goal of the entity - which is to increase sales. With such a singular focus, the parties responsible for a revenue center can direct their energies entirely towards driving up sales, without needing to be overly involved in monitoring expenses or invested funds.

Disadvantages of Revenue Centers

A risk in using revenue centers to judge performance is that a revenue center manager may not be prudent in expending funds or incurring risks in order to generate those sales. For example, a manager could begin selling to lower-quality customers in order to generate sales, which increases the risk of bad debt losses. Consequently, the use of revenue centers should be restricted. A better alternative is the profit center, where managers are judged on both their revenues and expenses.