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What is a Revenue Center?

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  • Written By: Osmand Vitez
  • Edited By: Jenn Walker
  • Last Modified Date: 08 November 2016
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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.

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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.

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Acracadabra
Post 3

@MissMuffet - I understand that feeling pressured to buy extra items can be a nuisance, but in many ways it makes perfect business sense. When you have a captive audience it would be bad practice to not target them.

In my opinion it doesn't matter whether a business runs a dedicated center or, as Windchime mentioned, expects staff to come up with ideas. In both cases they are exploiting the add-on purchases people make when presented with opportunity.

Think about that mini convenience store at the gas station. Many times it is a useful service, others you buy items that you don't really need. It's the same at the cinema, where people eat popcorn regardless of their appetite. Why not also try to sell customers a movie poster or souvenir?

MissMuffet
Post 2

While I can see the reasoning behind increasing sales and profit margins I find this approach quite annoying. Last month I started a belly dance class, and before we even met the teacher there was someone from the gym trying to sell us special costumes, jewelry and scarves to 'enhance the experience'.

Windchime
Post 1

A few years ago I was responsible for generating extra income for my company. Sadly there was no dedicated section to take care of this, it was just expected that the managers would come up with ideas!

Many people burned out trying to raise their departments income stats. What saved me was coming up with ideas to pull in Internet revenue.

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