Revenue center

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Revenue center - is an internal business unit, whose manager is only responsible for sales achieved. Revenue center is considered as the sales department in the company, whose manager has the authority to decide on the size and direction of sales and has powers to negotiate the sales price, payment terms and delivery schedule.

The criterion for the evaluation of the revenue center is the amount of revenues from sales in comparison with the sales budget.

Applications of revenue center

Revenue center is often neglected or treated only as an introduction to discuss about profit center, when in fact it is the revenue center that is responsible for obtaining revenue and the cost of their acquisition.

It is usually created in organizations seeking to increase market share. Costs that are related to the activities of revenue center to some extent act as a secondary factor, but the difference of revenues and costs of sale gives the margins, through which existence of a company is secured.

Place of revenue centre in organizational structure

Criterion for separation of a revenue centres can be: geographic region, product or product group, customer or group of customers, industry or market segment. Separation must be clear that there should be no conflicts between the centres in the form of competitive bidding to the same client - there must be mechanisms to coordinate action.

With the territorial separation of the centres, their number can be determined, taking into account the equal potential of them, the same range of tasks, the same share of the work in the sale or set up a diversity of each factor and introduce a variety of ways to reward, depending on the attractiveness of the territory. The size of the revenue centres, as measured by the size of its staff, should be determined taking into account the workload required to support the intended number of customers.

Revenue centre is usually the entity which sells products made by other units. Its task is to maximize the revenue, increase market share in conditions of strong competition. In case of downturn in the industry its goal is to maintain the current level of turnover.

Measures of control in revenue center

Revenue centers are controlled by the measures, which consists of three groups:

  • Based on sales,
  • Based on level of efficiency of resource management
  • Other, mostly non-financial measures

References

  • Antle, R., & Demski, J. S. (1988). The controllability principle in responsibility accounting. Accounting Review, 700-718.
  • Bruns, W. J., & Waterhouse, J. H. (1975). Budgetary control and organization structure. Journal of accounting research, 177-203.
  • Strauss, J., Curry, J., & Whalen, E. (1996). Revenue responsibility budgeting. Resource allocation in higher education, 163-190.