Revenue center

Revenue center
See also
Functional strategy Management company Types of strategies Transformational outsourcing Strategic business unit Organizational progress Development by restructurization Route to market Organizational strategy

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.

Fig.1. Place and general idea of revenue center

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

Examples of Revenue center

• Retail stores: Retail stores are a prime example of a revenue center. They are responsible for the sales of goods directly to consumers and are responsible for generating revenue and maximizing profits. They determine the pricing of goods, negotiate with vendors for the best prices, and manage and staff the store in order to ensure customer satisfaction.
• Online stores: Online stores are becoming increasingly popular and are another example of a revenue center. They are responsible for generating sales and revenue through digital channels. Online stores must manage website and software development, customer service, and marketing efforts to ensure customer satisfaction and attract new customers.
• Restaurants: Restaurants are a classic example of a revenue center. They are responsible for generating sales and revenue from the sale of food and drinks. They coordinate the preparation of food, manage staff, and negotiate with vendors for the best prices for ingredients. They also manage and staff the restaurant in order to ensure customer satisfaction.

Advantages of Revenue center

A revenue center provides many advantages to a business. These include:

• Increased efficiency and accountability – Revenue centers are responsible for their own performance and are held accountable for their results. This encourages improved efficiency and performance, as everyone involved knows that their performance is being monitored.
• Increased customer satisfaction – Revenue centers are focused on customer satisfaction and will go the extra mile to ensure that the customer has a positive experience. This can lead to increased customer loyalty and repeat business.
• Increased profits – By focusing on customer satisfaction, revenue centers can help to increase profits, as customers are more likely to purchase from companies that provide excellent customer service.
• Improved decision making – Revenue centers are responsible for their own decisions, which means that they can make decisions quickly and effectively. This can help to reduce costs and maximize profits.

Limitations of Revenue center

Revenue centers have certain limitations that can impact their efficacy in achieving sales targets. These limitations include:

• Lack of direct control over other departments: Revenue centers often lack the necessary control over other departments in the business, such as marketing and production, which can limit their ability to achieve sales goals.
• Difficulty in hiring and training staff: Revenue centers often struggle to hire and retain qualified staff, which can lead to ineffective sales operations.
• Lack of capital: Revenue centers may have limited access to capital, which can limit their ability to invest in marketing, product development, and other areas needed to grow sales.
• Limited market knowledge: Revenue centers may not have access to the latest market research or customer data, which can limit their ability to understand customer needs and make effective decisions.
• Limited resources: Revenue centers often have limited resources, such as personnel, budget, and technology, which can hamper their ability to successfully implement sales strategies.

Other approaches related to Revenue center

Revenue center can also be approached in other ways:

• Cost center - this type of revenue center is one that is responsible for managing the expenses of the business. This approach allows the manager to have more control over the budget, ensuring that only necessary expenses are incurred.
• Profit center - this approach focuses on maximizing the profits of the company by controlling the costs associated with production and sales. The manager is also responsible for ensuring that the company is meeting its financial goals.
• Responsibility center - this approach emphasizes the responsibility of the manager to not only manage the finances but also the performance of the individual employees working in the revenue center.

In conclusion, revenue center can be approached in many different ways, depending on the type of company and the goals that it is trying to achieve. Each approach has its own benefits, but all of them should be tailored to the specific needs of the business.

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.