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not sure this is an airtight definition, but think about employee skill vs revenue in a particular department. if you're selling software, you would expect reve

not sure this is an airtight definition, but think about employee skill vs revenue in a particular department. if you're selling software, you would expect revenue to go up a lot if you increase the overall skill of the developers. if you're a restaurant, you probably don't see a huge increase in revenue from hiring a very good website designer. basically, how hard is it to get people who do a "good enough" job? maybe "not very hard" means you're looking at a cost center and "very hard" means you're looking at a cost center. of course the problem is that things are very interrelated at a company. maybe you can't hire good developers if you don't have good HR people to recruit them. if you have bad or not enough cleaning staff, maybe none of your "profit center" employees are actually willing to work for you because your office is filthy. maybe the event planning staff do really good parties that help with retention. I guess I'm inclined to agree with you that there's no clear, workable definition of "cost center" or "profit center", but there are certainly areas of your company that generate more ROI than others, and I think that's kinda the point of this (crude) way of thinking about it.

cool-RR 7y ago
I understand that we're mostly agreeing, and I think that we both have an intuition for what it means for something to be a profit center. Still, I'd like to show a gap in what you said: You talk about what kind of increase in revenue you'd have if such and such people did a better job, and what kind of ROI you'd get from each department. But the question is, an increase relative to what, or an ROI relative to what? Let's take the billing department. If you made sales for $10 million, and your billing department works okay, then you would have a revenue of $10 million. If you hired the best billing experts on earth, you still would get just $10 million. So that might make you look at the billing department as a cost center rather than a profit center. But maybe if the billing department fucked up royally, either by not charging a customer, or overcharging them and hurting the relationship, or breaking obscure laws and getting the company in legal trouble. Then you could be out a lot more than $10 million. So in effect, you could view the billing department's ROI as "how big a disaster they can prevent, and how good they are at preventing it." That kind of thinking makes sense for any department in the company. That's the reason why I don't see the logic behind branding some departments as profit centers and some as cost centers.
- 0x445442 7y ago
  I agree with you 100% and have attested to the same claims on other threads. With small exceptions, businesses exist to make profit. The whole discussion going all the way back to the original terms should be recast as "ROI positive centers" and "ROI negative centers". From that perspective I would agree, it's better to be working for an "ROI positive center" in the company. And even though it might seem the security compliance department is ROI negative, if the alternative is being shutdown by a government agency or paying heavy fines then it really is ROI positive; it just might be harder to make those calculations up front.
  - rightbyte 7y ago
    The janitor unlocking the doors in the morning is a cost centre but nothing would get done without one. I agree with the coiner that there are only cost centres. However, close to the top of the pyramid is where the money is at. I think that's more important than whether it's core business or whatever.

cool-RR 7y ago

I understand that we're mostly agreeing, and I think that we both have an intuition for what it means for something to be a profit center. Still, I'd like to show a gap in what you said: You talk about what kind of increase in revenue you'd have if such and such people did a better job, and what kind of ROI you'd get from each department. But the question is, an increase relative to what, or an ROI relative to what? Let's take the billing department. If you made sales for $10 million, and your billing department works okay, then you would have a revenue of $10 million. If you hired the best billing experts on earth, you still would get just $10 million. So that might make you look at the billing department as a cost center rather than a profit center. But maybe if the billing department fucked up royally, either by not charging a customer, or overcharging them and hurting the relationship, or breaking obscure laws and getting the company in legal trouble. Then you could be out a lot more than $10 million. So in effect, you could view the billing department's ROI as "how big a disaster they can prevent, and how good they are at preventing it." That kind of thinking makes sense for any department in the company. That's the reason why I don't see the logic behind branding some departments as profit centers and some as cost centers.

0x445442 7y ago
I agree with you 100% and have attested to the same claims on other threads. With small exceptions, businesses exist to make profit. The whole discussion going all the way back to the original terms should be recast as "ROI positive centers" and "ROI negative centers". From that perspective I would agree, it's better to be working for an "ROI positive center" in the company. And even though it might seem the security compliance department is ROI negative, if the alternative is being shutdown by a government agency or paying heavy fines then it really is ROI positive; it just might be harder to make those calculations up front.
- rightbyte 7y ago
  The janitor unlocking the doors in the morning is a cost centre but nothing would get done without one. I agree with the coiner that there are only cost centres. However, close to the top of the pyramid is where the money is at. I think that's more important than whether it's core business or whatever.