In most businesses, managers have responsibility and authority over a specific group of employees, or department. A manager in a sales department has authority over the salespeople under them, for example.
Typically, a manager in a profit center has responsibility and authority over the revenue that comes into the business. They have control over how their department performs in terms of revenue generated.
A profit center is a group of products or services that the business sells for profit. All other groups or departments of products or services are called cost centers because their performance is measured against cost rather than profit.
For example, the warehouse workers are in a cost center because they do not directly affect the profits of the business. They only affect how quickly and efficiently products are shipped out to customers which affects customer satisfaction but not sales revenue.
This article will discuss why having managers in profit centers is beneficial for both the organization and the manager themselves.
Revenue
A profit center is an area of the business where the manager has responsibility and authority for making decisions that affect revenue. Managers in profit centers have some autonomy to make decisions that affect their area.
For example, a sales manager in a car dealership has some control over what cars they put on the lot and how they’re priced. They also have control over how they’re marketed and sold.
If the sales manager puts too many cars on the lot at too high of a price, then they will not sell as many as if they had more reasonable prices and better marketing strategies.
This is because they are being very specific about what cars go on sale and how they’re presented to potential customers. A manager in a support center would not have this kind of control, which makes them less of a “center.
Expenses
In this case, the manager has full control over expenses. They can decide what benefits are offered to employees, what kinds of salaries they can offer, and what kinds of investments they make with the profits.
Profit centers are usually given a budget or allowed to spend a certain amount. Managers are then held accountable for staying within this budget.
If they run out of budget, they must ask for more or take away benefits or raises. This can be tough, especially if they have found ways to save money that fall within the rules set by upper management.
They also have control over how much they invest in materials and machinery to improve production. They can seek out the best equipment at the best price, or buy cheaper equipment to keep costs down.
Inventory
A big part of managing a store is deciding how much inventory to keep on hand. If you have too little, you will run out and disappoint customers. If you have too much, you are wasting money on extra products.
Managers should not keep unlimited inventory on hand, but instead should set a reasonable limit based on past customer demand.
To do this effectively, the manager needs to be informed by other successful stores and what the average inventory is for each item.
On the other hand, if the manager of the store is not able to do this, then they should invest in an app that can keep track of inventory for them. The app can be set to notify them when they are running low on any particular item so that they can restock before they run out.
Staffing
A manager in a profit center has full control over staffing. This includes hiring new staff, firing staff, and dictating the number of staff needed to meet demand.
As a manager in a non-profit organization, you do not have the right to hire or fire anyone. You also do not have the right to increase or decrease the number of employees working under you.
If you are managing a department within a larger organization, then you only have control over the staff in your department. The higher-ups can add more people as they see fit or take away people under your command as they see fit.
Having too many employees can hurt your organization financially. Having too few can hurt customer service and organizational performance. A good manager needs to find the sweet spot between these two extremes.
Sales strategies
A sales strategy refers to how a store plans to attract customers and get them to purchase items. This can include creating promotional events, adjusting inventory, and investing in advertising.
Promotional events can include creating a contest or offering a discount on certain items. By having people enter a contest or buy an item at its cost, you are hoping people will buy other higher priced items to make up the difference.
Adjusting inventory refers to managing how many items are stored in the store. Having enough stock on hand attracts customers who want to purchase an item, but having too much stock can lead to wasted money.
Advertising campaigns can cost money, but they help draw more customers to the store who may then purchase items. Advertising can also help spread awareness of the products and services offered at the store.
Marketing strategies
A marketing strategy is how a business tries to attract customers and get them to come back. This includes what types of customers a business targets, how it goes about attracting them, and how it keeps them coming back.
For example, if a restaurant targets families with young children, its marketing strategy would include creating kid-friendly dishes and advertising activities for children. If the restaurant wants to encourage repeat customers, it would offer good value meals and reliable service.
Marketing strategies can include social media promotion, print advertisements, pricing strategies, and more. A manager in a profit center business has the responsibility and authority to implement these strategies.
A manager may have to work with limited resources. If the restaurant only has so much money to spend on advertising, the manager has to find the most effective ads for the budget. Similarly, if the manager determines that offering better value meals will draw more repeat customers, then they may need to find ways to do this while staying within a budget.
Customer service
A significant part of running a business is dealing with customers. As a manager, you will be faced with customer service issues many times.
You will have to decide how to deal with unhappy customers, how to help customers find what they want and how to deal with complaints. All of these factors play into customer loyalty.
Unhappy customers will tell other people about their experience and possibly take their business elsewhere. Complaints can be dealt with by offering refunds or replacements.
Helping customers find what they want can boost their confidence in your store or business and keep them coming back. The best managers know this and put effort into it.
Customer service is a hard part of the business world to control, but the better you are at it, the more success you will have.
Risk taking
A key responsibility of a manager in a profit center is taking risks. A manager has to decide what new services or products to offer, how to promote them, and when to put money into them.
Managers must also decide whether to invest in new facilities or machinery, how to use the new equipment, and how to train employees on its use.
All of these decisions require funding which has a cost associated with it. A manager must weigh the pros and cons of each decision and decide whether it is worth the risk.
For example, a manager may want to introduce a new product but cannot unless they have enough supplies available. They must then decide whether to take the risk of having low supply or no supply at all for their product.
