Budgeting Basics and Beyond

22.3. Revenue Center

A revenue center is responsible for obtaining a target level of sales revenue. An example is a district sales office. The performance report for a revenue center should contain the budgeted and actual sales for the center by product, including evaluation. Usually the manager of the center is responsible for marketing a product line. But a revenue center typically has a few costs (e.g., salaries, rent). Hence, a revenue center is responsible mostly for revenues and only incidentally for some costs, typically not product costs.

A revenue center approach is most suitable to a sales manager, who is responsible for sales volume, selling price, and total sales. If actual sales exceed budgeted sales, the sales manager is doing something right.

Sales analysis may involve prior sales performance, looking at sales trends over the years, and comparing actual sales to budgeted sales.

In a service business, some performance measures include billable time, average billing rate, and cost per hour of employee time.

Accountability for departmental sales revenue assumes the manager has authority to determine product sales prices.