Cost Centers vs Profit Centers

In a lot of businesses, you have two areas of operation – cost centers and profit centers. They both have an impact on the profitability and viability of a business, but they are often viewed very differently by the people who run the business.

Where it matters to most of the people who read this is that working in one vs the other can have an impact on your career – both in terms of pay, recognition, promotion, etc. at your current job as well as what sort of attention you get from companies for future jobs.

So, what are cost centers and profit centers and how do they impact you?

Profit Centers

Profit centers are where the money is made. The one that comes to mind immediately for most people is sales, and that is indeed a profit center. Another example would be the Asset Management and Wealth Management departments of an investment bank (yes, there is a difference between these two things, they are often separate departments, and the amount of money generated there for the business is absolutely unreal).

Profit centers tend to get most of the attention from the VP and C-level employees of a company, because those people are usually focused on growing revenue year over year. That means that they want more sales.

Additionally, the majority of upper level leadership in most companies is going to be composed of people who came up through profit centers, so this becomes a self perpetuating cycle because most people value what they know and understand over what they don’t.

Notice that I said growing revenue and not increasing profitability because these are two completely different concepts but the differences between them is outside of the scope of this post.

Since most of the business’ focus is on profit centers, the people who work in them tend to have a much higher visibility. They get paid more (on average), are often promoted faster (partially because they have higher visibility and partially because they can quantify their impact more easily), and are generally the last people impacted by layoffs (after all, why would you lay off the people bringing in money).

Working in a profit center also means it’s generally easier to get an even more high profile, higher paying job with a more impressive title at another company after you leave your current one. Part of the reason is that you can put things like “created software to increase annual revenue by $x million dollars” or “lead team on project which opened up core services to new markets, leading to a 30% increase in revenue” on your resume.

That sort of thing makes a lot of companies and managers drool with anticipation of what you can do for them because you’ve proven (or at least claimed) that you’ve done something amazing in your current/previous positions that grew their bottom line.

I’ve said it countless times before, businesses and hiring managers are often severely lacking in creativity when it comes to seeing potential in people. They tend to stick to type casting people as only being likely to do similar things to what they’ve already done. This is something that you want to think about as you chose jobs throughout your career.

Cost Centers

Cost centers are usually viewed as anything that doesn’t directly bring in revenue. All of the stuff that keeps the lights on – SRE, infosec, and pretty much anything back of house (unless, of course, you’re talking about a business that sells those services to other businesses. If that’s the case, they’re a profit center because they’re bringing in revenue).

Businesses usually try to spend as little as they can get away with for people who work in their cost centers. Don’t get me wrong, they try to control the salaries of people on the “profit” side of the house too, but they do it with the understanding that they’ll lose those people if they push too hard.

They’ll also try to spend as little as they can on keeping up with current practices in areas that they consider to be “less important”. All of this adds up to problems for your career.

That’s not to say that you’ll be getting paid badly or that you’ll have problems finding your next job, because that’s not the case. It just means that you won’t be likely to have the same salary or recognition in regulatory technology as you would with the same skillset in asset management in a mega bank (I speak from both observation and experience).

Unfortunately, it also means that you’re more likely to face a layoff during an economic downturn (or because the CEO decided to make the short-term numbers look good so they can sell off a bunch of their stock after having it go up due to decreased head count).

So, what can you do if you’re located in a business’ cost center?

If you’re looking to stay within the company and advance, take a serious look at moving to the profit center side of the house.

Ever notice in large companies when a Director or Vice President of a department makes what seems to be a lateral move within the organization? The reason is usually that they’re moving to a higher profile, more respected part of the company – frequently from a cost center area to a profit center one.

When you get to that level in your career (and ideally long before you get to that point), a lot of your career decisions are strategic so that you can be better placed for larger future gains.

One example that comes to mind is when the director of Legal and Regulatory Technology (the department that I was in) was hired in from outside, ran the department for about a year, and then immediately moved into either Asset or Wealth Management. On paper it was a lateral move, but in reality it was a promotion because it meant that he was in a much higher profile position and was more likely to be given larger titles and much larger salaries in the future.

You can do the same thing. Get to know the people in the profit center department that you want to move to and, once you have people in your corner, put in for a transfer. We all know it’s easier to get hired into a company when you know people inside, but moving between departments is often ridiculously simple when you make friends with your future co-workers and boss while you’re already in the company.

If you’re looking to move outside the company and want to move from a cost center to a profit center, start looking for ways to quantify the financial impact that you’ve had while doing your job. Honestly, you should be doing this anyway (because your resume is a marketing document, after all), but it’s especially important if you want to move into a different type of work.

Did the work you do lead to a measurable decrease in costs for the business? Did it lead to decreased time required for the business to generate profit? Did you lead an initiative that had a material impact on the business that you can spin as more than just “we kept the lights on so the sales people could do sales”? In the words of a coworker of mine, HYPE THE HELL OUT OF THAT.

Start talking to other companies while you’re still employed if you can. If you find that you aren’t getting the traction that you’d expect in your job search, consider making a fairly brief team change within your company so you have a title on the profit center side of the house even if most of your accomplishments were on the cost center side, because that may help (3-6 months is often long enough if you can score a win or two while you’re there).

If you’re going to be type-cast (and you probably will be), do what you can to control the narrative so that you can have some influence over how you get type cast. This is your career. Don’t let others write the entire script on your professional life because, if they do, they’ll do it in a way that only benefits them.

, ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: