what is a profit center 
a profit center is a branch or division of a company that directly adds or is expected to add to the entire organization s bottom line it is treated as a separate standalone business responsible for generating its revenues and earnings its profits and losses are calculated separately from other areas of the business peter drucker coined the term profit center in 1945 understanding profit centersprofit centers are crucial to determining which units are the most and the least profitable within an organization they function by differentiating between certain revenue generating activities this facilitates a more accurate analysis and cross comparison among divisions a profit center analysis determines the future allocation of available resources and whether certain activities should be cut entirely as an example they may investigate the customer financing arm of the business to see if it is creating the necessary profit the managers or executives in charge of profit centers have decision making authority related to product pricing and operating expenses they also face considerable pressure as they must ensure that their division s sales from products or services outweigh the costs that their profit center produces profits year after year either by increasing revenue decreasing expenses or both not all units within an organization can be tracked as profit centers this is particularly the case for many departments that provide an essential service within an organization the research department within a broker dealer the auditing compliance human resources department of a law firm the inventory control department of a clothing retailer human resources and customer service these divisions have their own costs but do not generate their own revenues as a result they are known as cost centers while profit centers are operated with a focus on bringing in revenue cost centers are not associated with the direct generation of profits cost centers also include various support departments such as it support human resources or customer services which are critical to business functions but do not have a specific responsibility to make money real world examples of profit centersat the retailer walmart different departments selling different products could be divided into profit centers for analysis for example clothing could be considered one profit center while home goods could be a second profit center in addition departments that rotate on a seasonal basis such as the garden center or sections relating to holiday decor can be examined as profit centers to separate these departments seasonal contribution from those with a year round contribution the computer giant microsoft has a wide variety of profit centers ranging from hardware to software to digital services in analyzing these large revenue sources the company may choose to separate the funds produced from the sale of its windows operating system from that of other software suites such as microsoft office or other hardware sectors such as the xbox gaming console this allows the profitability of different products to be examined and correlated based on associated cost and revenue comparisons the concept of a profit center is a framework to facilitate optimal resource allocation and profitability to optimize profits management may decide to allocate more resources to highly profitable areas while reducing allocations to less profitable or loss inducing units 