Cost Center

Pinch every penny. Or don’t. That’s your decision. But one of the most important functions of a business is to allocate its spending and costs accordingly. That’s where the business school term “cost center” derives from. A cost center is a part of a division that’s in charge of controlling costs for the business. Its counterpart is a profit center, which is in charge of making money.

Control costs and make revenue, and hopefully you turn a profit. You make more money than you’re spending. Funny how many people and companies still don’t understand this concept.

That said, it’s not a bad thing when a company spends more than it makes, particularly in its early years. Venture capital and private equity firms will spend more money to build market share. However, startups can’t just spend like drunken sailors with investors’ money.

Someone has to be in charge of controlling those costs. It’s usually a guy named Doug who runs the department. He’s got a nice house and a mortgage. He coaches soccer. He controls costs and comes in seventh place every year in Fantasy Football, despite being a numbers guy.