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Why “Cost Center” Should Be Removed From Your Vocabulary

Cost Center. I really dislike these two words. They can be used in various negative contexts such as:

“Hey, you work in a cost center at our organization. You have no say.”

“Sorry, I just can’t approve more spending by your group. You work in a cost center.”

“We are the ones bringing in the new revenue. You…well…you are a cost center.”

So let’s get to the bottom of these two words, which Wikipedia defines as “…a division that adds to the cost of an organization, but only indirectly adds to its profit…”

I love this definition of a cost center because it makes mention of profit. In fact, a cost center can add to the bottom line of an organization by ensuring the expenses incurred are well thought out (and then contain those costs) or even making sure the expenditures have a high return on investment.

The remainder of this post will look at a few ways “cost centers” can significantly affect the profit of its organization.

Moneybags

Finance and Business Operations Department

As a member of Dyn’s Business Operations Department, I am acutely aware of the fact I work in a “cost center”. What many may not know is that our department makes many contributions to the overall bottom line of our company.

Below are a few examples with the benefit to our bottom line in [brackets]:

  1. Manage our cash flow by paying vendors within terms. [Paying within terms lessens the need to borrow money from a bank and thus saves interest as well as ensuring our vendors don’t charge us late fees.]
  2. Negotiate contracts with customers and vendors so that our interests are protected and lower the risk of future litigation. [Litigation is expensive and by ensuring we have key terms outlined in our contracts, we reduce ambiguity.]
  3. Find the most beneficial way to fund capital and non-capital purchases whether it be through cash, borrowing, or leasing. [Reduce interest expense and ensure we maintain our cash position.]
  4. We train employees so that they may use our internal systems more effective and efficiently. [This makes our employees more productive so they can do what they were hired to do better like selling, developing, etc.]
  5. Develop and maintain budgets and forecasts. [Budgets and forecasts help us compare actual spending to what we thought we were going to spend and make real-time adjustments. This also helps us make sure we hire the right people at the right time and to make sure we can plan for the space, technology, and training requirements before the person starts.]

Engineering Department

Many organizations incorrectly view its engineering department as a “cost center”. The engineering department is primarily responsible for the maintenance and creation of new product offerings which your sales department will sell. Without the engineering folks, your sales department (“profit center”) has nothing to sell.

Here is how your engineering department increases the profit of your organization:

  1. Development of new features and products. [New features and products offer up reasons for your current or new customers to give you money/revenue.]
  2. Maintaining products or enhancing the way they are produced/used, making them more efficient. [Efficiency in the usage or production of your goods or services will reduce the related costs and thus, improve margins.]

Information Technology Department

In my experience, the worst usage of the words “cost center” is related to IT Departments. The IT Department is a backbone of your business. Without it, your business will not be operating as efficiently as it could be or generating the profit you expect. Here are ways your IT Department contributes to your bottom line:

  1. Ensuring your corporate systems do not have downtime. [Downtime affects productivity of employees and can cause lost revenue and increased costs to customers.]
  2. Creating and maintaining backups of critical systems. [Ensuring key business data is not lost due to data corruption or hardware failure.]
  3. Implement security plans so the organization remains compliant with all rules and regulations, such as PCI compliance. [Reduce the risk of data loss/theft from viruses, spyware, or malicious attacks and reduce fines for non-compliance of rules and regulations.]
  4. Purchasing software, hardware, and services to ensure seamless user experiences and making systems as fast as possible for users. [Slow systems or poor usability hampers productivity and may result in lost revenue and increases costs.]

How Dyn Can Turn Your “Cost Center” into a Profit Center

The Internet is a big and complex place. Nearly all businesses these days have websites which are used to convey information about the goods or services they offer or even to directly sell to customers through their website (E-commerce). What happens when your DNS or email system/provider goes down? How much revenue will you lose? How much will you need to credit your customers for violation of your Service Level Agreements (SLA)?

Enter DynECT. We can help you with Managed DNS or Email Deliverability. As of this writing, we have 17 data centers spread across the globe and can offer advanced DNS features like Active Failover, Traffic Management, CDN Manager and Round Robin Load Balancing. For email, we can give you better insight into deliverability, open rates, and Reputation Monitoring (an innovative insight into your reputation as an email sender).

Investments in the DynECT platform can result in significantly less downtime, ensuring customers can still access your website and increase deliverability rates of emails you send to current or prospective customers. If you rely on your website to generate leads or even accept customer payment, you need to make sure it is always accessible. Downtime costs your business money. If you generate revenue from direct email campaigns or transactional emails, successful delivery is vital to your business.

Contact our team and ask how we can turn your “cost center” into a profit center.


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