Cost Center

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What is a Cost Center? 

A cost center in a business is defined as a function or department that does not bring any direct profit to the company but requires the company money to function. Cost centers tend to bring in revenue indirectly to the company. It is the job of the managers of these cost centers to maintain budgets. 

What is the Significance of a Cost Center in an E-Commerce Business? 

Cost centers are important to a business’s seamless operations and functions. Here are the significances of a cost center in an e-commerce business: 

  • A cost center plays an important role in the seamless functioning of a business and assist the ancillary aspects of the business. Some examples of cost centers are- HR departments, service departments, accounting, etc. 
  • The cost centers do not bring in revenue, but they do affect the way customers view the business. It indirectly contributes to the company via customer service, operational value, and increased product value. 

Prerequisites of Cost Centers 

Here are some of the prerequisites for cost centers: 

  • A business has to make sure that the operational costs of a cost center are kept within budget. 
  • Cost centers are important for a business’s internal functions.

Use Case with Cost Centers 

For example, the legal department of an e-commerce business does not bring in direct profit. However, it ensure legal compliances of government regulations and protects the company from legal liabilities and from losing revenue.

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