Entry No. 5

Profit Centres vs Cost Centres

Profit centres vs cost centres is something I wish someone had told me earlier in my career.

This idea applies to just about any job you do, no matter what industry you’re in. It is a powerful way of looking at your work, and figuring out how good the job would be for your career in the long run.

Here’s how it works:

There are two kinds of places you can work in:

  1. You can be working in a profit centre, or
  2. You can be working in a cost centre

A profit centre is a job that makes money for the company. For example, if you’re working in a bank, the bankers are the profit centres – they’re where the bank makes most of its money. If you’re working for a tech company, the programmers are the profit centres. If you’re working for an accounting firm, the accountants are the profit centres. You get the idea.

Companies also have cost centres. These are places in the company that are regarded as the cost of doing business. So for instance, in a company like Google, the finance department and legal department are regarded as cost centres. They’re not directly tied to how Google makes its millions and millions of dollars each year; instead they are regarded as people you have to pay in order to get business done. On the other hand, banks regard their IT departments as cost centres. The bankers make all the money while the programmers are a cost of modern banking.

Here’s what this means for you: all things being equal, work for a profit centre, not a cost centre.

1) If you are in a profit centre, the company will regard you as one of the most important parts of the company. After all, how well you perform is linked directly to how much profits it gains!

2) Therefore the company is highly motivated to invest in you. People working in profit centres enjoy lots of invisible benefits: the company will spend more on them, will train them better, will work hard to keep them. On top of that, companies will try and recruit the best people to work in their profit centres, which means that your fellow colleagues, your managers, and their bosses are likely to be really good people you can learn from.

3) New projects that you want to push are more likely to be approved. You will have more freedom to start new initiatives. And so on so forth.

On the other hand, if you are working in a cost centre, you’re likely to suffer from a lack of invisible benefits. New initiatives are harder to push through, your colleagues won’t be as heavily recruited, and the company won’t work so hard to keep you.

This idea explains a lot about job and salary types. It explains why salespeople tend to be amongst the highest paid regardless of industry – because the sales force is directly linked to how much money a company makes. It also explains why programmers in Google enjoy more benefits than programmers in large banks.

Notice that the ‘profit centre vs cost centre’ argument does not say anything about how much you’re paid. If you are a lawyer in the legal department of a large company, you would probably be paid just as well as if you were working in a law firm. But you will learn less.

One last note: this idea also means that sometimes, the best way to get what you want is to position yourself as a profit centre to your boss, as opposed to a cost centre. Internal company politics are built around appearances. If you are in a cost centre, your best strategy is to sell yourself as a profit centre.

It can be entirely possible that an IT department is regarded as a profit centre inside a bank, if the head of the department knows how to sell his team as important to the bank’s long term goals (or if the CEO thinks IT is important).

Here’s a real world example: working in AIA’s IT team in Singapore is pretty good, because the current AIA CEO believes technology will be a huge competitive advantage for its business. The current team is paid well, and given quite a bit of freedom to innovate.

All things being equal, work for a profit centre, not a cost centre.

This post is part of the FCS Career Playbook for Software Engineers in Vietnam. Check the guide for more software engineering career advice.