Good P and L (Profit and Loss) management: 10 Lessons

Nigeria’s non-oil export landscape is undergoing a structural transformation. Recent data from the Nigerian Export Promotion Council (NEPC) shows that non-oil exports crossed $4.5 billion in 2024, driven by solid performance in cocoa, sesame, urea, cashew, and manufactured products. In 2025, the country earned over $6.1 billion, reflecting sustained momentum and a growing contribution of the non-oil sector to foreign exchange stability.

Lesson 1: P&L management is much more than finance, even though it is a finance function. Good P&L management is more of a strategic and operational excellence function beyond finance or the bookkeeping of numbers. Monthly or periodic P&L numbers are actually lagging indicators of the strategic and operational performance of your business measured in financial terms. Unless you wear the strategic and operational lens in looking at your P&L numbers, you are likely to do a suboptimal job of your P&L management.

Lesson 2: Good P&L management is a function of the depth of complementary business and operational non-financial analytics that support it. Complementary business and operational analytics that give minimum second- and third-level strategic and operational insights into your financial numbers are critical to good P&L management. Revenue numbers in the P&L, for example, are a function of the volume and margins of your products and services or the unit economics of your business. Yet, products, services, or sales volumes are a proxy for the share of the market that your business could command, which might be a function of service or product differentiation, customer experience, brand equity, channel or sales efficiency or capillarity, customer loyalty, and many more.

The depth of the margins of the products or services of your business, which will show your P&L, will be a function of the price premium that the product could command based on their differentiation from competitors or your firm’s production or cost efficiency or your scale or scope economies or your value and supply chain relationship and many more. In a service business, plant revenues will also be a function of your average net revenue per customer, which will be a function of your active customer base, net cost of acquisition, and net cost to serve per customer. Good P&L management implies that you need to build a revenue and profit tree that shows how your revenue and profit are built from these non-financial variables as relevant to your business and how they roll up into your net revenue, cost, margins and profit.

The non-financial business variables would need to be measured and tracked against pre-set operational objectives by periods which should be related to your revenue volume and margin ambitions. If you do not have business and operational strategic metrics that are tightly related to your P&L ambitions, you are most likely to be managing your P&L in the air with no operational foundation to make your profit goals happen. That is why good P&L management is much more than a finance function, even when it is generically a finance function. The art of good P&L management is being able to relate various operational non-financial metrics to revenue volume and margin ambitions, looking backward and forward iteratively, and taking proactive decisions to constantly maximise your revenue.

Lesson 3: Read your business data dynamically, as trajectories or trends are not in static form for good P&L management. The trajectory or trend of your P&L variables is as important as the static snapshot of performance per period. The trajectory or rate of growth of your revenue is as important as the static view of your revenue in a period. What is the rate of growth of your revenue relative to your cost? Are you building a business with a true jaw, an analogy for the way we open the mouth? Is your rate of revenue growth faster than your cost, building an inherent accelerating profit trajectory? If you are profitable today, does your trajectory suggest that you will be profitable tomorrow? The trending of your P&L numbers is therefore no less critical than the static snapshots of your P&L at a period.

Lesson 4: Have a strategic understanding of the behaviour and patterns of your P&L and operational analytics to draw timely strategic inferences for action. I once worked for a company that maintained exceptionally detailed analytics of its business operations. This company could probably measure and track data of how long it took to park your car at the parking lot and the time spent to get to your office. The problem was that this company had a very weak strategic lens for looking at its business analytics despite their granularity and pervasiveness. Big questions such as, are we competing in the right markets for our revenue ambitions? Are we delivering a differentiated proposition as a challenger that will make the customers of the market leaders turn to us? These kinds of big questions were not being asked despite the detailed business analytics competency of the organisation. Other strategic questions that were not being clearly answered by that detailed company analytics are: Is our asset and technology deployment strategy in alignment with our commercial strategy? If we must play in uncontested low-income markets, why would the market leader with a bigger resource advantage not outgun us if they deploy their resources in the same market? How do we compete to be different as a challenger so that the incumbent will be unable to challenge us in the markets we elect to focus on? These are some of the big strategic questions that pervasive internally focused granular analytics may not answer if P&L and business analytics are not driven with a strategic lens with a view to drawing strategic insights and inferences for action.

In fact, over granularity may actually lead to a situation where a company is very good at looking at the leaves on a tree and misses the bigger picture of the vegetation of the forest. Viewing your P&L through a strategic lens ensures your revenue projections are grounded in reality, not just on internal spreadsheets.  You can project any revenue or profit on your internal spreadsheets by changing your formulas and assumptions, but are they grounded in the competitive reality of your business and your strategic capabilities to deliver the numbers with regard to things like innovation, product and service differentiation to command planned market share or price premium, business scale and network effects, and your organisational capability in technology, talents, and ecosystem relationships to deliver the planned revenue numbers?

Lesson 5. Map out clearly the activities that are required to support the delivery of your revenue volume and margin objectives of your P&L. Set targets and goals for these activities in relation to your revenue and revenue volume and margin ambitions or an objective of your P&L. Measure the delivery and effectiveness of those activities. Address the operational excellence issues that support the effectiveness and delivery of those activities. Good P&L management must be supported by execution excellence. For example, how many sales calls will you need to make relative to planned success or conversion rate in relation to your revenue ambitions? Even if we cannot be initially accurate, what should be the planned volume of exposure of ads to the target market digitally or otherwise relative to your target adoption success? Which activities or processes should we increase, optimise or eliminate, combine or reroute to improve volume and unit margins?

Lesson number six. Identify the high-leverage activities in your operations that give disproportionate returns in revenue volume and margins. Focus and drive them intensively. The Pareto principle, the 80-20 rule, applies to P&L management. 20% of your activities will give you 80% of your revenue results. Which are those critical 20% activities? Are you putting the right focus on them? The same applies to costs. 20% of your cost activities will contribute roughly 80% of your cost. How do you continuously focus and keep the impact of these critical 20% cost activities at bay? Optimise and reduce them to get a disproportionate improvement in your margins. The same also applies to your stock-keeping units and product lines. Which products or product lines, stock-keeping units or pack sizes give you the highest margin, price, net of cost? How can you drive more volumes in these higher-margin or high-margin lines to get a disproportionate return on your net revenue and drive strong profitability?

Also, please note that there is a strategic context to what will be high-leverage activities for your business. These are activities that reinforce or drive your strategic business advantages that you currently have or which you intend to build. Based on your strategic context, you should understand the critical strategic levers of your business. The three to five big strategic levers that drive your revenue volume and margin objectives. The Pareto principle applies. Do you truly know what these high strategic and operational levers are? Know them and fire maximally on these levers with a high degree of operational excellence, ensuring that those activities are tightly linked to your revenue volume and margin ambitions.

Lesson seven. Have a short- and long-term view of your business in balance. If you manage your P&L only for the short term, on a monthly and on a quarterly basis, you may not have the long-term view of the critical investment that you need to scale your business sustainably. A short-term view of your P&L numbers and its dynamics will sub-optimise your opportunities for growth. There are investments in innovations that may not have immediate P&L impact. What is important is that you have the operational numbers beyond financial metrics that show that your business is on the right trajectory based on a well-thought-out business plan. And that those trajectories are translating to the right financial trends as you scale and as your innovations mature out of the expected innovation gestation.

Lesson number eight. Build your revenue plan at product unit economics and customer unit economics levels, especially in the service business. Ensure that both are linked and in sync.

Let me explain. This is about the link between revenue planning linking product unit economics with customer unit economics. As discussed, planned revenues are driven by product volume and margins. In service organisations and platform-based digital businesses, planned revenues are also driven by customer unit economics with regard to customer base, monthly active users, and periodic net revenue per customer. Just as in product unit economics, where revenue is a function of volume and margins, price net of cost, in customer unit economics for service or platform business, revenue is monthly active users, popularly known as MAU, multiplied by net revenue per customer. Net revenue per customer is defined as revenue per customer minus cost to serve minus the cost of acquisition. To maximise revenue per customer, you will have to drive product cross-sell to get customers to use more products or drive product upsell to get customers to use higher-margin products. You will also need to drive a higher frequency of product usage to get more volumes while also driving customer stickiness and extended customer lifetime for revenue maximisation. This is the link between traditional revenue planning of volume and margins from traditional P&L practice and customer unit-economics revenue planning in service, digital and platform businesses. A good P&L manager in the service business must be able to link the two to drive good business profitability.

Lesson 9. Understand the art and science of optimising long-term volume, margin and price for revenue maximisation, given demand elasticity, competition, complements and substitutes of your products and services. Some businesses price with good margins such that they don’t maximise their revenue.

At a margin of 3 Naira, for example, unit price minus unit cost, if I sell 100 units, my net revenue is 300 Naira. If I drop my margin to N2.5 and I could sell 200 units, my net revenue will be 500 Naira. It makes sense to sell at a lower price. Revenue maximisation built on price elasticity also ensures that you are not giving space for your competitor to build market share and a competing franchise with improving efficiencies of scale, which will hurt your business in the long term, especially if you are a market incumbent. We have seen such issues manifest in the beverage industry in Nigeria, where some of the leading players hurt their long-term franchise and lost huge market share rapidly over 4 years to challengers that were more focused on building rapid-growth volume franchises in their market. Also, in businesses like telecoms and other service industries, scale matters. It impacts cost, where there are significant fixed costs of investments in technology and other assets; the unit cost to sell per customer crashes significantly with scale and volume. It is therefore important to price to maximise volume and build scale to improve the cost to serve per customer and optimise revenue margins. And there is the additional advantage that network effects could deliver at higher volumes that improve your unit economics and competitive advantage with scale along with revenue maximisation.  The art and science of optimising long-term volume, network effects, margin and price for revenue maximisation is an essential component of good P&L management.

Lesson number 10. When a business is facing the fundamental discontinuous or destructive challenge of plateauing revenue or declining profit and operational excellence issues have been excluded, the business needs to be fundamentally reinvented. Good P&L management should pick up these issues significantly ahead. This is about strategic inflection points in your business and your P&L. What happens when you are firing on all the traditional high levers of your business, yet profits are slowing down, flat or declining? Your cheese is moving. When revenue or profit slows down, good P&L management must ask the strategic question whether they are pointers to operational excellence issues or whether they are pointers to strategic issues of competition, environment, regulation, disruption, and technology and what strategic actions need to be taken to restore growth. Unless you have a strategic view and interpretation of your P&L numbers beyond an operational lens, you may never know when your cheese is moving, when your business is being disrupted or when your customers are moving on to new innovative propositions.

Good P&L management should pick up these issues significantly ahead. Professor Rita McGrath of the Columbia Business School called this scene around the corner, recognising significantly ahead strategic inflection points in your business. As a P&L manager, you should monitor industry changes and adapt your business strategy to disruptive new business models, else your revenue and profitability will not be sustainable.

Lesson 11, and this is a bonus: not everything that counts can be counted, and not everything that can be counted counts, as attributed to Albert Einstein.  Pay as much attention to qualitative business information as well as quantitative business information for good P&L management. This is about the role of qualitative information that cannot be measured. Some managers are so obsessed with numbers that they miss critical qualitative information within and outside their businesses. Pay attention to qualitative information that gives complementary insights into your P and L issues.  For example, if sales revenues are slowing, visits to customers or random telephone calls to customers may reveal far more than your analytic numbers may be telling you. A direct engagement with frontline staff in operations, customer service and the factory can give perspectives that operational and financial analytics may not reveal. To be a good P&L manager, you must constantly verify and triangulate financial and non-financial operational numbers with other qualitative information to improve your perspective for good decision-making. Other types of qualitative information or questions that may not be directly measurable but are critical to P&L performance management include: Are we organised in the right way to deliver our profit and revenue numbers? Are our incentive and compensation systems aligned with our profit goals and P&L objectives? As discussed earlier, good P&L management is more than finance; it is actually a de facto general management function. A good P&L manager must be a good general manager.

Olu Akanmu is an executive in residence at the Lagos Business School.