The Revenue Growth Trap for African Businesses

By Gauthier Befahy

Revenue growth is one of the most closely watched indicators of business success. Companies celebrate double-digit increases, sales teams receive higher targets, and rising turnover becomes evidence that a strategy is working.

For African businesses, however, the revenue growth trap begins when higher sales conceal weaker profitability. A company can win more customers, process larger orders and expand its market presence while retaining less profit from the work it performs.

PwC’s 2026 Africa CEO Survey points to considerable optimism: 81% of surveyed CEOs expected improving economic conditions, while the report also highlighted confidence in revenue growth. That optimism raises an important commercial question: how much value will additional sales actually create? [1]

The answer depends on pricing, purchasing costs, delivery requirements and the resources needed to serve customers. Growth deserves attention, but so does the cost of achieving it.

When higher revenue produces less profit

Consider a hypothetical Kenyan wholesaler generating KES 100 million in annual revenue at a gross margin of 20%. Its gross profit—the revenue remaining after the cost of goods sold—is KES 20 million.

The company decides to pursue larger orders by offering discounts. Revenue increases by 15%, reaching KES 115 million. However, its combination of selling prices and product costs now produces a gross margin of only 16%.

Gross profit falls to KES 18.4 million. The business has increased revenue by 15% while reducing gross profit by 8%.

Measure	Before expansion	After expansion
Annual revenue	KES 100 million	KES 115 million
Gross margin	20%	16%
Gross profit	KES 20 million	KES 18.4 million

Illustrative example, not results from an actual company.

Any additional operating expenses associated with handling more orders could place further pressure on operating profit. These expenses must be assessed separately: gross profit does not deduct every cost of running the business.

This distinction matters. Revenue measures sales, gross margin measures the proportion retained after the cost of goods sold, and operating profit accounts for further operating expenses. A rising sales figure alone cannot establish whether a business is becoming healthier.

Margin pressure varies across African markets and sectors

African businesses face different combinations of currency exposure, input costs, infrastructure constraints and competitive pressure. An importer purchasing in foreign currency may experience a different commercial reality from a locally supplied service company.

Manufacturers must manage changing raw-material and energy costs. Distributors must consider the economics of transport, inventory and customer service. Agricultural businesses face fluctuations in input costs, while exporters must assess logistics requirements and changes in market access.

A McKinsey analysis published in 2022 examined financial data from 60 leading African companies. Between 2020 and 2021, their average cost of goods sold rose by 21%, compared with revenue growth of 27%. The overall figures did not show an erosion of gross margin, but the picture differed by sector: some experienced cost growth exceeding revenue growth. This is historical evidence of variation, not a measure of current conditions across every African business. [2]

More recent survey findings illustrate how confidence and concern can coexist. In PwC’s 2026 Kenya CEO Survey, 46% of respondents were confident about revenue growth over the following 12 months. Separately, 46% expected tariffs to reduce their net profit margins. These are expectations rather than realised results, and the percentages do not necessarily describe the same respondents. [3]

The management implication is straightforward: growth cannot remain the responsibility of sales alone. Pricing, procurement, finance and operations need a shared understanding of which orders create value and which create activity without sufficient return.

Why small discounts can have a large effect

Discounting can make an agreement easier to secure. The customer receives a lower price, and the salesperson moves closer to a target. But a discount’s effect on profit can be much larger than its percentage suggests.

Suppose a product sells for KES 100 and costs KES 70. Gross profit per unit is KES 30, and gross margin is 30%.

A 10% discount reduces the selling price to KES 90. If the unit cost remains unchanged, gross profit falls to KES 20—a reduction of one-third. Gross margin falls to approximately 22.2%.

The distinction is important: the company has surrendered one-third of its gross profit per unit, not one-third of its margin percentage. It would need to sell 50% more units simply to preserve the same total gross profit, assuming unchanged unit costs and before considering any additional operating expenses.

McKinsey provides a related illustration for distributors: at an initial gross margin of 18%, a 1% price reduction requires roughly 6% additional sales volume to break even. The calculation shows why a seemingly modest concession deserves a clear commercial justification. [4]

This does not mean discounts are always wrong. Preferential pricing may be justified by guaranteed volumes, faster payment, lower delivery costs or a strategically valuable agreement. The problem arises when discounting becomes the automatic response to resistance, without checking whether the resulting deal remains worthwhile.

Negotiate the whole agreement

When a customer requests a lower price, the first useful step is to understand the reason. Is the customer managing a cash-flow constraint, comparing competing offers, seeking certainty over future costs or questioning the value of the proposed service?

Different concerns call for different responses. A price reduction is only one possible change to an agreement.

Where a concession is appropriate, businesses should consider what they receive in return. A customer might commit to a minimum purchase volume, consolidate deliveries, agree to faster payment or accept a longer contract. Each of these can affect the economics of serving the account.

The exchange needs to be specific. An enforceable volume commitment is different from an informal promise of future orders. A longer contract is valuable only if its pricing and service obligations remain commercially sustainable.

Other benefits, such as a customer reference or a jointly developed case study, may have marketing value. However, they should not automatically be treated as substitutes for cash or a sound margin.

The objective is to reach an agreement in which both parties understand what they are exchanging and why it is worthwhile.

Make customer value visible before discussing price

Price becomes especially prominent when customers see little meaningful difference between suppliers. If a sales conversation focuses only on product specifications, it can leave buyers with few reasons to choose beyond the quoted amount.

Businesses can improve that conversation by understanding what the customer is trying to achieve. Does the buyer need more dependable delivery, fewer interruptions, simpler administration or better support when problems arise?

Those questions help establish whether an offer has practical economic value. A supplier should be able to explain the connection between its capabilities and the customer’s needs, without relying on unsupported promises of savings or returns.

In my view, sales teams often move into product presentations too early. They explain what they sell before understanding the customer’s operating conditions, priorities and constraints.

Spending more time on that discovery can lead to a better proposal. It can also reveal when an opportunity is a poor fit, before both parties invest heavily in negotiations.

Know your best alternative before negotiating

BATNA stands for “best alternative to a negotiated agreement”. It means the best realistic course of action available if the current negotiation does not produce an acceptable deal.

For a supplier, that alternative might be selling to another customer, allocating capacity elsewhere or retaining existing commercial terms. A healthy pipeline can strengthen a company’s alternatives, but an unqualified list of prospects is not the same as a credible fallback.

The distinction becomes particularly important after a long sales process. Meetings, proposals and management attention can create pressure to close a deal simply because so much effort has already gone into it.

Without a realistic alternative, negotiators may become more willing to accept terms that undermine profitability. The immediate fear of missing a target can outweigh the longer-term cost of winning an unattractive contract.

A stronger BATNA gives a business a firmer basis for deciding whether to proceed. It does not eliminate the need for flexibility, but it makes walking away a credible option when an agreement fails to meet essential commercial requirements.

Manage growth across the business

Protecting profitability requires consistent habits. Sales teams need to understand the effect of discounts and service commitments. Finance needs visibility into the economics of proposed agreements. Procurement and operations need to help assess whether the business can deliver what has been promised at the assumed cost.

That coordination should begin before a contract is signed. A deal that looks attractive at the quotation stage can become much less attractive if delivery expectations, payment terms or support requirements have not been understood.

Revenue remains an important measure of commercial progress. However, it should be considered alongside the profit retained and the resources required to deliver it.

African businesses have substantial opportunities to grow. Making those opportunities worthwhile requires better customer understanding, disciplined negotiation and closer coordination between the teams that sell, deliver and account for the work.

The aim is to build a business that retains enough value from its growth to sustain it.

About the author

Gauthier Befahy is a sales and commercial capability specialist with nearly two decades of experience across Africa, Europe and the Middle East. He is the founder of BrainFit Ltd in Nairobi and previously held senior sales training and facilitation roles with IBM and Oracle. His work focuses on sales execution, negotiation, leadership and value-based selling.

Sources

1. PwC’s 29th Global CEO Survey: Africa perspective, February 2026.
2. McKinsey: Procurement in Africa—Exercising a muscle for challenging times, December 2022.
3. PwC’s 29th Global CEO Survey: Kenya perspective, April 2026.
4. McKinsey: Pricing—Distributors’ most powerful value-creation lever, September 2019.