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What Are Operating Expenses and How to Track Them for Your Business in Nigeria

Operating expenses are the hidden profit killers most Nigerian business owners underestimate. Learn what they are, what counts, how to track them, and how to keep them under control.

Zerrar Team30 May 2026

What Are Operating Expenses and How to Track Them for Your Business in Nigeria

Introduction

Most Nigerian business owners have a rough idea of what they spend on stock. Far fewer have a clear picture of everything else they spend to keep their business running and that gap is one of the most common reasons a business that looks profitable on the surface is actually struggling underneath.

Those other costs have a name: operating expenses.

Operating expenses are all the costs your business incurs to run and operate, beyond the direct cost of the products you sell. They do not get as much attention as turnover or gross profit but they are just as important. Left untracked, they silently eat into your profit every single month.

This article explains what operating expenses are, what counts as one, how to categorise and track them properly, and how Zerrar helps you stay on top of every naira going out of your business.

What Are Operating Expenses?

Operating expenses also called overheads or opex are all the costs of running your business that are not directly tied to the cost of the products you sell.

If Cost of Goods Sold (COGS) is what you spend to buy what you sell, operating expenses are everything else you spend to keep the business open, visible, and functional.

Formula: Net Profit = Gross Profit − Operating Expenses

Operating expenses sit between your gross profit and your net profit on a Profit and Loss statement. The lower your operating expenses relative to your gross profit, the more net profit your business keeps.

Why Tracking Operating Expenses Matters

It reveals your real profitability. A business with a healthy gross margin can still make a loss if operating expenses are out of control. Tracking them is the only way to know whether your net profit is what you think it is.

It exposes unnecessary spending. When you list every expense, patterns emerge. You might discover you are paying for subscriptions you no longer use, overspending on packaging, or losing significant money to bank transfer charges you never thought to add up.

It helps with budgeting and planning. Knowing your average monthly operating expenses lets you set realistic revenue targets. If your overheads are ₦150,000 per month, you know exactly how much gross profit you need just to break even.

It is required for accurate tax reporting. Operating expenses reduce your taxable profit. A business that does not record its expenses properly ends up overpaying tax to FIRS paying tax on profit it never actually made.

It builds investor and lender confidence. Any bank or investor reviewing your business will want to see that your expenses are tracked, categorised, and under control. Untracked expenses signal poor financial management.

What Counts as an Operating Expense?

Here is a comprehensive breakdown of what Nigerian product-based businesses typically include as operating expenses:

Logistics and delivery Fees paid to dispatch riders, logistics companies, or courier services to deliver orders to customers. This is one of the largest operating expenses for e-commerce and WhatsApp-based businesses.

Packaging materials Nylons, boxes, tissue paper, tape, ribbon, thank-you cards, and branded packaging. If it wraps, protects, or presents the product to the customer, it is a packaging expense.

Advertising and marketing Instagram and Facebook ad spend, influencer fees, Google Ads, sponsored posts, and any other paid promotion. This is often the most variable expense and the one most worth scrutinising.

Platform and marketplace fees Commissions paid to selling platforms, payment gateway fees charged by Paystack, Monnify, or Flutterwave, and Zerrar subscription costs all belong here.

Staff salaries and wages What you pay your cashiers, assistants, packers, social media managers, and any other employees. If you have staff, this is typically your largest operating expense.

Rent Monthly rent for your shop, market stall, studio, office, or storage space. For home-based businesses, a portion of home expenses allocated to the business can be counted here.

Utilities Electricity bills and generator fuel. In Nigeria, generator running costs are a real and significant business expense that many merchants forget to track.

Data and phone bills Internet data subscriptions, business phone line costs, and any communication tools used to run the business.

Bank charges and transfer fees Every bank transfer, USSD charge, and account maintenance fee adds up over a month. For high-volume businesses, this can be surprisingly significant.

Professional services Accountant fees, legal fees, and any consultants or freelancers hired for specific tasks.

Equipment maintenance and repairs Repairs to POS terminals, phones, computers, generators, sewing machines, or any equipment used in the business.

Transportation Fuel or transport costs incurred travelling to suppliers, markets, or for business purposes.

Stationery and office supplies Receipt books, pens, printer ink, and any physical office or admin supplies.

What Does NOT Count as an Operating Expense?

Cost of Goods Sold (COGS) The cost of the actual products you sell belongs in COGS, not operating expenses. Mixing them distorts both your gross profit and your operating expense figures.

Personal expenses Groceries, personal clothing, personal transport, and any expense that is not directly related to running the business do not belong in your business expense records.

Loan repayments Repaying a loan is not an operating expense, it is a financing activity. The interest on a loan can be recorded as an expense, but the principal repayment cannot.

Capital purchases If you buy equipment or furniture that will be used for more than a year a generator, a display rack, a laptop that is a capital expenditure, not an operating expense. It is handled differently in accounting, typically through depreciation.

How to Categorise Your Operating Expenses

Organising your expenses into categories makes your financial reports far more useful and your analysis far more actionable.

Recommended categories for Nigerian merchants:

Step-by-Step Guide to Tracking Operating Expenses

Step 1: Open a dedicated business account. All business income and expenses should flow through one account. Mixing personal and business finances makes expense tracking nearly impossible.

Step 2: Record every expense as it happens. Do not wait until the end of the month to try to remember what you spent. Log each expense immediately the amount, the category, and what it was for.

Step 3: Keep receipts and invoices. Every expense should have a supporting document a receipt, invoice, or bank statement entry. This is essential for tax purposes and for claiming input VAT where applicable.

Step 4: Assign every expense to a category. Use the category list above consistently. Categorised expenses are far more useful than a single undifferentiated list of amounts.

Step 5: Review your expenses at the end of every month. Add up each category and compare to the previous month. Look for expenses that have grown unexpectedly and investigate why.

Step 6: Calculate your total operating expenses for the month. Add all category totals together. This is the number you subtract from your gross profit to arrive at your net profit.

Step 7: Export or share with your accountant. At the end of each period, your expense records combined with your Zerrar sales export give your accountant everything needed to prepare a complete Profit and Loss statement.

Worked Example: Adaeze's January Operating Expenses

Continuing with Adaeze's fashion business from earlier in this series:

Expense Category

Delivery fees : ₦15,000

Packaging materials : ₦5,000

Instagram ads. : ₦10,000

Zerrar commission : ₦11,300

Data and phone : ₦3,000

Miscellaneous. : ₦2,000

Total Operating Expenses

₦46,300

Adaeze's January gross profit was ₦118,000.

After deducting her ₦46,300 in operating expenses:

Net Profit = ₦118,000 − ₦46,300 = ₦71,700

Her net margin: ₦71,700 ÷ ₦226,000 × 100 = 31.7%

For every ₦100 she earns, she keeps roughly ₦32 as real profit. The rest went to her supplier and the cost of running her business.

Common Mistakes to Avoid

Not recording cash expenses Many Nigerian business owners record bank transfer expenses but forget cash expenses fuel purchased with cash, market transport, small supply runs paid in cash. These add up significantly over a month and must be recorded.

Treating owner withdrawals as expenses When you take money out of the business for personal use, that is an owner's withdrawal not a business expense. Recording it as an expense artificially inflates your costs and reduces your reported profit.

Forgetting small recurring expenses A ₦3,000 monthly data subscription, ₦1,500 in bank charges, ₦2,000 in miscellaneous costs individually they seem small. Together across a year they can add up to over ₦78,000. Small recurring expenses are worth tracking carefully.

Not reviewing expenses regularly Tracking expenses without reviewing them is only half the job. A monthly review is where you spot the delivery provider charging more than agreed, the subscription you forgot to cancel, or the ad spend that generated no return.

Mixing COGS and operating expenses Delivery fees paid to receive stock from your supplier belong in COGS. Delivery fees paid to send orders to customers belong in operating expenses. Mixing these distorts both figures.

How to Reduce Operating Expenses Without Hurting Your Business

Reducing operating expenses increases your net profit without needing to sell more or raise prices. Here are practical ways Nigerian merchants can do it:

Negotiate delivery rates. If you are sending a consistent volume of orders, most dispatch companies will offer better rates. A small reduction per delivery can save significant money over a month.

Buy packaging in bulk. Packaging materials are almost always cheaper per unit when bought in larger quantities. Plan ahead and buy in bulk rather than restocking frequently at retail prices.

Review ad spend regularly. Only keep running ads that are generating a return. An ad spend of ₦20,000 per month generating ₦15,000 in additional gross profit is a net negative. Track your ad performance and cut what does not work.

Consolidate supplier trips. Combining multiple supply runs into fewer trips reduces transport costs and saves time.

Use Zerrar to eliminate manual admin costs. Tools that automate invoicing, inventory tracking, payment confirmation, and financial reporting reduce the need for manual administrative labour cutting staff costs or freeing up your own time for revenue-generating activities.

How Zerrar Helps You Track Operating Expenses

Zerrar includes a built-in expense tracking system that lets you record and categorise every business expense directly in the platform right alongside your sales data.

What Zerrar does for you:

Record expenses with amounts, categories, and dates in seconds
Expense categories align with standard accounting categories for clean reporting
Expense data sits alongside your revenue data so your net profit is always visible
Sales and expense exports in CSV, PDF, and Excel give your accountant everything needed
On the Starter plan and above, the full analytics dashboard shows your revenue and expense breakdown side by side

On the Pro and Growth plans, you get advanced profitability reports that show profit per product and per branch combining your revenue, COGS, and operating expense data into a complete financial picture.

Frequently Asked Questions

Are operating expenses tax deductible in Nigeria? Yes. Legitimate business operating expenses reduce your taxable profit under Nigerian tax law. This is why accurate expense tracking directly reduces your tax liability. Keep receipts and invoices as supporting evidence for all deductible expenses.

What is the difference between operating expenses and capital expenditure? Operating expenses are recurring costs of running the business like rent, salaries, ads, utilities. Capital expenditure is money spent on assets that will last more than a year equipment, vehicles, furniture. Capital expenditure is treated differently in accounting, typically depreciated over the asset's useful life.

Should I track expenses daily or monthly? Record expenses as they happen daily if possible. Summarise and review them monthly. Trying to remember a month's worth of expenses at the end of the month leads to missed items and inaccurate figures.

My business is very small do I really need to track operating expenses? Absolutely. The smaller your business, the more impact each expense has on your profit margin. Even solo sellers benefit enormously from knowing exactly where their money is going.

How do I handle expenses that are partly personal and partly business? Estimate the business use percentage and record only that portion as a business expense. For example, if your phone is used 60% for business and 40% personally, record 60% of your phone bill as a business operating expense.

Can Zerrar replace my accountant for expense tracking? Zerrar gives you the data your accountant needs organised, categorised, and exportable. But a qualified accountant is still valuable for preparing formal financial statements, filing returns with FIRS, and advising on tax strategy. Zerrar makes your accountant's job faster and cheaper by keeping your records clean.

Conclusion

Operating expenses are the costs that stand between your gross profit and your net profit. They are not optional, they are not avoidable but they are absolutely manageable when you track them properly.

Nigerian merchants who know their operating expenses by category, review them every month, and actively look for ways to reduce unnecessary spending are the ones who protect their profit margins and build financially healthy businesses.

You do not need a spreadsheet or an accountant to start. Zerrar lets you record every expense as it happens, categorise it instantly, and see your full profit picture right alongside your sales data in one place.

Call to Action

Stop letting untracked expenses quietly drain your profit.

Sign up for Zerrar today at https://app.zerrar.com- free, no credit card required and start recording every expense alongside every sale, so your real net profit is always visible.

Already on Zerrar? Open your expense tracker right now and log every cost from this week. Your profit report will immediately become more accurate.

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