Operating Expenses
Day-to-day costs of running a business, excluding COGS and one-time expenses.
Definition
Operating expenses (OpEx) are the ongoing costs of running your business: rent, utilities, salaries, marketing, software subscriptions, insurance, and professional services. These are distinct from cost of goods sold (COGS) and capital expenditures (CapEx).
OpEx appears on the income statement and directly reduces operating profit. Keeping operating expenses under control while growing revenue improves profitability.
Why It Matters
High operating expenses reduce profitability even when revenue is strong. Successful businesses optimize OpEx by automating processes, negotiating vendor contracts, and eliminating unnecessary costs.
Investors scrutinize OpEx as a percentage of revenue. High OpEx ratios suggest inefficiency; improving this ratio shows management discipline and scalability.
Examples
- 1
Monthly OpEx for a small agency: $8,000 rent, $15,000 salaries, $2,000 software, $1,500 utilities, $3,000 marketing = $29,500 total.
- 2
A consultant reduces OpEx by switching from office space ($2,500/mo) to coworking ($500/mo), saving $24,000 annually.
- 3
SaaS company OpEx breakdown: 45% salaries, 20% hosting/infrastructure, 15% marketing, 10% software tools, 10% other.
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