What is an operating expense?

Operating expenses (OpEx) are all costs directly associated with the day-to-day operations of a business. These expenses are incurred to generate revenue and keep the business running smoothly. 

Operating expenses include cost of goods sold (COGS) and other selling and administrative expenses, such as rent, payroll, inventory costs, etc.

NOTE
OpEx is typically recurring, meaning these expenses are incurred on a regular basis (e.g., monthly, quarterly, annually).

Frequently asked questions

How is OpEx different from capital expenditures (CapEx)?

OpEx is ongoing expenses for day-to-day operations.
CapEx is the cost of acquiring or upgrading long-term assets (e.g., property, equipment) that benefit the business for several years. CapEx is not included in operating expenses but is reflected in a separate line item on the financial statements.

How can businesses analyze and manage OpEx?

This is what businesses can make to manage their OpEx:

• Categorize expenses by classifying OpEx into different categories for better understanding and tracking
• Compare OpEx to industry benchmarks to identify areas for improvement
• Create a budget to plan and control OpEx
• Regularly review and implement cost-saving measures to optimize OpEx without sacrificing quality or efficiency