💼 Running a business takes more than just making sales—it takes keeping the lights on, paying your team, and staying organized. That’s where operating expenses come in.
Whether you’re a business owner, freelancer, or just curious about where your money’s going, understanding operating expenses helps you stay on top of your finances and boost your profits. Let’s break it down in the simplest way possible.
Table of Contents
🙋 What Are Operating Expenses?
Operating expenses (OPEX) are the day-to-day costs needed to run your business—but they’re not part of making your product or delivering your service.
Think of them like the cost of keeping your business alive and well—even if you didn’t sell anything this week!
✅ Common Operating Expenses Include:
- Office or retail rent
- Utilities (like electricity, water, internet)
- Employee salaries (non-production roles)
- Marketing and advertising
- Insurance premiums
- Software subscriptions
- Office supplies and admin expenses
🔍 What’s Not an Operating Expense?
Not everything you pay counts as OPEX! These don’t belong in your operating expenses:
- Cost of Goods Sold (COGS) – direct costs of making your product
- Loan interest or debt payments
- Income taxes
- One-time equipment purchases
These go in separate sections of your financial statements.
🧮 How to Calculate Operating Expenses
It’s as easy as 1-2-3!
Step 1: List All Operating Expenses
Start with a list of everything you regularly spend to keep your business running (excluding production costs).
Example:
| Expense | Amount |
|---|---|
| Rent | $1,200 |
| Utilities & Internet | $300 |
| Salaries (Admin & Support) | $4,500 |
| Marketing & Ads | $600 |
| Software Subscriptions | $150 |
| Insurance | $250 |
| Total | $7,000 |
Step 2: Add Them Up
Now just total the values:
Operating Expenses = $7,000You can do this monthly, quarterly, or yearly depending on your business needs.
Step 3: Track It Regularly
Use a spreadsheet or accounting tool to update your expenses each month. Keeping it up-to-date helps with planning, budgeting, and tax time!
📊 Why It Matters
Knowing your operating expenses helps you:
- Understand how much it really costs to run your business
- Identify areas where you can cut costs
- Improve your net profit
- Make smarter decisions
Bonus Formula:
To see how much profit you’re making from regular business operations, use:
Operating Profit = Revenue – Operating ExpensesThis gives you a clearer picture than just looking at your sales.
✅ Quick Tips
- Review monthly to avoid surprises
- Separate fixed costs (like rent) from variable costs (like ad spend)
- Watch out for recurring subscriptions or hidden fees that add up over time
✨ Final Thoughts
Operating expenses might sound like “accounting stuff,” but they’re actually one of the most powerful tools for understanding your business. Once you know what you’re spending—and where—you can take control of your profits, pricing, and growth.