How to Calculate Operating Expenses for Your Business

Defining Your Core Business Costs

Before you start crunching numbers, you first need to get crystal clear on what actually counts as an operating expense. Think of OpEx as the money you spend just to keep the lights on and the doors open, regardless of whether you sell a single thing or a thousand units.

Why does this matter so much? Because these numbers directly reflect your company's profitability and efficiency. Getting them right gives you an honest, transparent look at your financial health.

Key Characteristics of Operating Expenses

• **It's an indirect cost:** Not tied directly to producing one specific product or service.

• **It happens in day-to-day activities:** Recurring costs needed to keep the business running.

• **It's not a capital expenditure:** OpEx doesn't cover huge one-time purchases of assets.

Getting a firm grasp on your operating expenses is the absolute foundation for improving your business's financial performance.

To dig deeper into how this connects to long-term success, check out our guide on operational efficiency.

Identifying and Categorizing Your Operating Costs

Before you can get a real handle on your operating expenses, you need to know exactly what you're looking for. This means getting intimate with your financial records—bank statements, credit card bills, accounting software, the whole lot.

Unpacking SG&A Expenses

The lion's share of your operating costs will almost always fall under **Selling, General, & Administrative (SG&A)**. This category is basically a catch-all for all the essential, day-to-day spending that isn't directly tied to producing a product.

• **Selling Costs:** Sales team salaries, commissions, ad campaigns, marketing software.

• **General Costs:** Rent, utilities, office supplies, property insurance.

• **Administrative Costs:** HR, accounting, executive salaries, legal fees, bank charges.

If you're looking for smart ways to trim costs, our guide on how to reduce business expenses is packed with tips.

Applying the OpEx Formula with Real-World Scenarios

Understanding the theory behind OpEx is one thing, but applying it to a real balance sheet is where clarity truly begins. Let's walk through two distinct business models.

Scenario One: A Digital Marketing Agency

Imagine "Pixel Perfect," a small digital marketing agency. Here's their typical monthly operating expenses:

• Rent: $3,500

• Utilities: $450

• Software: $800

• Administrative Salaries: $8,000

• Marketing: $2,000

**Total Monthly OpEx: $15,200**

For more context, check out our article on how to calculate ROI.

Scenario Two: An E-Commerce Brand

Now let's look at "Crafted Goods," a small e-commerce business selling handmade leather wallets. Their operating expenses:

• Warehouse Lease: $2,500

• Platform Fees: $350

• Marketing Salaries: $6,000

• Online Advertising: $4,000

• Office Staff: $5,500

**Total Monthly OpEx: $19,550**

Using Your Operating Expense Ratio for Deeper Insights

Tallying up your operating expenses is just the first step. The real magic happens when you put that figure into context with the **Operating Expense Ratio (OER)**.

Calculating Your Operating Expense Ratio

**OER = (Total Operating Expenses / Total Revenue) x 100**

For example, if your business had $50,000 in operating expenses and $200,000 in revenue, your OER would be 25%. This is one of many key performance indicators for small business success.

A lower OER is almost always a sign of stronger operational efficiency. It's a direct reflection of your ability to keep costs in check while growing the top line.

Common Mistakes to Avoid When Calculating OpEx

Getting your financial calculations right isn't just about good bookkeeping—it's non-negotiable for the health of your business. Small errors in calculating operating expenses can send you down a completely wrong path.

Misclassifying COGS as OpEx

This is probably the most frequent mistake. COGS covers only the **direct costs** tied to creating your product. Everything else falls under OpEx.

A clean separation between COGS and OpEx is fundamental. It allows you to accurately assess your production efficiency separately from your overall operational efficiency.

Forgetting the Hidden Costs

Make sure you're accounting for:

• Bank fees and credit card processing charges

• Depreciation and amortization

• Business licenses and permits

For more tips, check out our guide on how to reduce overhead costs.

Common Questions About Operating Expenses

What's the Difference Between Operating Expenses and Capital Expenditures?

**Operating expenses (OpEx)** are the costs of keeping the lights on *right now*—rent, salaries, utilities. **Capital expenditures (CapEx)** are major purchases of assets that provide value for years—buildings, trucks, machinery.

The simplest way to think about it is: OpEx is for *running* the business day-to-day, while CapEx is for *growing* the business for the long haul.

Should Interest and Taxes Go into My Operating Expenses?

No. Interest and taxes are both considered **non-operating expenses** because neither has anything to do with your core business activities.

How Often Should I Calculate Operating Expenses?

For meaningful financial control, calculate and review your operating expenses **at least monthly**. Monthly reviews help you spot trends quickly, generate accurate reports, and make smarter decisions with fresh data.