Operating expenses
Also called opex
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is operating expenses?
Operating expenses are the costs of running a business other than the cost of the goods it sells, such as wages, rent, delivery, IT and marketing. Utilities count too. On a distributor’s income statement, operating expenses are mostly grouped as selling, general and administrative expenses (SG&A).
How it works
Gross profit minus operating expenses gives operating income. Because a distributor’s gross margin is fairly thin, operating expenses decide most of the difference between a profitable distributor and an unprofitable one, which is why cost to serve gets so much attention.
Operating expenses example
A distributor earns $13 million of gross profit on $50 million of sales and spends $10.5 million on wages, rent, trucks and systems, leaving $2.5 million of operating income.
Related terms
- Net marginNet margin is the percentage of revenue a company keeps as profit after all expenses, including COGS, operating expenses, interest and taxes.
- Gross marginGross margin is the share of sales a distributor keeps after paying for the goods it sold: gross margin % = (revenue − COGS) ÷ revenue.
- Cost to serveCost to serve is what it costs to do business with a particular customer beyond the products themselves, from sales calls to delivery and collections.
- EBITDAEBITDA (earnings before interest, taxes, depreciation and amortization) is a company’s operating profit before financing costs, taxes and non-cash charges.
