Operating expense (OpEx)

An operating expense, or OpEx, is a cost of keeping the business running from day to day. OpEx is short for operating expenses, or operating expenditure. Rent, salaries, marketing, software subscriptions, insurance, office supplies and utilities are typical examples. They are recorded as expenses in the period they relate to and reduce profit immediately.

OpEx versus CapEx

The contrast is with capital expenditure. Buying a server is CapEx: it is recorded as an asset and depreciated over its life. Paying monthly for cloud hosting is OpEx: each month's bill is an expense in that month. The shift from owning equipment to subscribing to services has moved a large share of many companies' technology spending from one column to the other.

Where OpEx sits in the income statement

Operating expenses usually appear below gross profit, which means after the cost of goods sold. Subtracting them from gross profit gives operating income. Interest and income taxes are typically shown separately, below operating income. The exact layout varies. Comparing OpEx between companies means checking what each one includes.

Operating expenses are also where most spend control efforts focus, because they recur. A $50-a-month subscription nobody uses costs $600 a year, every year, until someone cancels it.