Investing term

What is Operating expenses (OpEx)?

Costs of running the business that aren't directly tied to making the product — sales, marketing, R&D, general & admin.

Operating expenses (OpEx) are the costs of running a business that aren't part of directly making the product — sales, marketing, research and development, and general administration. They're the second big block of costs on the income statement, subtracted from gross profit to give operating income.

Watching OpEx as a share of revenue shows whether a company is scaling efficiently or letting costs balloon. As a business grows, well-managed operating expenses should rise more slowly than revenue, so a larger share of each sale falls to profit — the essence of operating leverage. Bloated or fast-rising OpEx warns the opposite: growth that isn't translating to profit because the cost of chasing it keeps climbing. OpEx also reveals priorities — heavy R&D signals a company investing in the future, heavy sales spending a company buying growth.

The cost of running the business
RevenueTOP LINE$100Gross profit$40− $60 cost of goods soldOperating income$18− $22 operating expensesNet incomeBOTTOM LINE$10− $8 interest & tax

Operating expenses — sales, marketing, R&D, admin — are subtracted from gross profit to give operating income. Watching them versus revenue reveals operating leverage, or the lack of it.

For example

A company with $40M gross profit and $22M of operating expenses — sales, marketing, R&D, and admin — is left with $18M of operating income.

Learn it by doing

That's Operating expenses (OpEx) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 14, Reading Financial Statements).

Try the free lesson →

Why it matters to you

Operating expenses matter because they determine whether gross profit actually becomes operating profit, and watching them relative to revenue reveals operating leverage — the holy grail where sales grow faster than costs. A company disciplined on OpEx converts growth into expanding margins; one whose OpEx keeps pace with or outruns revenue struggles to turn bigger sales into bigger profits. OpEx trends also show where management is placing its bets, from R&D to sales.

⚠ Cheering revenue growth funded by soaring costs

Rapid revenue growth looks impressive, but if operating expenses are climbing just as fast — heavy marketing spend buying every sale — the growth isn't reaching profit. Focusing on the top line while ignoring OpEx as a share of revenue can miss a company growing unprofitably, spending more to chase sales than the sales are worth.

Frequently asked questions

What are operating expenses?

Operating expenses (OpEx) are the costs of running a business that aren't directly tied to producing the product — sales, marketing, research and development, and general and administrative costs. They're subtracted from gross profit on the income statement to give operating income.

What's the difference between operating expenses and COGS?

COGS is the direct cost of producing what's sold — materials and production labour — subtracted first to get gross profit. Operating expenses are the indirect costs of running the business, like marketing and administration, subtracted next to get operating income. COGS is production; OpEx is running the company.

Why watch operating expenses as a share of revenue?

Because it reveals operating leverage. If revenue grows faster than operating expenses, a larger share of each sale becomes profit and margins expand. If OpEx keeps pace with or outruns revenue, growth isn't translating to profit. The trend also shows management's priorities, such as heavy R&D or sales spending.

Read the full guide

Reading the numbersWhat Is Capital Expenditure (CapEx)? And Why It Decides How Much Cash a Company Really KeepsCapEx is the cash a company spends on long-lived assets like factories and servers. How it differs from OpEx, and why it shapes free cash flow.7 min read

Related terms

Accounts receivable (A/R)Money customers owe the company for goods or services already delivered but not yet paid.AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.
← Back to the full glossary