← Back to Glossary
Operating Expenses
Definition
Operating expenses are the ongoing costs of running a business that are not directly tied to production, including rent, marketing, and salaries.
Explanation
Operating expenses (OPEX) include rent, utilities, marketing, administrative salaries, insurance, legal fees, and office supplies. These costs are necessary for day-to-day operations but don't directly create products. Managing OPEX is key to improving net profit margin.
OPEX is subtracted from gross profit to calculate operating profit. Reducing unnecessary operating expenses without harming growth is a constant business challenge.
Example
A business with $100,000 gross profit and $70,000 in operating expenses has $30,000 in operating profit before taxes and interest.