VC & PE Glossary
What Is Operating Expense?
Updated
Definition
Operating expense (OpEx) is the ongoing cost of running a business — payroll, rent, software, marketing, and admin — excluding capital expenditures and non-operating items like interest and taxes.
Useful for: Founders, Investors
Operating expense (OpEx) is the recurring cost of normal business operations — the line items that determine monthly burn before financing and capital spending.
How it works
Typical categories: people (salaries, benefits, contractors), sales and marketing, R&D (engineers, tools), general and administrative (finance, legal, office). SaaS companies often capitalize little; hardware firms may separate CapEx for equipment from OpEx for assembly labor.
Income statement: Revenue − COGS = gross profit; gross profit − OpEx = operating income (loss). Investors compare OpEx growth to ARR growth — efficient companies decouple somewhat after product-market fit; inefficient ones show OpEx scaling faster than revenue.
Board operating plans set OpEx budgets by department with hiring ramps tied to milestones.
Why it matters
- Founders: Fixed OpEx (core team, rent) is sticky; variable OpEx (ads, contractors) is easier to cut in downturns. Model both in runway scenarios.
- Investors: Rule-of-40 and burn multiple analyses use OpEx implicitly through net burn and revenue trajectory. Sudden OpEx spikes without pipeline support trigger bridge conversations.
Common mistake
Classifying growth marketing as COGS when it is discretionary OpEx — inflates gross margin and misleads unit economics reviews.
Related ideas
See also operating margin, burn rate, capex, and operating plan.
Related terms
- Burn Rate — Burn rate is how fast a company spends cash — usually measured as net cash outflow per month after revenue, showing how long existing cash will last at current spending.
- Operating Margin — Operating margin is operating income divided by revenue — showing what percentage of sales remains after cost of goods sold and operating expenses, before interest and taxes.
Common questions
Short answers for founders, LPs, and operators