Operating Expense
Industry:
Market-Wide
Efficiency
Aliases:
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Short Definition
Operating Expenses (OpEx) are the day-to-day costs to run the business below Gross Profit (i.e., not in COGS/Cost of Sales). We classify all operating costs into Research & Development Expenses, Sales & Marketing Expenses, General & Administrative Expenses.
Short Definition
Operating Expenses (OpEx) are the day-to-day costs to run the business below Gross Profit (i.e., not in COGS/Cost of Sales). We classify all operating costs into Research & Development Expenses, Sales & Marketing Expenses, General & Administrative Expenses.
Short Definition
Operating Expenses (OpEx) are the day-to-day costs to run the business below Gross Profit (i.e., not in COGS/Cost of Sales). We classify all operating costs into Research & Development Expenses, Sales & Marketing Expenses, General & Administrative Expenses.
Why it matters for Investors
Efficiency signal: OpEx vs. growth shows operating leverage.
Quality of earnings: Clean, consistent OpEx policy avoids “managed” results.
Comparability: Common taxonomy (R&D, S&M, G&A) enables apples-to-apples benchmarking.
Why it matters for Investors
Efficiency signal: OpEx vs. growth shows operating leverage.
Quality of earnings: Clean, consistent OpEx policy avoids “managed” results.
Comparability: Common taxonomy (R&D, S&M, G&A) enables apples-to-apples benchmarking.
Why it matters for Investors
Efficiency signal: OpEx vs. growth shows operating leverage.
Quality of earnings: Clean, consistent OpEx policy avoids “managed” results.
Comparability: Common taxonomy (R&D, S&M, G&A) enables apples-to-apples benchmarking.
Formula
Practical considerations -
Three-bucket policy: Put recurring operating costs into Research and Development Expense / Sales and Marketing Expense / General and Administrative Expense.
One-offs: If a unusual, non-recurring item (e.g., restructuring, large legal settlement) hits, keep it in the relevant bucket and flag it in notes or show an adjusted view—but don’t create a separate “Other operating” line.
D&A placement: Include depreciation & amortization where incurred (some sits in COGS, some in OpEx buckets). If you show “OpEx ex-D&A,” label and reconcile.
Stock-based comp (SBC): Keep SBC inside the relevant OpEx lines; if you show ex-SBC, label and reconcile.
Capitalize vs. expense: Capitalized software/implementation lowers OpEx now and raises future amortization—document and keep consistent.
Don’t bury delivery costs: Hosting/CDN, payment processing, freight/packaging tied to delivery go to COGS, not OpEx.
Formula
Practical considerations -
Three-bucket policy: Put recurring operating costs into Research and Development Expense / Sales and Marketing Expense / General and Administrative Expense.
One-offs: If a unusual, non-recurring item (e.g., restructuring, large legal settlement) hits, keep it in the relevant bucket and flag it in notes or show an adjusted view—but don’t create a separate “Other operating” line.
D&A placement: Include depreciation & amortization where incurred (some sits in COGS, some in OpEx buckets). If you show “OpEx ex-D&A,” label and reconcile.
Stock-based comp (SBC): Keep SBC inside the relevant OpEx lines; if you show ex-SBC, label and reconcile.
Capitalize vs. expense: Capitalized software/implementation lowers OpEx now and raises future amortization—document and keep consistent.
Don’t bury delivery costs: Hosting/CDN, payment processing, freight/packaging tied to delivery go to COGS, not OpEx.
Formula
Practical considerations -
Three-bucket policy: Put recurring operating costs into Research and Development Expense / Sales and Marketing Expense / General and Administrative Expense.
One-offs: If a unusual, non-recurring item (e.g., restructuring, large legal settlement) hits, keep it in the relevant bucket and flag it in notes or show an adjusted view—but don’t create a separate “Other operating” line.
D&A placement: Include depreciation & amortization where incurred (some sits in COGS, some in OpEx buckets). If you show “OpEx ex-D&A,” label and reconcile.
Stock-based comp (SBC): Keep SBC inside the relevant OpEx lines; if you show ex-SBC, label and reconcile.
Capitalize vs. expense: Capitalized software/implementation lowers OpEx now and raises future amortization—document and keep consistent.
Don’t bury delivery costs: Hosting/CDN, payment processing, freight/packaging tied to delivery go to COGS, not OpEx.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
R&D Expense | $12,000,000 | Product/ Engineering, tools, R&D SBC |
S&M Expense | $20,000,000 | Sales team, demand generation, brand, S&M SBC |
G&A Expense | $8,000,000 | Finance, HR, legal, admin, G&A SBC |
Total Operating Expense (or OpEx) | $40,000,000 | R&D Expense + S&M Expense + G&A Expense |
Revenue | $100,000,000 | |
OpEx Ratio % | 40% | ($40M ÷ $100M) × 100 |
Notes
Keep delivery costs in COGS: Hosting/CDN, payment processing, freight/packaging tied to delivery shouldn’t be buried in OpEx.
Consistency over time: Same classification each quarter for clean trends.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
R&D Expense | $12,000,000 | Product/ Engineering, tools, R&D SBC |
S&M Expense | $20,000,000 | Sales team, demand generation, brand, S&M SBC |
G&A Expense | $8,000,000 | Finance, HR, legal, admin, G&A SBC |
Total Operating Expense (or OpEx) | $40,000,000 | R&D Expense + S&M Expense + G&A Expense |
Revenue | $100,000,000 | |
OpEx Ratio % | 40% | ($40M ÷ $100M) × 100 |
Notes
Keep delivery costs in COGS: Hosting/CDN, payment processing, freight/packaging tied to delivery shouldn’t be buried in OpEx.
Consistency over time: Same classification each quarter for clean trends.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
R&D Expense | $12,000,000 | Product/ Engineering, tools, R&D SBC |
S&M Expense | $20,000,000 | Sales team, demand generation, brand, S&M SBC |
G&A Expense | $8,000,000 | Finance, HR, legal, admin, G&A SBC |
Total Operating Expense (or OpEx) | $40,000,000 | R&D Expense + S&M Expense + G&A Expense |
Revenue | $100,000,000 | |
OpEx Ratio % | 40% | ($40M ÷ $100M) × 100 |
Notes
Keep delivery costs in COGS: Hosting/CDN, payment processing, freight/packaging tied to delivery shouldn’t be buried in OpEx.
Consistency over time: Same classification each quarter for clean trends.
Best Practices
Publish the rulebook: What’s in R&D/S&M/G&A; how you treat D&A and SBC.
Show dollars and %: OpEx ($), OpEx Margin (%), and OpEx per employee.
Track efficiency: OpEx growth vs revenue growth; S&M efficiency (e.g., Magic Number), R&D intensity.
Flag one-offs: Call out restructuring or legal items; keep a clean run-rate.
Audit the border: Recheck COGS vs OpEx for hosting, shipping, and support to keep margin comparable.
Best Practices
Publish the rulebook: What’s in R&D/S&M/G&A; how you treat D&A and SBC.
Show dollars and %: OpEx ($), OpEx Margin (%), and OpEx per employee.
Track efficiency: OpEx growth vs revenue growth; S&M efficiency (e.g., Magic Number), R&D intensity.
Flag one-offs: Call out restructuring or legal items; keep a clean run-rate.
Audit the border: Recheck COGS vs OpEx for hosting, shipping, and support to keep margin comparable.
Best Practices
Publish the rulebook: What’s in R&D/S&M/G&A; how you treat D&A and SBC.
Show dollars and %: OpEx ($), OpEx Margin (%), and OpEx per employee.
Track efficiency: OpEx growth vs revenue growth; S&M efficiency (e.g., Magic Number), R&D intensity.
Flag one-offs: Call out restructuring or legal items; keep a clean run-rate.
Audit the border: Recheck COGS vs OpEx for hosting, shipping, and support to keep margin comparable.
FAQs
What’s included in OpEx?
All R&D, S&M, G&A costs (including SBC/D&A sitting in those functions). Not COGS, interest, or taxes.Do we include stock-based comp?
Yes in reported OpEx. If you show OpEx ex-SBC, label and reconcile to GAAP/IFRS.Capex vs OpEx?
Capex is cash invested in long-lived assets (balance sheet); OpEx is period expense on the P&L.Is D&A in OpEx?
Sometimes—where it occurs. Some D&A is in COGS (e.g., production assets); some is in OpEx buckets.
FAQs
What’s included in OpEx?
All R&D, S&M, G&A costs (including SBC/D&A sitting in those functions). Not COGS, interest, or taxes.Do we include stock-based comp?
Yes in reported OpEx. If you show OpEx ex-SBC, label and reconcile to GAAP/IFRS.Capex vs OpEx?
Capex is cash invested in long-lived assets (balance sheet); OpEx is period expense on the P&L.Is D&A in OpEx?
Sometimes—where it occurs. Some D&A is in COGS (e.g., production assets); some is in OpEx buckets.
FAQs
What’s included in OpEx?
All R&D, S&M, G&A costs (including SBC/D&A sitting in those functions). Not COGS, interest, or taxes.Do we include stock-based comp?
Yes in reported OpEx. If you show OpEx ex-SBC, label and reconcile to GAAP/IFRS.Capex vs OpEx?
Capex is cash invested in long-lived assets (balance sheet); OpEx is period expense on the P&L.Is D&A in OpEx?
Sometimes—where it occurs. Some D&A is in COGS (e.g., production assets); some is in OpEx buckets.
Related Metrics
Parents: Gross Profit, Revenue
Children / Components: R&D Expense, S&M Expense, G&A Expense, OpEx Margin (%), OpEx per Employee.
Commonly mistaken for: COGS (Delivery Costs), Capex (Cash Investment), Total Cash Burn (Cash View, not P&L).
Related Metrics
Parents: Gross Profit, Revenue
Children / Components: R&D Expense, S&M Expense, G&A Expense, OpEx Margin (%), OpEx per Employee.
Commonly mistaken for: COGS (Delivery Costs), Capex (Cash Investment), Total Cash Burn (Cash View, not P&L).
Related Metrics
Parents: Gross Profit, Revenue
Children / Components: R&D Expense, S&M Expense, G&A Expense, OpEx Margin (%), OpEx per Employee.
Commonly mistaken for: COGS (Delivery Costs), Capex (Cash Investment), Total Cash Burn (Cash View, not P&L).
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