29 Jul, 2025
4 mins read
Running a business means dealing with all kinds of regular costs. One important group of costs is operating expenses. These don’t include the money spent directly on making products, but they’re essential for keeping the business running. If managed well, they can help increase profits and support healthy growth.
In simple terms, operating expenses are the costs a company pays regularly to carry out its daily work. These don’t cover production costs but include payments like rent, electricity bills, marketing, and admin salaries. They are also known as OPEX and are shown on the income statement.
They are subtracted from gross profit to calculate operating income. The lower your operating expenses, the more of your earnings you get to keep.
For example, if your business earns ₹50 lakh in gross profit and has ₹20 lakh in operating expenses, your operating income is ₹30 lakh.
There are several types of operating expenses a business usually has to deal with. Let’s look at the main ones:
Administrative Costs
Salaries of HR, finance, and other support teams
Office supplies, printing, and admin charges
Legal fees and accounting services
Sales and Marketing Costs
Money spent on advertising and promotions
Commissions for sales staff
Packaging, delivery, and customer outreach
Utilities and Rent
Monthly rent for offices or retail space
Water, electricity, and internet bills
Depreciation
Reduction in value of office items like furniture or computers over time
Amortisation of software and other tools
Maintenance Costs
Repairs of office machinery
General upkeep of work areas and devices
These types of operating expenses are necessary to keep the business working smoothly. Keeping an eye on them can help you find areas to save money.
You can calculate your total operating expenses by adding all the regular business costs, excluding production and any rare or unusual spending.
Formula:
|
Operating Expenses = Admin Costs + Marketing Costs + Utilities + Maintenance + Depreciation |
Example: A company spends:
₹10 lakh on admin staff salaries
₹2 lakh on advertising
₹3 lakh on rent and utilities
₹1 lakh on depreciation
Total operating expenses = ₹10L + ₹2L + ₹3L + ₹1L = ₹16 lakh
Calculating operating expenses regularly helps make better budgets and identify any wasteful spending.
Understanding and managing operating expenses is vital for many reasons:
Efficiency Check
Analysing these costs shows how wisely a business is using its resources.
Budgeting
Knowing your operating expenses helps you create realistic budgets and avoid overspending.
Investor Trust
Keeping costs under control shows financial discipline, which investors appreciate.
Profit Improvement
Lower operating expenses can lead to higher net profits without increasing sales.
Competitive Advantage
A business that controls its operating costs well can offer better prices or invest more in growth.
All of this shows the importance of operating expenses when it comes to long-term success.
It’s useful to know the difference between regular operating expenses and other costs that are not part of day-to-day work.
|
Feature |
Operating Costs |
Non-Operating Costs |
|---|---|---|
|
Related to core work |
Yes |
No |
|
Frequency |
Ongoing |
Rare or one-time |
|
Common items |
Salaries, rent, bills |
Loan interest, asset losses |
|
Financial statement |
Main part of income statement |
Below operating profit line |
Separating these helps in better analysis of how a business is really performing.
Operating expenses are not just routine costs; they are strategic tools that shape your business’s efficiency, profitability, and long-term growth. Although they do not directly generate income, effective management of these expenses supports smoother operations and stronger financial performance.
By regularly evaluating costs such as rent, utilities, marketing, and administrative expenses, businesses can identify savings opportunities, boost profit margins and reinvest in growth. Even simple actions like adopting digital tools, automating tasks, or using energy-efficient systems can make a meaningful difference.
Ultimately, gaining control over your operating expenses is key to running a lean, competitive, and resilient business.
They are regular payments businesses make to stay open, such as rent, admin salaries, and electricity bills. These don’t include production costs but are necessary for daily operations.
Yes. Salaries for admin, sales, or marketing teams are included in operating expenses. But wages for factory workers making the product fall under production costs.
You can try these steps:
Use free or budget-friendly software
Turn off devices when not in use
Outsource non-core work
Bulk-buy office supplies for discounts
Reduce printing and use digital options
Reducing operating expenses without hurting performance is key to improving your bottom line.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
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