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Operating Expenses

Contents
  • What are Operating Expenses?
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What are Operating Expenses?

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Definition of Operating Expenses

There’s far more to running a business than simply the product or service it produces, and these things have an associated cost. These costs are known as operating expenses.

Operating expenses can be categorized in two ways: 

  • Selling, General and Admin Expense (SG&A) 

  • Costs of Goods Sold (COGS).

SG&A operating expenses may include R&D and marketing. Whereas COGs operating expenses refer to staff salaries.

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Notably, tax, depreciation and interest are not classified as operating expenses.

What are Operating Expenses

General FAQ

How to calculate operating expenses?
One method is to add salaries, sales commissions, promotional/marketing costs, rental expenses, and utilities together. Alternatively, you may prefer to use revenue minus operating income minus Cost of Goods Sold instead.
What is included in operating expenses?
Operating expenses include property rent, equipment, inventory, payroll, marketing, insurance, and any money invested in research and development.
What are some examples of non-operating expenses?
Non-operating expenses are costs that cannot be traced back to the business’s key activity. This could be losses from failed investments, losses caused by natural events (floods, etc.), losses from currency exchanges, etc.

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