Operating expenses (opex)

Published Wednesday 30 September 2026

Table of contents

• What is an operating expense?
• Examples of operating expenses
• What isn’t an operating expense
• Fixed and variable operating expenses
• Operating expenses vs capital expenditure
• How to calculate operating expenses
• Why operating expenses matter
• Operating expenses and overheads
• How to manage operating expenses
• Track your operating expenses with Xero
• FAQs on operating expenses
• Related terms
• Learn more about operating expenses

Key takeaways

• Operating expenses (opex) are the day-to-day costs of running your business, like rent, wages, marketing and insurance
• Cost of goods sold, interest, income tax and loan principal all sit outside opex
• Gross profit minus opex gives you operating profit, and opex divided by revenue gives you the operating expense ratio
• In Indonesia, deductible opex lowers tax on net profit, while the 0.5% final tax is charged on turnover regardless of costs

What is an operating expense?

An operating expense is a cost you pay to keep your business running day to day, such as rent or staff wages. Together, these costs are called operating expenses, often shortened to opex.

Operating expenses appear on your profit and loss statement, below gross profit. Picture a small café in Bandung: the coffee beans and milk it sells are part of its cost of goods sold (COGS). The barista wages, shop rent, electricity and social media ads are its opex.

Knowing which costs count as opex helps you read your profit accurately. It also shows you which costs can lower your tax bill.

Examples of operating expenses

Most small businesses share the same core running costs, even though the amounts vary by industry. Here are common examples.

• Wages and salaries for staff, including sales and admin roles
• Rent and utilities for your premises
• Marketing and advertising, like social media ads and printed flyers
• Insurance premiums and professional fees, like your accountant’s charges
• Selling and general admin costs, like sales commissions and office supplies
• Depreciation of equipment and amortisation of intangible assets
• Repairs and maintenance on equipment and premises

Some of these follow strict rules. Depreciation spreads the cost of a physical asset, like an oven, across the years you use it. Amortisation does the same for intangible assets, like a patent.

Other categories are more flexible. One business might record a warehouse manager’s wages in COGS, while another records them as opex. Pick a rule and apply it consistently, so your reports compare fairly each year.

What isn’t an operating expense

Several large costs sit outside opex, even though they’re real outgoings. Keeping them separate gives you a clear view of how your core business performs.

• Cost of goods sold, which you subtract from revenue to find gross profit
• Interest on loans, which is recorded below operating profit
• Income tax, which is calculated on profit after your business costs
• Loan principal repayments, which reduce a liability on your balance sheet
• Capital expenditure on long-term assets, which you record as an asset and depreciate

Your cost of goods sold covers the direct costs of the products you sell, such as stock and freight. Interest is different: Corporate Finance Institute (CFI) classes it as a non-operating expense that sits below the operating income line.

Loan repayments often mix both types of cost. Say a Rp10 million repayment includes Rp1 million of interest. The Rp1 million is an expense, while the Rp9 million of principal reduces what you owe.

VAT (Pajak Pertambahan Nilai, or PPN) also sits outside opex for most businesses. The statutory rate is 12%, but most goods and services carry an effective rate of 11%, according to PwC Worldwide Tax Summaries.

If your business is VAT-registered (Pengusaha Kena Pajak, or PKP), the PPN you collect isn’t an expense. Input VAT you credit against output VAT isn’t an expense either.

Fixed and variable operating expenses

Running costs also split into fixed and variable types, depending on whether they move with your sales. Fixed costs stay the same when activity rises or falls, while variable costs change with volume, as CFI explains.

Back at the café, rent and insurance stay the same in a quiet month. Delivery app commissions and card payment fees rise and fall with the number of orders.

Some costs sit in between. Salaried staff are a fixed cost, while casual staff paid by the hour behave more like a variable cost. Your fixed costs show the minimum you need to earn each month to cover your running costs.

Operating expenses vs capital expenditure

Opex covers costs you use up within the year. Capital expenditure (capex) buys assets that support your business for several years.

The accounting treatment differs too. You expense opex straight away on your profit and loss statement. Capex goes on your balance sheet and is depreciated over time, as CFI’s capex guide sets out.

For the café, a new espresso machine is capex, and its regular servicing is opex. Weighing opex vs capex helps you plan cash flow, because a big asset purchase leaves your bank account at once but reaches your profit gradually.

How to calculate operating expenses

To calculate operating expenses, you add up every running cost for a period, then compare the total with your profit and revenue. The core formula is gross profit minus operating expenses equals operating profit.

Follow these steps using your profit and loss statement.

1. Choose a period, such as a month or a financial year
2. Add up every operating expense line, leaving out COGS, interest, income tax and loan principal
3. Subtract the total from gross profit to find your operating profit
4. Divide total opex by revenue to get your operating expense ratio

A worked example makes the steps easier to follow. The numbers below are round and illustrative.

Worked example for a small café

Say the café earns Rp1 billion in revenue for the year. Its COGS is Rp400 million, which leaves Rp600 million in gross profit.

Its running costs are Rp250 million in wages, Rp80 million in rent and utilities, Rp40 million in marketing and Rp30 million in other running costs. That’s Rp400 million in total.

Operating profit is Rp600 million minus Rp400 million, which equals Rp200 million. The operating expense ratio is Rp400 million divided by Rp1 billion, or 40%.

Reading the operating expense ratio

The operating expense ratio shows how much of each rupiah of sales goes on running costs. CFI defines the ratio as operating expenses divided by net sales, and a lower result generally means you’re running more efficiently.

The right level depends on your industry, because a café and an accounting firm have very different cost structures. Track your own ratio over time and compare it with similar businesses.

Why operating expenses matter

Running costs affect how much profit you keep and how much tax you pay. Here’s how that plays out for a small business in Indonesia.

Every rupiah you spend on running costs comes off your profit. Watching these costs closely helps you protect your profit margin and spot spending that’s creeping up.

Opex also shapes your tax bill. Companies pay 22% income tax on net taxable income, according to PwC’s corporate income tax summary.

If your business pays tax on net profit, deductible costs reduce what you owe. If you use the 0.5% final tax on turnover, expenses don’t change the tax you pay.

Eligible small businesses with turnover up to Rp4.8 billion can use that 0.5% final tax. Government Regulation (PP) 20/2026 keeps the same rate and threshold, the Directorate General of Taxes (DJP) confirms. Individuals and one-person companies (PT Perorangan) can use it with no time limit.

Because costs affect tax, the DJP sets rules on what you can deduct. Generally, you can deduct costs you incur to obtain, collect and maintain income, as long as you keep documents to support them.

Fines and penalties aren’t deductible, according to PwC’s deductions summary. Keeping receipts and invoices for every cost helps you claim everything you’re entitled to.

Operating expenses and overheads

People often call some running costs overheads, usually meaning costs like rent and insurance. The word means different things to different people, though.

Some use it for fixed costs and others for indirect costs, and the two groups only partly overlap. For clearer records, label each cost with a specific category from the examples list earlier. That way, you and your accountant read your reports the same way.

How to manage operating expenses

Managing opex well keeps more of your revenue as profit while protecting what your customers value. These steps give you a simple monthly routine.

1. Set up clear expense categories and use them the same way every month
2. Review your profit and loss statement monthly to spot rising costs
3. Set a budget for each major category and compare it with actual spending
4. Compare quotes for recurring costs like insurance and software subscriptions
5. Automate bookkeeping tasks, such as bank reconciliation, to save admin time

Small savings on regular bills add up across a year. For more practical cost-saving ideas, start with the recurring bills you pay every month.

Track your operating expenses with Xero

Understanding your running costs gives you a clear view of profit and more confidence at tax time. With Xero, automated bank feeds bring in your transactions, so you can code each cost to the right category.

Easy-to-read reports then show where your money goes each month, so you can act early. Try Xero today and get one month free.

FAQs on operating expenses

Here are quick answers to common questions about opex.

Is it OpEx or opex?

Both spellings are common, along with OPEX, and they all mean operating expenses or operating expenditure. Pick one style and use it consistently in your reports.

Are salaries operating expenses?

Yes, salaries for sales and admin staff are operating expenses. Some businesses record the wages of staff who make their products in COGS instead, so check which approach your accountant uses.

Is a laptop capex or opex?

A laptop you’ll use for several years is usually capex, so you record it as an asset and depreciate it. The software subscriptions and repairs for that laptop are opex.

Is depreciation an operating expense?

Yes, depreciation is usually an operating expense. It’s a non-cash cost, which means it lowers your operating profit without any money leaving your bank account in that period.

Is VAT an operating expense in Indonesia?

For VAT-registered businesses, PPN usually passes through: you collect it from customers and credit the input VAT you pay against it. With some exceptions, input VAT you don’t claim as a credit can be deducted against taxable income instead.

Related terms

• Expense
• Profit and loss statement
• Gross profit
• Net profit
• Cash flow

Learn more about operating expenses

• How to measure profitability
• How to increase profits
• How to read financial statements
• How to forecast cash flow
• How to calculate net operating profit after tax