Operating expenses
OP-eks
The day-to-day costs of running your business. Salaries, rent, marketing, cloud hosting. Everything that is not a capital expenditure.
OpEx is the money you spend to run your business on an ongoing basis. Salaries, office rent, cloud hosting, marketing campaigns, software subscriptions, travel. These are expenses that recur and are fully recognized in the period they are incurred.
For SaaS companies, OpEx is the primary cost category. Unlike manufacturing companies that have heavy capital expenditures (factories, equipment), SaaS companies spend most of their money on people and cloud infrastructure. A typical SaaS company's OpEx breaks down roughly as: 50-60% salaries and benefits, 15-25% sales and marketing, 5-10% cloud infrastructure, 5-10% general and administrative. OpEx is the main driver of burn rate.
OpEx is fully deductible in the period it is incurred, which makes it tax-efficient compared to CapEx (which must be depreciated over time). This is one reason SaaS companies prefer to rent cloud infrastructure (OpEx) rather than buy servers (CapEx). Operating margin measures how efficiently you convert revenue into profit after all OpEx is accounted for.
Examples
A SaaS company's OpEx breakdown.
Annual OpEx: $12M. R&D (engineering salaries, tools): $5M. Sales and marketing: $4M. General and administrative (finance, legal, HR): $2M. Infrastructure (AWS, third-party services): $1M. All of this is expensed immediately, not depreciated.
OpEx versus CapEx decision.
A company chooses between buying GPU servers ($500k CapEx, depreciated over 3 years) and using cloud GPUs ($20k/month OpEx). The cloud option costs more over 3 years ($720k vs $500k) but requires no upfront investment and can be scaled up or down. The startup chooses OpEx for flexibility.
Reducing OpEx to extend runway.
A startup needs to cut $200k/month in OpEx. They reduce headcount by 15 people ($150k saved), switch from premium to standard cloud tier ($20k saved), cancel unused SaaS tools ($15k saved), and renegotiate office lease ($15k saved). Runway extends from 10 to 18 months.
In practice
Read more on the blog
Frequently asked questions
What is the difference between OpEx and CapEx?
OpEx is day-to-day spending that is fully expensed when incurred: salaries, rent, cloud hosting. CapEx is spending on long-term assets that are depreciated over time: servers, office buildout, acquired patents. SaaS companies are mostly OpEx. Hardware companies have significant CapEx.
Why do SaaS companies prefer OpEx over CapEx?
Three reasons. First, OpEx is fully tax-deductible in the period incurred. Second, OpEx is flexible and can be scaled up or down. Third, OpEx avoids large upfront investments that tie up cash. Cloud computing converted what used to be CapEx (buying servers) into OpEx (renting compute).
Related terms
Spending on long-term assets that are depreciated over time. Servers, office buildouts, acquired patents. Rare in pure SaaS companies.
How fast a startup spends cash each month. Gross burn is total spending. Net burn subtracts revenue. The clock on your runway.
Revenue minus all operating expenses, expressed as a percentage. Shows how much profit your core business generates before interest and taxes.
Total monthly cash expenditure before any revenue. Every dollar that leaves the company's bank account.
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