Operating expenses are everything below gross profit on the P&L. They're the overhead — the costs that keep the lights on regardless of whether you're doing client work or not.
What falls into OpEx
Rent and utilities, administrative and management salaries, marketing and advertising, accounting and legal fees, software subscriptions, office supplies, depreciation, insurance premiums. If a cost doesn't tie directly to a specific unit of product or service delivered, it's probably OpEx.
OpEx as a percentage of revenue
Greg Crabtree's Simple Numbers framework benchmarks OpEx (excluding owner's pay and direct labor) at under 30% of revenue for most small businesses. Above that, overhead is eating too much of the gross profit.
The danger of fixed OpEx growth
Operating expenses have a natural tendency to grow — new subscriptions, additional staff, bigger space. The problem is that most OpEx is fixed: once you've signed a lease or hired a salaried employee, that cost doesn't go away if revenue dips. Growing OpEx ahead of revenue is how healthy businesses become fragile ones.
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