Sample Bread’s operating expenses reflect the everyday costs of running a bakery: Example: OPEX for a Company That Sells Physical Products So, CAPEX is listed separately on your financial statements (statement of cash flows). While OPEX costs are related to your regular business operations or dispensable goods (e.g., office supplies), CAPEX costs are related to investments you make in assets that will add value to your business (e.g., building or non-leased vehicles) or have useful life (e.g., furniture). Whether purchasing a building to use as an office or upgrading your equipment, these costs are considered capital expenditures (CAPEX).
Your operating expenses do not include the costs of acquiring or investing in assets. Categories included in OPEX include facilities costs (rent, utilities, any on-site perks), marketing and sales costs, business insurance, administrative costs (legal fees, finance help), and headcount costs (salary, benefits, etc.) for those employees who are not associated with goods/services creation and delivery. Your operating expenses (OPEX) reflect these indirect business overhead costs. On top of that, the books need to be kept, the phones need to be answered the taxes need to be paid. The product needs to be marketed so that people want to buy it, and prospective buyers need their questions answered and their options explained. The workers making your product or service need somewhere to work. But as you know, a lot more goes into running a business than just creating a thing and selling it. Operating Expenses: Running Your BusinessĬOGS reflects the direct costs of creating and delivering your product – which is the reason you have a business in the first place.
Hourly rates paid to the on-demand tutors.Premium subscribers also receive some hours with an on-demand video tutor to give one-on-one guidance. Customers can access pre-recorded lessons from certified teachers on various subjects through the Sample Learning app for a monthly subscription fee. Sample Learning is an education-tech company that offers online learning tools. Shipping costs for fulfilling its online ordersĮxample: COGS for a Company That Sells Services.Flour, sugar, eggs, butter, and various other baking ingredients.In addition to its retail location, Sample Bread sells boxes of cookies online through its website, which it then ships to customers. Sample Bread is a bakery that sells daily bread selections, pastries, cookies, and other baked goods. Example: COGS for a Company That Sells Physical Products In addition, your COGS might include web hosting if you offer digital services like SaaS. In that case, your COGS/COR/COS might consist of things like the cost of paying your employees when they perform the service. For example, suppose your company offers in-person services like coaching. The principle remains the same however: if the cost is incurred by rendering your service to customers, it’s included here. After all, you don’t have raw materials or manufacturing costs. They include the cost of raw materials that go into the product, manufacturing labor to assemble the product, and shipping the product to your customer.įor service businesses, COGS (or, more accurately, COR/COS) needs to be more apparent. If your business sells a physical product, your COGS is relatively straightforward.
It doesn’t include indirect or overhead costs like marketing or rent for your facilities. This includes everything that goes into making and delivering the product to your customers. COGS: Creating Your ProductĬost of Goods Sold (COGS), sometimes called Cost of Revenue (COR) or Cost of Sales (COS) in businesses that provide services rather than physical goods, covers the money your company spends creating and delivering its product or service. While they both constitute money your business is spending, they include different costs, giving you additional information about the health of your business. The short answer is that no COGS and OPEX are not the same thing. A common question we get from our CFO services clients is, how is the Cost of Goods Sold (“COGS”) different from Operating Expenses (“OPEX”)? They’re both about spending money to allow your business to function are they just two terms for the same thing? Which is which, and why does it matter?
