What Is Operating Expenses?

Operating expenses represent everything it costs to run the business beyond the direct cost of delivering products or services. For FP&A teams, OpEx budgeting and forecasting is where the bulk of planning effort occurs, because operating costs are where management has the most discretion and control.

OpEx is typically categorised by department (engineering, sales, marketing, G&A, operations) and by expense type (salaries and wages, rent and facilities, software and technology, professional services, travel and entertainment, insurance). This dual classification — by cost centre and by nature — enables both departmental accountability and functional cost analysis.

People costs are almost always the largest component of OpEx. For knowledge-economy businesses like software companies, professional services firms, and financial services, salaries, employer National Insurance, pension contributions, and benefits can represent 60-80% of total operating expenses. This makes headcount planning the most impactful element of OpEx budgeting.

FP&A teams should distinguish between fixed and variable operating costs. Fixed costs (rent, insurance, core team salaries) remain relatively constant regardless of revenue. Variable costs (sales commissions, cloud usage, payment processing) scale with business activity. Semi-variable costs (customer support, which grows in steps as customer base expands) need careful modelling.

For UK businesses, OpEx budgeting must account for annual National Insurance threshold changes, auto-enrolment pension contribution rates, the Apprenticeship Levy for larger employers, and business rates. These regulatory costs can significantly impact total operating expenditure.