Operating Expense

Operating expenses (OpEx) are the costs of operating the company that aren't tied to delivering a specific unit of product: sales and marketing, research and development, general and administrative costs (often grouped as SGA). On the income statement they sit below gross profit — revenue minus COGS first, then operating expenses — so gross margin and operating margin measure different layers of the business.

OpEx is where most of a startup's cash actually goes and where the burn-rate conversation lives. Because these costs are largely fixed or step-fixed (payroll, rent, tooling), they don't scale down automatically when revenue dips — which is why OpEx discipline, not COGS trimming, is usually the lever founders pull first. Classification matters too: putting a delivery cost in OpEx instead of COGS makes gross margin look better and the business look more efficient than it is.