Operating Expenses: What They Are and How To Manage Them Globally

Add up everything it costs to run your business on an ordinary Tuesday—payroll for the day, a portion of the rent, and the software subscription renewing in the background. Now multiply that across an entire year.

That number represents your operating expenses, and it’s usually bigger and more revealing than most leaders expect. These costs don’t show up as one big invoice, but as dozens of small charges that only draw attention when monthly totals start creeping higher.

But operating expenses aren’t just the cost of staying in business. They’re one of the clearest indicators of how efficiently your company runs, and one of the few financial metrics you can directly influence.

The question isn’t whether your business has operating expenses. Every business does. The real question is whether you know where that money is going—and how to manage those costs more effectively.

What are operating expenses?

Operating expenses (also called operating costs or opex) are the recurring costs your company takes on to keep daily operations moving and revenue coming in. They cover everything from payroll, rent, and utilities to insurance, software subscriptions, advertising, and other administrative needs. And these expenses show up month after month, whether your business is booming or barely breaking even.

So, what is included in operating expenses? Most fall into two simple categories:

• Fixed costs (such as rent, insurance, and software subscriptions) that stay roughly the same every month.
• Variable costs (such as travel, utilities, and sales commissions) that rise and fall with the level of business activity.

Together, these expenses form the baseline required to run the business day-to-day. 

They’re also where you see the true picture of operations: Revenue and gross profit may seem flattering, but operating expenses show how much the company is spending just to keep the lights on.

On the income statement, these costs are deducted from gross profit to calculate operating income:

Operating income = Gross profit − Operating expenses

This single calculation offers a clear view of your cash flow and overall financial health—that’s why it’s one of the most closely watched figures in a company’s financial statements.

How do operating expenses affect a company’s net income and performance?

The impact is direct: When operating expenses rise faster than revenue, operating income falls, and net profit drops with it. 

Consider expansion, for example. Say your company enters three new countries. Employee costs rise with each one—new salaries and wages, more benefits to administer, and payroll tax rules that differ by market. If your revenue doesn’t grow at the same pace, the expansion starts eroding profitability instead of adding to it.

Travel works the same way. Frequent trips and a steady stream of international expense reimbursement claims can push operating costs past budget gradually, with no single expense looking like the problem. 

None of this means growth is a mistake. But growth must be paired with expense management, or the costs outpace the gains.

The operating expense ratio makes it easy to track whether costs are rising in line with revenue. The formula is straightforward:

Operating expense ratio = Operating expenses / Revenue

It answers the simple question of how much of every dollar in revenue goes toward keeping the business running. Track this number over time, and it becomes an early warning system. A rising ratio signals that your costs are growing faster than the business itself.

Operating expenses vs. non-operating expenses

Not every expense tells the same story about a business, which is why distinguishing operating expenses from non-operating expenses matters.

Operating expenses are the recurring costs of running the business. Many of these fall under selling, general, and administrative expenses—a broader term for overhead that supports the business but isn’t tied to any single product or sale.

Non-operating expenses, by contrast, come from outside normal business operations. Common examples include:

• Interest expenses on business loans
• Losses from selling assets or investments
• One-time legal settlements or restructuring costs

Keeping these categories separate makes it easier to evaluate core business performance without the noise of debt, legal issues, or one-time events. Otherwise, a single quarter with an unusual expense can make a fundamentally healthy business appear to be underperforming.

What are some common examples of operating expenses?

Operating expenses examples vary by company, but the categories remain the same across almost every industry. Recognizing them helps you plan more accurately and avoid budget surprises.

Employee compensation and benefits

For most organizations, labor is the largest operating expense by a wide margin. It includes salaries and wages, bonuses, commissions, employee benefits, and employer payroll taxes. Hiring internationally adds another layer, as international payroll costs can vary significantly from one country to the next.

Example: A technology company hires employees in Germany, Brazil, and Singapore. Beyond base salaries, it must now budget for country-specific payroll taxes and mandatory social contributions, with each market adding its own costs to the company’s overall payroll expenses.

Facility and administrative costs

These are the recurring costs of maintaining a physical or hybrid workplace.

Example: A global consulting firm leases office space in London, Toronto, and Sydney. Each location comes with its own utility providers, insurance requirements, and lease terms, which means “facility costs” are three separate budgets running at once.

Technology and software expenses

Technology has become one of the most essential operating costs for modern businesses. Common expenses include cloud infrastructure, cybersecurity, HR platforms, accounting software, and global payroll systems built to support distributed teams.

Example: A multinational company runs a single global payroll platform alongside its HR and finance software to manage employees across multiple countries. This reduces manual administrative work and the risk of costly errors.

Travel, maintenance, and other operating costs

This category covers business travel, equipment, maintenance, repairs, and international expense reimbursements. These costs fluctuate with business activity, which is why they’re treated as variable costs that need ongoing attention.

Example: A regional operations team travels to onboard new employees in emerging markets. They reimburse accommodation, transportation, and meal expenses through a centralized expense management process that keeps spending visible and accountable.

Best practices for managing and reducing operating expenses

Reducing operating expenses doesn’t mean cutting costs everywhere. That approach tends to backfire. Cut the wrong thing, and you slow down the very growth you’re trying to protect. 

The better goal is efficiency—spending less on what doesn’t serve the business so there’s more room to invest in what does.

Here’s how to get started:

• Conduct regular expense audits. Look closely at your recurring operating costs. You might find duplicate services, outdated subscriptions, or spending that no longer supports your business. Regular audits also surface patterns that improve your budgeting and forecasting over time, making expense management less reactive and more strategic.
• Stay compliant with local labor laws and tax obligations. As you expand internationally, compliance becomes a real driver of operating expenses. Missing a labor law or a tax requirement can quickly lead to fines, penalties, back payments, or legal fees you never budgeted for. Multiply that across several countries, and keeping up with shifting regulations becomes both operationally demanding and financially significant.
• Review vendor contracts and software subscriptions. The tools that were useful when you signed up may no longer fit your needs. Revisiting vendor agreements and cutting unused subscriptions can meaningfully reduce operational expenses without affecting productivity.
• Automate repetitive administrative processes. Every manual workflow introduces the risk of an error and drains time you could spend elsewhere. Automating invoice processing and payroll administration improves accuracy and frees your finance and operations teams for the work that requires human judgment.
• Consolidate software and operational tools where possible. Running five tools that each handle a part of the same job raises costs and complicates oversight. Consolidating platforms gives you better visibility and a simpler way to track spending across the business.

Follow these practices to cut unnecessary spend and see your operating expense ratio improve as a result.

How global workforce management helps control operating expenses

For most organizations, labor and payroll are the largest operating expenses—and they become more complex to manage as your workforce expands across countries. Different payroll rules and compliance requirements in every market make spending hard to control.

Pebl simplifies international hiring. Its Global Payroll and Employer of Record solutions let you run payroll across more than 185 countries from one platform, so you stay compliant everywhere you grow.

Learn more about our Global Payroll solution. Contact Pebl today.