Defining Operating Costs

October 3, 2019 by OSYB Staff

Intuit QuickBooks shares a definition of operations costs as “those required for the day-to-day maintenance and administration of your business.” As a small business owner, this should be an area that is always under meticulous scrutiny.

Here are some examples of operating costs:

• cost of goods sold (COGS) – direct costs needed to produce a business’s goods or services
• labor costs
• employee health insurance, pensions, and other benefits
• sales commissions
• depreciation
• amortization
• maintenance costs

Knowing your operation costs also leads you to have a solid grasp of:

1. Operating income is the total profit associated with your company’s operations. Formula: Operating income = Total revenues – operating expenses
2. Operating expense ratio gives you a direct comparison of your expenses to your income, allowing you to track your efficiency. Formula: Operating Expense Ratio = Operating Costs ÷ Revenues

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For full article: Operating costs: Understanding and reducing them for your business

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