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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


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

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