You already run the store. You know your order count, your ad spend, and roughly what each shirt costs to make. What you probably want from the operating expenses formula is not a textbook definition — it's a clean way to separate "cost of making the product" from "cost of running the business," so the profit number at the bottom is actually true.
That separation is the whole game. Get it right and you can see which lever to pull. Get it wrong and a healthy-looking month hides a store that's barely breaking even. This walks the formula both ways, then runs it on a real-looking set of numbers.
The operating expenses formula, two ways
There are two accepted ways to calculate operating expenses, and every top accounting reference lists both. Use whichever matches the data you have in front of you.
Method 1: add up your running costs
The direct method is what most people mean by "how to calculate operating expenses." You list every recurring cost of operating the business and sum them:
Total Operating Expenses = rent/software + payroll + marketing + payment fees + insurance + all other day-to-day costs
FreshBooks frames it the same way — operating expenses are the indirect costs of keeping the business open, added together. For a Shopify or print-on-demand store you don't pay rent on a warehouse, so your list skews toward software, ads, and fees instead of a lease.
Method 2: back it out from your income statement
If you already have a profit-and-loss statement, you can find operating expenses by subtraction. This is how do you calculate operating expenses when you know the totals but not the line items:
Operating Expenses = Revenue − Operating Income − COGS
QuickBooks lays out the same relationship, noting that total operating costs are really COGS plus OpEx — so if you strip revenue and operating income away, what's left is your operating expenses. Both methods must agree; if they don't, something is miscategorized.
What counts as an operating expense (and what doesn't)
The formula only works if each cost lands in the right bucket. Three distinctions decide that.
OpEx vs. COGS. Cost of goods sold is what you pay to produce and deliver the specific item — the blank garment, the print, and the supplier's shipping charge. Operating expenses are everything else it takes to run the store. Your Meta budget is OpEx. The $12 your supplier charges to make and ship the hoodie is COGS. If you're fuzzy on that line, our guide to recording cost of goods sold draws it cleanly, and unit economics shows why the split changes your per-order math.
OpEx vs. CapEx. Capital expenses are large, one-time purchases with lasting value — a $2,000 embroidery machine, say. Those are depreciated over time, not expensed in the month you buy them, so they stay out of the operating expenses formula.
Fixed vs. variable. Your Shopify plan is a fixed cost — it's the same whether you do 40 orders or 400. Ad spend and payment processing are variable; they rise with volume. Both are operating expenses, but knowing which is which tells you what scales when you grow.
A worked example: total operating expenses for a real store
Say your store did 340 orders last month at a $31 average order value. That's $10,540 in revenue. You spent $2,800 on Meta. Your supplier charges you $12.50 per order to make and ship each item — that's COGS, so it stays out of the operating expenses formula.
Here's the operating side. For the recurring platform pieces: Shopify's entry plan runs about $39 a month per Sherocommerce's Etsy-to-Shopify fee breakdown, and say your other apps (email, design tools) add $80. Assume your card processor keeps 2.9% plus 30 cents per order, and two orders bounced back as chargebacks — Shopify Payments charges US merchants $15 per chargeback. You pay a part-time VA $400 to handle support.
| Operating expense (monthly) | Amount |
|---|---|
| Shopify plan | $39.00 |
| Other apps & software | $80.00 |
| Meta ad spend | $2,800.00 |
| Payment processing (2.9% × $10,540 + $0.30 × 340) | $407.66 |
| Chargeback fees (2 × $15) | $30.00 |
| Part-time support (VA) | $400.00 |
| Total operating expenses | $3,756.66 |
So how to calculate total operating expenses here is just the sum of that column: $3,757 for the month. Notice the $4,250 you paid your supplier (340 × $12.50) is nowhere in this table — it's COGS, and mixing it in would overstate your overhead by more than the ad budget.
Now check it with Method 2. Operating income is revenue minus COGS minus OpEx: $10,540 − $4,250 − $3,757 = $2,533. Feed that back into the second formula: $10,540 − $2,533 − $4,250 = $3,757. Same number. The two methods reconcile, which is your proof the categorization is clean.
The operating expense ratio
Once you have the total, the operating expense ratio tells you how heavy your overhead is relative to sales. QuickBooks defines it as operating expenses divided by total revenue:
Operating Expense Ratio = Total Operating Expenses ÷ Revenue × 100
For the example: $3,757 ÷ $10,540 = 35.6%. So roughly 36 cents of every dollar in sales goes to running the business, before the product cost is even counted. There's no universal "good" number — it varies by model — but tracking your own ratio month over month is the fast way to catch overhead creeping up faster than revenue. When it climbs, ad spend is usually the culprit.
From operating expenses to per-order profit (the part most guides skip)
The accounting sites stop at the ratio. But as an operator, the number you actually feel is profit per order — and the operating expenses formula is only step one to get there.
Take the same month. Operating income was $2,533 across 340 orders, so you cleared $7.45 per order ($2,533 ÷ 340). That's the honest figure: revenue minus the product cost and a fair share of every running cost. Compare it to the tempting-but-wrong version — revenue minus COGS only — which would show $18.50 per order and hide the fact that ads and fees eat two-thirds of your gross margin.
This is exactly where the split between COGS and OpEx earns its keep, and where things like fulfillment costs and the broader ecommerce ops economics picture come together. If you want to see how the same logic reads on a real audited income statement, the JB Hunt 2020 Form 10-K operating expenses breakdown shows a public company slicing OpEx into the same kinds of lines you just built.
Doing this by hand once is clarifying. Doing it every week across Shopify orders, ad platforms, and supplier invoices is where it breaks down — the numbers live in different places and drift out of sync. PodVector AI's Victor is an AI employee that connects your Shopify store, Meta and Google Ads, your Printify, Printful, or Gelato account, and Klaviyo, then computes true per-order profit — COGS and operating expenses already sorted — and drops the report into your Google Drive. Every action he takes is approval-gated, so you review before anything happens. If tracing where your operating expenses actually go has become a weekly chore, try PodVector AI.
FAQs
How do you calculate operating expenses if you don't have an income statement?
Use Method 1: list every recurring cost of running the store — software subscriptions, ad spend, payment and chargeback fees, support labor, insurance — and add them up. Deliberately leave out the per-item production cost (that's COGS) and any big one-time equipment purchases (that's CapEx). The sum is your total operating expenses for the period.
How to find operating expenses on a profit-and-loss statement?
They usually sit as their own subtotal between gross profit and operating income, often labeled "operating expenses" or "SG&A." If your P&L only shows totals, back into the figure with Operating Expenses = Revenue − Operating Income − COGS. That subtraction recovers the number even when the individual lines aren't itemized.
Is COGS part of the total operating expenses formula?
No. COGS is the direct cost of producing and delivering the specific product; operating expenses are the indirect costs of running the business. They're separate lines that both sit above operating income. Total operating costs is the umbrella that includes both, but the operating expenses formula itself excludes COGS. Keeping them apart is what makes your per-order profit honest.
Are payment processing and chargeback fees operating expenses?
Yes. Card processing fees, chargeback fees, and platform transaction fees are all costs of operating the store, so they belong in the operating expenses formula — not in COGS. They're variable, rising with order volume, which is why they're easy to underestimate until you sum a full month.
What's the difference between operating expenses and operating costs?
"Operating costs" is the broader term: QuickBooks defines it as COGS plus operating expenses combined. "Operating expenses" is the narrower slice — the running costs only, with product cost excluded. When someone asks for the total operating expenses formula, they almost always mean the narrower one.