If you run a store, this looks like a real estate article, and it is. But the reason it belongs here is that landlords have a cleaner definition of "operating expenses" than most Shopify and print-on-demand operators do. Borrow their discipline and you'll read your own P&L better.
What counts as a rental property operating expense
An operating expense is any recurring cost required to keep the property running and rentable. It's the money that leaves your account every month or every year just to keep the lights on and the unit occupied.
The standard list is consistent across sources. According to Baselane, it includes marketing and advertising, tenant screening, leasing (often around one month of rent for a new lease), property management (which "typically run 8% of the monthly rent collected"), repairs and maintenance, landscaping and snow removal, pest control, landlord-paid utilities, insurance, property taxes, HOA fees, and professional fees for accountants and attorneys.
Notice the pattern: every item is recurring and tied to keeping the property operating. That test — recurring and operational — is what separates an operating expense from everything else on your books.
What is NOT an operating expense (the line most people blur)
This is where the discipline lives, and where store owners usually get sloppy. Four big cost buckets are explicitly not operating expenses.
| Cost bucket | Why it's excluded |
|---|---|
| Mortgage principal and interest (debt service) | It's how you financed the property, not how you operate it |
| Capital expenses (new roof, HVAC) | One-time major improvements, not recurring upkeep |
| Depreciation | A paper tax deduction; it doesn't affect cash the property generates |
| Investor income taxes | Levied on you, not on the property's day-to-day performance |
According to Stessa, "principal and interest payments from a mortgage are not a legitimate operating expense," and capital expenses, depreciation, and the investor's own income taxes are excluded for the same reason: they don't reflect what it costs to run the asset.
Why does this matter so much? Because mixing debt service and capex into "expenses" hides whether the property itself actually makes money. The same mistake — folding your loan payment or a one-time website rebuild into monthly "costs" — hides whether your store actually makes money. If you want the store version of this exercise, our companion piece on what counts as an operating expense for a business walks the same line item by line item.
How to calculate your operating expense ratio
The operating expense ratio (OER) is operating expenses divided by gross rental income. It tells you what share of every rent dollar gets eaten before financing.
Say a unit rents for $2,000 a month, so gross annual rent is $24,000. Now itemize the operating expenses for the year:
- Property taxes: $2,600
- Insurance: $1,200
- Property management at 8% of rent: $1,920
- Repairs and maintenance: $2,000
- Landlord utilities and misc: $1,500
That totals $9,220. Your OER is $9,220 ÷ $24,000 = 38.4%.
That lands inside the healthy band. Baselane notes that "landlords try to keep this expense ratio between 35% and 45% to stay well above the profit line." A ratio creeping toward the high end is a signal to investigate before it eats your return.
From here you get net operating income (NOI): gross rent minus operating expenses, or $24,000 − $9,220 = $14,780. NOI stops before the mortgage on purpose, so two investors can compare the same building even if one paid cash and one borrowed heavily.
The 50% rule and where it breaks
For a fast screen, many investors reach for the 50% rule. Stessa frames it as an estimate where "operating expenses are equal to ½ of the gross annual rental income."
On our example, that's $12,000 — noticeably higher than the itemized $9,220. That gap is the point: the 50% rule is a conservative back-of-envelope guess for a property you haven't underwritten yet. Once you have real bills, the itemized number wins every time. A rule of thumb is a starting place, not a substitute for your actual line items.
Why operators in every industry draw the same line
The rental-property framework isn't special to real estate. Every disciplined operator separates the cost of running the business from financing, one-time investments, and the direct cost of the thing being sold.
An airline does the exact same thing when it collapses a fleet's messy cost structure into one comparable number — see how that works in Archer's unit economics and cost per seat-mile. A landlord does it with NOI. The shared idea underneath all of it is the economics of actually running an operation, where the winners are the operators who know which bucket every dollar belongs in.
Your Shopify or POD store has operating expenses too
Here's the translation. A landlord separates rent into COGS-like costs, operating expenses, and financing. You should split your store the same way — and most owners don't, which is why they can't tell you their real per-order profit.
Say your store does 340 orders a month at a $31 average order value, so revenue is $10,540. Walk one order the way a landlord walks a unit:
- Product plus supplier shipping (your COGS, the equivalent of a unit's direct cost): assume $13.00
- Payment processing (assume about 3% plus a flat fee): about $1.23
- Ad spend to acquire the customer, at $2,800 a month in Meta spend across 340 orders: $8.24
- Platform and apps overhead, say $120 a month across 340 orders: $0.35
Per-order profit before refunds and chargebacks: $31.00 − $13.00 − $1.23 − $8.24 − $0.35 = $8.18. That's your NOI-equivalent per order, and it's a very different story from the $18 gross margin you'd see if you only subtracted product cost.
Now layer in the operating expenses landlords would recognize as recurring risk costs. On Shopify, a lost chargeback carries a flat fee — chargeback.io reports the US Shopify Payments chargeback fee at $15 per chargeback — and the same source notes a lost dispute typically costs two to two-and-a-half times the order value once you add unrecoverable product, shipping, ad spend, and time. For a print-on-demand seller that's brutal, because the printed item can't go back into stock. When you formally book those supplier costs, our guide to recording your cost of goods sold shows where each dollar lands.
Platform choice is an operating-expense decision too. Sherocommerce reports Etsy's combined take approaches roughly ten to thirteen percent of every sale, with a mandatory offsite-ads fee that can push total fees toward the mid-twenties percent on ad-attributed orders — the marketplace equivalent of a landlord's property management cut, except you don't get to opt out above a revenue threshold.
How to track store operating expenses without a spreadsheet
The reason landlords stay disciplined is that their categories are fixed and their statements are clean. Your store data is scattered across the platform, the ad accounts, and the supplier — so the operating-expense picture almost never sits in one place.
That's the gap PodVector AI's Victor is built to close. Victor is an AI employee that connects to your Shopify store, Meta Ads, Google Ads, Printify, Printful, Gelato, and Klaviyo, computes your true per-order profit across all of it, and delivers the reports straight to your Google Drive — and every write action he takes is approval-gated, so you approve before anything executes. He's not a dashboard you have to go read; he does the operating-expense math the way a landlord reads NOI. You can put Victor to work here.
FAQs
Is the mortgage payment part of operating expenses?
No. Mortgage principal and interest are debt service, not operating expenses. Stessa is explicit that "principal and interest payments from a mortgage are not a legitimate operating expense." Keeping it out is what lets net operating income compare two properties on equal footing regardless of how each was financed.
What operating expense ratio should I aim for?
For rentals, a common target is the 35% to 45% band cited by Baselane. Below that range is strong; drifting above it is a prompt to investigate rising taxes, maintenance, or management costs before they eat your return.
Are capital improvements operating expenses?
No. A new roof or HVAC system is a capital expense — a one-time major improvement, not recurring upkeep. Routine repairs that keep the unit habitable are operating expenses; replacements that extend the property's life or value are capitalized instead, per Stessa.
How does the 50% rule compare to itemizing?
The 50% rule estimates operating expenses at half of gross annual rent, which Stessa offers as a quick screen. It's usually more conservative than a real itemized total, so treat it as a first-pass filter and replace it with actual line items once you have them.
How does any of this apply to my store?
The same way it applies to a rental: separate the direct cost of goods, the recurring operating expenses, and financing, then read the profit that's left. Store owners who do this can see true per-order profit; those who lump everything together usually can't tell a healthy order from a break-even one.