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What is Operating Cost: Classification and Effective Optimization Strategy

What are operating costs and why do they play such an important role in a business? Financial experts say that good cost control helps increase profits, optimize resources, and improve a business's ability to withstand risks. 

Let's join Bizzi to learn more about what operating costs are, their roles and how to optimize operating costs in the current volatile economic context.

What is Operating Cost? The Role of Operating Cost

Operating Cost are all expenses necessary for a business to maintain its daily operations, except for the cost of direct materials and direct labor (included in the cost of goods sold).

This term is often used in parallel or interchangeably with a number of similar concepts such as Operating Expenses (Opex) good Overhead CostHowever, there are still certain differences between them in terms of scope and purpose of use.

What are the operating costs?
Operating Costs are all expenses necessary for a business to maintain its daily operations, except for direct materials and direct labor costs (included in cost of goods sold).

Explanation of related terms

Create a comparison table of operating cost, operating expense, overhead cost (Unique features: Create a comparison table of terms to increase clarity and reduce confusion. Cost of Retrieval.)

Terminology Define Scope includes Distinguishing notes
Operating Cost Total cost required to operate the business Includes Opex and indirect manufacturing costs The most comprehensive concept
Operating Expenses (Opex) Recurring expenses in regular operations Lương nhân viên hành chính, chi phí thuê, phần mềm, marketing,… Excluding cost of goods sold (COGS)
Overhead Cost Indirect costs, not associated with product manufacturing Electricity, water, maintenance, administration As part of Operating Cost

Operating costs do not include direct materials or direct manufacturing labor — as these are included in cost of goods sold (COGS).

Correctly understanding and distinguishing these types of costs helps businesses avoid errors in calculating profits, building budgets and evaluating financial performance.

The Importance of Operating Costs in Business

Operating costs are more than just a number on a financial statement — they are an indicator of the health of a business. Keeping operating costs under control helps organizations balance operational efficiency and profit growth.

Here are three key roles of operating costs:

According to many studies, More than 601,000 businesses fail in the first 3 years. because of poor control of operating costs.
→ Close monitoring helps avoid waste and detect unnecessary costs.

Reducing operating costs by 5–10% can double profits, especially for businesses with thin profit margins.

Transparent operating costs help:

Classification of operating costs in business: Fixed and Variable 

After understanding the definition of operating costs, let's learn about 2 typical classifications of operating costs in businesses.

Fixed Costs (Fixed Costs)

Fixed costs are expenses that do not change with output or activity levels over a given period of time. These expenses must be paid whether a business produces 0 or 10,000 units of a product.

Common types of fixed costs:

Businesses need to balance fixed and variable costs to ensure stability while taking advantage of flexibility and optimizing ROI in each stage of marketing strategy.

Variable Costs

Variable costs are expenses that increase or decrease with the level of activity or output. When more is produced, costs increase; when less is produced, costs decrease.

Common types of variable costs:

Fixed and Variable Cost Comparison Table 

Criteria Fixed Cost Variable Cost
Define Expenses constant according to campaign scale Expenses flexible change by efficiency or scale
Characteristic Stable, predictable, difficult to cut in the short term Flexible, increase or decrease according to marketing activities
Specific examples Marketing staff salary, office rental fee, CRM software CPC/CPA advertising, KOL/KOC commission, POSM printing costs
Advantage Helps maintain stable and long-term operation Easy to control and adjust for performance
Disadvantages Cash flow pressure if revenue is low Can increase dramatically as campaign expands
Role in strategy Platform for maintaining marketing systems and building long-term capacity Fast growth lever, suitable for short-term campaigns

Businesses need to balance fixed and variable costs to ensure stability while taking advantage of flexibility and optimizing ROI in each stage of marketing strategy.

How to Calculate and Account for Effective Operating Costs

There are many ways to calculate operating costs, depending on the field and scale of operation. Below are 02 formulas for calculating operating costs according to cost management and financial reporting.

Basic formula (according to cost management)

This formula is suitable for internal management when a business wants to calculate the total operating costs in a period to analyze the break-even point.

Operating costs on financial statements

Position on the income statement: Operating Expenses (OPEX) are presented after Net Revenue and Cost of Goods Sold (COGS), making up Gross Profit. Operating expenses are then deducted to calculate Operating Profit (EBIT).

Meaning:

Operating costs are the “bridge” between revenue – cost of goods sold and actual profits, showing the health of internal management and the ability to optimize the enterprise’s resources.

Position on the income statement: Operating Expenses (OPEX) are presented after Net Revenue and Cost of Goods Sold (COGS), making up Gross Profit

What is the operating cost optimization strategy?

In the context of Vietnamese enterprises increasingly under pressure on profits, operating costs become an important "lever" determining the ability to survive and develop. Not just stopping at cutting expenses, optimizing operating costs is a process. reengineering the entire operating system — from internal processes to management tools.

From the perspective of Bizzi.vn, businesses can deploy optimal strategies based on two main pillars: Automation technology and Improve operating procedures.

Technology application: The key to reducing operating costs

When financial and accounting processes are still dependent on humans and manual processing, businesses not only lose time but also face the risk of errors, data loss and lack of transparency.

Financial and accounting process automation platforms such as Bizzi.vn Bring about a quantum leap in cost management thanks to:

This is proof that applying technology not only helps save human resources, but also reduces the risk of errors - which is the cause of cost loss. Bizzi.vn is not only automation software but also a comprehensive financial management platform, helping businesses transform cost management from reactive to proactive, thereby improving operational efficiency and profitability.

Bizzi supports real-time cost reconciliation and management against policies and budgets.

Review and improve operating procedures

Along with technology, continuous review and improvement of processes is also an important strategy. Many organizations waste budgets not because they spend too much, but because their processes are cumbersome, overlapping, and lack control over workflow.

Businesses can apply the following methods:

Combining both technology (Bizzi.vn) and lean management methods, businesses not only cut operating costs but also improve overall performance, creating a sustainable foundation for long-term growth.

Bizzi is a financial and accounting automation platform that acts as an AI assistant for accountants, helping businesses process invoices, manage expenses, control budgets, and automate expense approval processes efficiently, using AI and RPA technology to process invoices automatically. 

What are the frequently asked questions about operating costs?

Below is the FAQ (Frequently Asked Questions) about operating costs, answered briefly - clearly - easy to apply:

How much of the operating cost is reasonable for 1.3T of revenue?

There is no absolute “standard” number for every business, because the operating cost ratio depends on the business model, size, industry and stage of development. However, according to average financial reports:

How should small businesses control operating costs?

For small businesses (SMEs), controlling operating costs is vital. An effective strategy should ensure both economical and productive.

Are operating costs tax deductible?

Yes, most reasonable, eligible operating expenses are deductible when calculating corporate income tax, if:

Conclude

Hopefully, through the information above, readers can better understand what operating costs are, their roles and how to calculate operating costs most accurately. Strictly controlling operating costs helps businesses easily forecast their budgets, avoiding the situation of "bloating" the apparatus when revenue increases rapidly. Technology is the key to reducing operating costs. In the context of businesses increasingly under pressure to optimize costs and improve performance, technology is the most important lever.Automation and digitalization not only help reduce costs but also create a transparent, standardized control system – the foundation for sustainable growth. Explore Bizzi.vn See how top businesses optimize operating costs today.

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