Financial Metrics · Basic level · 3 min read ·
What is OPEX?
OPEX, short for Operating Expenditure, is what it costs to keep a project running, period after period: maintenance, insurance, accounting, management and, in hospitality, cleaning, laundry and commissions. It is subtracted from revenue to see how much the operation leaves.
In 30 seconds
- OPEX is the recurring costs of keeping the project operating.
- It is subtracted from revenue before reaching profit.
- It tends to rise over the years, largely because of inflation.
Why should you care?
Revenue says how much a project produces; OPEX says how much is spent along the way. Together they explain the operation's result.
- You know what is deducted before what is distributed is calculated.
- You read with judgment a projection that shows revenue without its costs.
- You understand why one year's OPEX isn't the same as the next.
Think of it as the costs of owning a car
Buying the car is paid once. But every month there's fuel, insurance, parking and servicing. Those recurring costs are the car's OPEX, and they decide whether owning it makes sense for you.
How does OPEX work?
- 1
List what repeats
Maintenance, insurance, accounting, management and, depending on the project, O&M or cleaning and laundry.
- 2
Add up the period
It's looked at monthly in hospitality and yearly in a solar project's models.
- 3
Subtract it from revenue
What's left is the base from which taxes, other payments and profit come.
- 4
Project it with inflation
Year after year, many of these costs are adjusted with the CPI.
The formula
Operating result = Revenue − OPEX
- Revenue
- = what the project billed in the period
- OPEX
- = the operating costs of the same period
An example with numbers
Illustrative figures, unrelated to any project, in millions of pesos: the first year of a small solar system.
| Revenue for the year | 80 |
|---|---|
| O&M | 5 |
| Insurance | 3 |
| Accounting and management | 4 |
| OPEX for the year | 12 |
| Operating result (80 − 12) | 68 |
OPEX takes 15 of every 100 that come in. Taxes and other payments still come out of the remaining 68 before profit.
Where do you see it at Circular Urban?
In solar projects, the Financial Models on the project sheet show first-year OPEX, which includes O&M. In hospitality projects, your portfolio shows the operation's costs and expenses each month. These figures depend on the project's actual performance.
- Each solar project sheet, in Financial Models: OPEX Year 1.
- Your portfolio, in each participation's detail: General Costs and Expenses.
What changes in your finances once you get it
You look at the cost of keeping
Before buying something, you also think about what it costs to own it every month.
You read full results
You know high revenue with high OPEX can leave little.
You review your fixed costs
Your own OPEX, rent, utilities and subscriptions, decides how much you keep each month.
Common mistakes
- Myth
If revenue grows, the result grows just as much.
- In reality
If OPEX grows at the same pace or faster, the result can stay flat or drop.
- Myth
A solar project has no costs once it's installed.
- In reality
It has O&M, insurance, accounting and running the company. They're smaller than the installation, but they repeat every year.
- Myth
First-year OPEX stays the same forever.
- In reality
It tends to rise with inflation and equipment wear. A good projection adjusts it year by year.
Test yourself
A project had revenue of 90 and OPEX of 18 for the year, in millions of pesos. What percentage of revenue went to OPEX?
Keep learning
Helps to know first
What comes next
This content is educational. Every participation carries risks inherent to the project, including the possibility of partial or total loss, and results are subject to each project's actual performance.
