Last updated: March 2025
Quick Answer
The operating expense ratio = Operating Expenses / Total Revenue × 100. An OER of 60-80% is typical; lower means more efficient operations.
Key Takeaways
- ✓ OER = Operating Expenses ÷ Revenue × 100
- ✓ A lower ratio means better operational efficiency
- ✓ Most healthy businesses keep OER between 60–80%
- ✓ Track OER over time to identify cost creep
What Is the Operating Expense Ratio?
The OER measures what percentage of revenue is consumed by operating expenses. It's a key indicator of efficiency — a lower ratio means more of each dollar flows to the bottom line.
How to Calculate
OER = (Operating Expenses ÷ Revenue) × 100
What Is a Good OER?
Software companies: 60–70%. Retail/manufacturing: 75–85%. Service businesses: 65–75%. Compare against your industry.
Using OER for Decisions
- Trend analysis — Track monthly. Rising OER signals cost creep
- Cost-cutting — Identify largest expense categories for reduction
- Scaling — As revenue grows, OER should ideally decrease
Pair with our Profit Margin and EBITDA calculators.
Frequently Asked Questions
What is a good operating expense ratio?
It varies by industry but generally 60-80% is typical. Lower is better as it means more revenue converts to profit. SaaS companies often target under 75%.
What counts as an operating expense?
Rent, utilities, salaries, marketing, insurance, office supplies, and other costs of running the business. It excludes COGS, taxes, interest, and depreciation.