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What are capex and opex? Discover which is better

There are many ways of looking at the world, that’s why it’s natural that the same phenomenon is studied by various fields of research. This is why it’s interesting to know what capex and opex are. 

Even those these terms are related to accounting, they perfectly illustrate important issues in terms of the business world, such as innovation, efficiency and planning.  

Would you like to know what capex and opex are, and how they can help change your company’s processes? Then keep on reading this article and enjoy! 

Understanding what capex and opex are 

CAPEX is an abbreviation for Capital Expenditure which indicates the amount of money spent on buying the capital goods of a given company.  

OPEX on the other hand is an abbreviation for Operational Expenditure which indicates the capital used to maintain or improve the physical assets of a given company, such as loans, properties and buildings.  

To give a simple example: your company buying a building that will serve as your administrative headquarters is considered capex. All the maintenance needed to keep this investment functioning is considered opex.  

For many years companies opted to focus on capex, because it expanded their properties, which is an investment that can be turned into capital when necessary, even though it doesn’t always offer good liquidity. 

In terms of the company-customer relationship the question “what are capex and opex?” also makes sense, and with good reason this has revolutionized the way in which we consume many products and services.  

Practical examples 

Here are two examples that illustrate this situation well: Uber and Spotify. The former didn’t have to buy cars (capex) to increase its market value. Uber outsourced this need in partnership with their drivers, freeing them from certain worker expenses. This hasn’t hurt the company. In fact, today Uber has a market value greater than many car manufacturers. 

The same is true of the latter, the startup Spotify. There was a time when music consumers invested in possessing this media in a physical form (capex) and were able to sell it later. Records can in fact be sold at high prices today.  

However, people’s great need is to listen to quality music albums in a mobile fashion for a good price. Digital subscription services, like Spotify, have resolved this issue and have made it more difficult to pirate music.  

Applying this concept 

As we’ve seen in this article, understanding what capex and opex are helps a company think about its business model and reexamine its investments. However, during these times of economic recession, investing in opex is a safer solution to conserve financial resources and improve productivity.  

One alternative is to establish partnerships with specialized companies, and in this way your company can avoid spending a lot of money on training your employees and buying equipment to perform a task.  

The analysis and monitoring of data is an example of this. Currently this type of strategy is fundamental, but applying it can be expensive. That’s why the simplest solution is outsourcing this task to a specialized firm. This way your company’s implementation costs will decrease and its productivity will improve.  

Now that you understand what capex and opex are, reevaluate your company’s business model and outsource those things that can be delegated to other companies (which aren’t strategic). If you’ve enjoyed this article, sign up for our newsletter to receive exclusive — and free — content by email. 


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