--- title: "OpEx vs CapEx: The Difference, With SaaS Examples" seoTitle: "OpEx vs CapEx: Differences and SaaS Examples" description: "OpEx vs CapEx: a side-by-side table, how each hits EBITDA and free cash flow, capitalized software (ASC 350-40, ASU 2025-06), cloud costs and a real 10-K." publishDate: "2026-11-12" updatedDate: "2026-11-12" author: "Pete Furseth" category: "Comparisons" keywords: ["opex vs capex", "capex vs opex", "opex and capex", "capex and opex", "is software capex or opex", "capitalized software capex", "opex vs capex saas", "capex vs opex examples", "difference between capex and opex"] readTime: "14 min read" cluster: "Revenue Metrics" tags: ["income statement", "cash flow statement", "capex", "operating expenses", "EBITDA", "free cash flow", "SaaS metrics"] faqs: - question: "Is software capex or opex?" answer: "It depends on how the company gets the software. A SaaS subscription the company pays for, such as a CRM or an ERP, is a service contract, so the fees are operating expenses. Software the company builds for its own use can be capitalized under ASC 350-40 once the project is approved, funded and probable to be completed, and the capitalized cost then shows up as capex. Implementation costs for a cloud subscription can be capitalized under ASU 2018-15, but they are expensed over the subscription term in the same line as the fees and paid in operating cash flow." - question: "Is depreciation capex or opex?" answer: "Depreciation is neither the purchase nor a cash cost. Capex is the cash spent to buy or build a long-lived asset. Depreciation, or amortization for software and other intangible assets, is how that cost moves onto the income statement over the asset's useful life. It is an operating expense line in most income statements, it reduces operating income, and it is added back to reach EBITDA and operating cash flow because no cash leaves in the period." - question: "Are salaries opex or capex?" answer: "Salaries are operating expenses in almost every case. The exception is time spent building an asset. Engineers who build internal-use software after a project passes the capitalization threshold can have part of their pay, and related stock-based compensation, capitalized as part of the software's cost. The same people's time spent on planning, maintenance, bug fixes or training stays in operating expenses." - question: "Which is better, capex or opex?" answer: "Neither is better on its own. Opex keeps cash commitments short and flexible and is expensed at once, which lowers reported profit now. Capex commits cash up front for an asset that lasts, and spreads the cost over several years, which raises EBITDA and operating income in the year of purchase. Free cash flow counts both the same way, so a board that reads free cash flow alongside EBITDA sees through the choice." - question: "Is R&D capex or opex?" answer: "Under US GAAP, research and development is expensed as incurred, so R&D is opex. Software is the main exception for SaaS companies: some development costs for internal-use software are capitalized under ASC 350-40, and the capitalized amount is reported as capex in investing activities. Tax rules are separate. For US tax years beginning after December 31, 2024, new section 174A lets taxpayers deduct domestic research and experimental expenditures, or elect to amortize them over at least 60 months." - question: "Can you convert capex to opex?" answer: "You can change how you buy, which changes the accounting. Moving from owned servers to cloud hosting, or from licensed on-premise software to a SaaS subscription, turns an up-front asset purchase into recurring operating expense. Leasing is less clear cut: under US GAAP most leases still put a right-of-use asset and a lease liability on the balance sheet, even though operating lease cost runs through operating expenses." answer: "OpEx (operating expenditure) is spending used up within the year, such as salaries, rent, hosting and SaaS subscriptions, and it is expensed on the income statement at once. CapEx (capital expenditure) is spending on assets that last more than a year, such as equipment or capitalized software, recorded on the balance sheet and depreciated or amortized over time." ---

OpEx vs CapEx: The Difference, With SaaS Examples

By Pete Furseth OpEx (operating expenditure) is spending used up within the year, such as salaries, rent, hosting and SaaS subscriptions, and it is expensed on the income statement at once. CapEx (capital expenditure) is spending on assets that last more than a year, such as equipment or capitalized software, recorded on the balance sheet and depreciated or amortized over time. Most guides to opex and capex stop at "a truck is capex, rent is opex." For a SaaS company that answer is almost useless. The truck barely exists. The real questions are about software: when engineering time becomes an asset, what to do with implementation costs on a cloud subscription, and why capitalized sales commissions show up in neither bucket. Those choices move EBITDA by real money while free cash flow stays the same. This guide puts capex vs opex side by side, shows where each lands on the three statements, works one illustrative SaaS example, and checks the numbers against a real 10-K.

What is the difference between opex and capex?

OpEx is consumed in the period and expensed at once. CapEx buys or builds an asset that lasts beyond the year, so it is recorded on the balance sheet and spread over the asset's life. The cash leaves either way. What changes is when the cost hits profit. | | OpEx (operating expenditure) | CapEx (capital expenditure) | |---|---|---| | What it buys | Goods and services used up within about a year | Assets that give a benefit for more than a year | | SaaS examples | Salaries, hosting fees, SaaS subscriptions (CRM, ERP), marketing, rent, R&D | Laptops and servers, office build-outs, capitalized internal-use software | | Income statement | Expensed in full in the period | Not expensed at purchase; depreciation or amortization over the useful life | | Balance sheet | No asset (except prepaid amounts) | Property and equipment, or intangible assets for capitalized software | | Cash flow statement | Inside operating cash flow | Investing activities | | Effect on EBITDA | Lowers it in full now | None, then or later, because D&A is added back | | Effect on operating income | Lowers it in full now | Lowers it slowly, through depreciation or amortization | | Effect on free cash flow | Lowers it in full now | Lowers it in full now (FCF = operating cash flow minus capex) | | US tax (high level) | Generally deductible when incurred | Generally recovered through depreciation, with exceptions | | Budget owner | Department budgets, reviewed monthly | Capital budget, approved by project | The row that matters most is the one about free cash flow. Capitalizing a cost makes EBITDA and operating income look better in the year of spend. It does not change free cash flow, because free cash flow subtracts capex. That is why the two lines should be read together.

Where opex and capex land on the three statements

OpEx goes straight to the income statement. CapEx goes to the balance sheet first, then reaches the income statement in small pieces. Following one dollar of each through the three-statement model makes the difference concrete. | Statement | $1 of opex (for example, a month of hosting) | $1 of capex (for example, capitalized software) | |---|---|---| | Income statement, year 1 | $1 of expense | Depreciation or amortization only, such as $0.33 over a 3-year life | | Balance sheet, end of year 1 | Nothing, cash is $1 lower | Asset of $0.67 net, cash is $1 lower | | Cash flow statement, year 1 | -$1 inside operating activities | -$1 in investing activities; the $0.33 is added back in operating activities | | Years 2 and 3 | Nothing further | $0.33 a year of amortization, no further cash | The asset sits on the balance sheet as property and equipment, or as an intangible asset for software. ORM's balance sheet template has both lines and the accumulated depreciation that reduces them.

Is software capex or opex? Four SaaS cases

Software can be opex, capex, or an asset that never shows up as capex, depending on whether you build it, subscribe to it, implement it or pay someone to sell it. These four cases cover most of what a SaaS finance team decides each quarter. This section explains how the standards work; it is not tax or accounting advice, and your auditor has the final say.

1. Internal-use software you build (ASC 350-40)

Software a company develops for its own use, such as an internal billing engine or, for many SaaS companies, parts of the platform it hosts for customers, falls under FASB's Subtopic 350-40. Under the current rules, costs in the application development stage can be capitalized, while planning, training and maintenance costs are expensed. Okta's 10-K describes its policy this way: development costs, "including the associated stock-based compensation expenses, are capitalized during the application development stage, as long as management has authorized and committed to funding the project, it is probable the project will be completed and the software will be used to perform the function intended" (Okta Form 10-K, fiscal 2025). The capitalized cost is capex. It appears in investing activities, usually as "capitalized software" or "capitalized internal-use software," and it is amortized over a short life. Okta uses 3 years for capitalized software, per the same filing. The rule is changing. In September 2025 FASB issued ASU 2025-06, which removes "all references to prescriptive and sequential software development stages" from Subtopic 350-40. Under the new guidance, capitalization starts when management has authorized and committed to funding the project and it is probable the project will be completed and used as intended. In judging that, a company must consider "significant development uncertainty," such as novel or unproven features not yet resolved through coding and testing, or requirements that are still being substantially revised. The update is effective for annual periods beginning after December 15, 2027, with early adoption permitted, and it allows prospective, modified or retrospective transition (FASB, ASU 2025-06). For agile teams that ship in small increments, expect fewer arguments about which "stage" a sprint was in, and more about whether the uncertainty has been resolved. Software built to sell, lease or market to customers sits under a different subtopic (985-20), which ASU 2025-06 does not change.

2. SaaS subscriptions you buy are opex

A subscription to someone else's cloud software (your CRM, ERP, data warehouse or forecasting tool) is a service contract, so the fees are operating expenses. There is no asset to capitalize for the service itself. Xero's US guide puts the trend plainly: tech businesses are "increasingly opex-dominant because cloud infrastructure and software subscriptions replace on-premises servers and licensed software" (Xero).

3. Implementation costs on a cloud subscription (ASU 2018-15)

Configuring, integrating and testing a cloud system can cost more than the first year's subscription. ASU 2018-15 (August 2018) lets the customer capitalize implementation costs in a hosting arrangement that is a service contract using the same rules as internal-use software. Training and certain data conversion costs are still expensed. The catch is how the asset is presented. The capitalized amount is expensed "over the term of the hosting arrangement," in "the same line item in the statement of income as the fees associated with the hosting element," and payments are classified in the cash flow statement "in the same manner as payments made for fees associated with the hosting element" (FASB, ASU 2018-15). In practice that means the cost is spread out, but it is not capex: the cash sits in operating cash flow and the expense sits in operating expenses, not in amortization. EBITDA does not get the add-back that capitalized internal-use software gets.

4. Capitalized sales commissions (ASC 340-40) are neither capex nor opex in the cash sense

SaaS companies capitalize sales commissions on new contracts as costs of obtaining a contract under ASC 340-40, then amortize them over the expected benefit period. Okta describes its commissions as "incremental and recoverable costs of obtaining a contract," amortized on a straight-line basis over "generally five years" (Okta Form 10-K, fiscal 2025). This creates an asset, but not capex. The cash paid to reps runs through operating cash flow as a change in deferred commissions, and the amortization sits inside sales and marketing, part of SG&A. So capitalized commissions lift EBITDA and operating income in a growth year (only part of the cash paid is expensed) without touching capex or investing activities. Free cash flow sees the full cash paid. | Cost | Asset? | Expense line | Cash flow section | Counts as capex in FCF? | Added back in EBITDA? | |---|---|---|---|---|---| | Hosting and SaaS subscription fees | No | Cost of revenue or operating expenses | Operating | No | No | | Capitalized internal-use software (ASC 350-40) | Yes, intangible | Amortization | Investing | Yes | Yes | | Cloud implementation costs (ASU 2018-15) | Yes, like a prepayment | Same line as the subscription fees | Operating | No | No | | Capitalized commissions (ASC 340-40) | Yes, deferred commissions | Sales and marketing | Operating | No | No, unless a company adjusts for it | | Laptops, servers, build-outs | Yes, property and equipment | Depreciation | Investing | Yes | Yes |

How the opex vs capex choice moves EBITDA and free cash flow

Capitalizing a cost raises EBITDA by the full amount in the year of spend and raises operating income by the amount not yet amortized. Free cash flow does not move. A worked example shows the size of the gap. Worked example, all numbers illustrative: a SaaS company with $50,000,000 of revenue spends $2,400,000 of engineering time on a new internal billing platform. Assume the project meets the capitalization threshold from day one, goes live at the start of year 2, and is amortized over 3 years ($800,000 a year). | Year 1 (illustrative) | Expense it all as opex | Capitalize it as software | |---|---|---| | R&D expense | $2,400,000 | $0 | | Capex (capitalized software) | $0 | $2,400,000 | | Amortization | $0 | $0 (not yet in service) | | Change in EBITDA | -$2,400,000 | $0 | | Change in operating income | -$2,400,000 | $0 | | Change in operating cash flow | -$2,400,000 | $0 | | Change in free cash flow | -$2,400,000 | -$2,400,000 | In years 2 to 4 the capitalized version takes $800,000 a year of amortization. Operating income falls by that amount; EBITDA does not, because amortization is added back. Over four years both versions reduce operating income and free cash flow by the same $2,400,000. Only the timing and the EBITDA line differ. That is 4.8 points of EBITDA margin in year 1 on $50,000,000 of revenue, from an accounting judgment rather than a change in the business. Run your own numbers through ORM's EBITDA calculator and you will see the same effect on EBITDA margin. For how EBITDA and operating income differ in the first place, see EBITDA vs operating income. The same logic applies to commissions. Worked example: a company pays $1,500,000 of new-business commissions this year and amortizes them over 5 years. If the contracts start evenly through the year, roughly half a year of amortization ($150,000) is expensed in year 1. Sales and marketing, EBITDA and operating income show $150,000; operating cash flow and free cash flow show $1,500,000.

Real example from a 10-K, Okta fiscal 2025

Okta, a public SaaS company, spent $642 million on R&D and only $20 million on capex in the fiscal year ended January 31, 2025. All figures are from Okta's Form 10-K for fiscal 2025 on SEC EDGAR, in millions of dollars. Ratios are ORM's arithmetic on those figures. | Line (fiscal 2025, $ millions) | Amount | What it shows | |---|---|---| | Total revenue | $2,610 | | | Research and development expense (opex) | $642 | 25% of revenue, expensed as incurred | | Capitalized software (investing) | $12 | About 1.8% of R&D plus capitalized software | | Purchases of property and equipment (investing) | $8 | | | Total capex (capitalized software plus property and equipment) | $20 | About 0.8% of revenue | | Net cash provided by operating activities | $750 | | | Free cash flow (operating cash flow minus total capex) | $730 | About 28% of revenue | | Commissions capitalized (change in deferred commissions, operating) | $186 | Cash paid, in operating cash flow | | Amortization of deferred commissions | $130 | The amount expensed in sales and marketing | | Depreciation, amortization and accretion | $88 | Added back in operating cash flow | Three things stand out.

• Capex is tiny next to opex. Okta capitalized $12 million of software against $642 million of R&D expense. For most SaaS companies the capex vs opex question is not about buildings. It is about how much engineering time gets capitalized, and that number is small and policy-driven.
• Commissions were the bigger "asset" decision. Okta capitalized $186 million of commissions and expensed $130 million in the year. The $56 million difference flowed into operating income and EBITDA, not into capex. Its balance sheet carried $267 million of noncurrent deferred commissions at January 31, 2025.
• Free cash flow is close to operating cash flow. With $20 million of capex, free cash flow was $730 million against $750 million of operating cash flow. For an asset-light SaaS company, the gap between EBITDA and free cash flow comes mostly from working capital items such as deferred revenue and commissions, not from capex.

The same filing shows $74 million of operating lease right-of-use assets on the balance sheet. That is a reminder that renting space instead of buying it does not fully keep the commitment off the balance sheet under US GAAP.

Opex vs capex for US tax, at a high level

Book rules and tax rules are separate, and they do not have to match. In general, ordinary operating expenses are deductible when incurred, and capital assets are recovered through depreciation, with exceptions such as Section 179 and bonus depreciation that this guide does not cover. Software development is the item that changed most recently. Starting with tax years beginning after 2021, Section 174 required research and experimental costs, including software development, to be capitalized and amortized for tax. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, added section 174A, which "allows taxpayers to deduct amounts paid or incurred for domestic research and experimental expenditures in tax years beginning after December 31, 2024." Taxpayers can instead elect to amortize those costs "over a period of not less than 60 months," and there are transition options for amounts capitalized in 2022 through 2024 (IRS, Instructions for Form 6765). Foreign research stays under section 174, as IRS Publication 925 notes when it lists software development subject to "section 174 (foreign research) or section 174A (domestic research)." So a SaaS company can capitalize engineering time for its financial statements under ASC 350-40 and still deduct domestic development costs for tax, or the other way around. This is not tax advice. Talk to your tax adviser before you change a method.

Decision checklist for opex or capex

Work through these questions for each significant cost. If the answer to the first two is no, it is opex.

• Will it give a benefit for more than a year? If it is used up within the year (a month of hosting, a conference, a salary for support work), expense it.
• Is it above your capitalization threshold? Most companies set a dollar floor in a written policy so that small purchases are expensed. Agree it with your auditor and apply it the same way every year.
• Do you own or control the asset? Equipment you buy and software you build can be capitalized. A subscription to someone else's software cannot; only its implementation costs can, under ASU 2018-15.
• For software you build, has the project cleared the threshold? Under current guidance, is it in the application development stage? Under ASU 2025-06, is it funded and probable to be completed, with no significant development uncertainty left?
• Is the work new functionality or upkeep? Upgrades that add functions can be capitalized. Maintenance, bug fixes, training and data conversion are expensed.
• Can you track the time? Capitalizing engineering time needs time records by project. If the team does not track it, the auditor will push back.
• What useful life will you use? Pick a life you can defend (Okta uses 3 years for computers and capitalized software) and use it consistently.
• How will you show it to the board? Report EBITDA and free cash flow side by side, and say how much was capitalized in the period.

Budgeting opex and capex in a SaaS plan

Plan opex by department and month, plan capex by project, and tie both back to the revenue forecast. Hiring, hosting and marketing scale with the revenue plan, so they sit in the operating budget and get reviewed monthly. Capex for a SaaS company is mostly laptops for new hires and capitalized engineering on named projects, so it is planned as a short list of approved projects with a cash schedule. Pete Furseth's view from ORM's work with B2B SaaS finance teams is that a board trusts a number that is consistent and traceable, and that shows up the same way on the next slide. Capitalization is where that breaks most often. If EBITDA improves because more engineering time was capitalized, put the capitalized amount next to EBITDA and show free cash flow on the same page, so the board can see the business did not change. Pete also makes a point about software purchases that applies to any opex decision: the honest cost of a tool is not the license alone. It is the subscription plus the internal time, expertise and maintenance needed to make it useful. Under ASU 2018-15, some of that implementation time can be capitalized. Most of the ongoing internal effort stays in opex, so it belongs in the comparison.

Where ORM fits

Both opex and capex budgets start with revenue. ORM builds revenue forecast and sales capacity models for B2B SaaS companies from CRM and finance data and targets 95% forecast accuracy. When the revenue forecast lands within range, the hiring plan, the hosting budget and the capex list built on it hold up too.

Sources

All checked on November 12, 2026. This page explains how the accounting works; it is not tax or accounting advice.

• FASB, Accounting Standards Update 2025-06, Intangibles, Goodwill and Other, Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (September 2025): removal of project stages, probable-to-complete threshold, significant development uncertainty, effective date and transition.
• FASB, Accounting Standards Update 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (August 2018): capitalization, expense over the hosting term, income statement and cash flow presentation.
• Okta, Inc., Form 10-K for the fiscal year ended January 31, 2025 (SEC EDGAR): statements of operations and cash flows, balance sheet, software development costs, deferred commissions and property and equipment policies.
• IRS, Instructions for Form 6765 (12/2025): section 174A, added by P.L. 119-21, domestic research and experimental expenditures.
• Xero, Capex vs opex: what they mean and why the difference matters (July 2026).