The Operating Ratio: A Simple Way to Track Opex Discipline

Decide up front whether cost of goods sold counts as part of the ratio or sits outside it, and don't change that definition between reviews just because a particular quarter's number would look better with a different boundary. Most operations-focused versions of this ratio exclude COGS and focus purely on S&M, G&A, and R&D as a share of revenue, since that's the spending leadership has the most direct control over month to month.

Write the definition down somewhere everyone doing the calculation can reference, so the number means the same thing whoever produces it.

At most B2B SaaS companies, sales and marketing carries the largest share of operating spend, close to 37% of revenue, research and development runs near 34%, and G&A is typically the smallest at around 24%¹. These aren't targets to hit exactly, business models differ too much for that, but if your G&A share is running well above the R&D share, that imbalance is worth a direct conversation rather than something to notice in passing during a board update.

Use the comparison to ask a specific question, not to chase a specific number: is the shape of our spending intentional, or did it just happen.

A quarterly calendar review catches drift eventually, but a trigger-based review catches it faster: any renewal above a set dollar threshold, any new recurring commitment, and any headcount addition should all prompt someone to check the impact on the ratio before it's approved, not after it's already showing up in the next quarter's numbers.

This shifts the discipline from a backward-looking report to a forward-looking gate, which is a meaningfully different habit and catches problems while they're still a single decision instead of a trend.

Check the effect on the ratio before approval whenever one of these happens:

• A renewal above a set dollar threshold comes up, since automatic tier increases are a common source of quiet drift.
• A new recurring commitment is proposed, such as a contractor line that could outlast the busy quarter it was meant for.
• A headcount addition is requested, so its effect on the ratio is checked before the offer, not after the quarter closes.

T&E is a category that grows quietly because individual expenses look small and reasonable one at a time, and it rarely gets the same line-by-line scrutiny as a major software contract. A platform like Navan gives you visibility into travel and expense patterns as they happen rather than reconstructing them from receipts at quarter close, which matters because by quarter close the spending has already happened and all you can do is note the trend for next time.

Set a simple policy threshold, above which a trip or purchase needs approval before it's booked rather than a review after the fact. A before-the-fact gate catches drift while it's still a single decision, while an after-the-fact review only ever produces a lesson for the future.

A rising ratio isn't automatically bad if it's funding genuine growth investment, and it isn't automatically fine just because revenue is growing too. Pulling logged hours from a tool like Toggl for teams whose headcount cost is driving the ratio up helps distinguish capacity that's fully utilized and growing the business from capacity that's underutilized and just adding cost, which is a distinction the ratio alone can't make on its own.

Check this before cutting headcount purely to bring the ratio down. Cutting a fully utilized team to hit a target number just shifts the strain somewhere else and often costs more in rework than it saves on the line item.