Jan 17, 2014

What’s the Deal with Capex vs. Opex?


If you’re a business that wants to improve or expand your IT infrastructure, you may be faced with financial management decisions revolving around Capex and Opex.

First of all, what do those terms mean?

Capex, or capital expenditures, are those paid upfront as a long-term investment that will provide future benefits, such as purchasing a heavy-duty printer. Opex, or operating expenditures, are those incurred on a monthly basis in the course of ordinary business, such as going to Kinko’s to print your documents. A shorthand way to remember this is to ask yourself: do you want to capitalize it or expense it? Whatever “it” may be.

So, how do you choose which is the right option for your growing business?

When beefing up your IT infrastructure, buying and owning your own server may seem like a great idea, but servers are expensive. You’ll have to put all that cash upfront to purchase it or get a loan. And that’s all you’ll get: a server. You still need an IT person or team to manage the servers and you need a secure space to house the server(s), which may involve paying rent and utilities. Also, depending on what you want to purchase, you may need to go through several approval layers in your business just to get the purchase approved.

But if you choose to lease a server from a managed hosting company like INAP, you’ll have a much more flexible cost structure and monthly expense. Instead of paying a ton upfront and then incurring all these extra monthly payments for upkeep on your server, you will have one payment with all the services included.

In most cases, choosing between Capex and Opex is all about cash flow. How long are you planning on using the equipment? How fast is your business growing? Where will your business be in five years? If you want to buy a server, you have to keep in mind that technology is always changing and advancing. Purchasing something that may be out-of-date in 24 months may not be the best option.

Choosing to lease your server carries lower risk. With a managed server, you can change your server setup at any time, add more servers to your infrastructure in a matter of minutes, or you can completely walk away if you’re not happy. But if you invested in a server that may not ultimately work for your business, you’re stuck with it.

Look at it this way: you could spend several thousands of dollars on a server that may only be good for a couple of years, or you could make a much smaller monthly payment without having to risk a bad investment. Also, as I mentioned before, you need to keep in mind all the additional costs you will incur if you buy a server: storage, utilities, IT staff (this being frequently overlooked and/or underestimated), and more.

Given all of these factors, I think you should consider leasing a managed server from INAP. It’s cheaper, less risky, and includes all the necessary services; plus you get the expertise of our IT staff included.

Updated: January 2019

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