What Product Managers Get Wrong About Money
Read on my website / Read time: 5 minutes
As product managers, we talk a lot about product strategy, discovery, and customer value. But if we want to actually ship the things we believe in, we also need to understand how those things get funded.
Most PMs tend to think of "the budget" as a monolith. That all money is created equal — it's just a question of crafting strategy and allocating money to realize it. Or simply giving each department its share of the pie.
But that's not how budgets work. And this where many PMs — and even product leaders — hit a wall.
A lot of great ideas stall out not because they're bad ideas but because we didn't frame them in a way that matches how the business thinks about money.
And a big part of that comes down to not understanding the difference between operating budgets (OpEx) and capital budgets (CapEx).
So, today, let's fix that.
First: What's the difference?
At a high level:
- Operating Expenses (OpEx) = the cost of keeping the lights on
- Capital Expenses (CapEx) = investments in long-term value
A little more detail:
OpEx includes recurring and one-time costs like salaries, benefits, cloud hosting, software subscriptions, and vendor support, that are paid for and expensed in the same year they happen.
CapEx is used for longer-term investments: buying servers, building internal platforms, or investing in facilities, machinery, or expensive software tools that provide value over multiple years. These are paid for upfront but accounted for over time.
If OpEx is your monthly rent, CapEx is buying the building.
Why PMs should care
Not knowing the difference can derail our ability to execute our product plans.
Let's say you propose a new internal tool to improve product development efficiency.
- If it qualifies as a CapEx investment, it might need to go through a different approval process, such as requiring senior executive or board-level sign-off.
- But if you frame it as a monthly vendor contract (OpEx), that's a different budget entirely. It may only require the approval of the functional or department head.
If we get the category wrong, we might ask the wrong person, from the wrong budget, at the wrong time — and get a fast "no."
Now, most of the work we do in product management is primarily OpEx work — in other words, it comes out of the operating budget.
Most PMs and product teams are working on growing existing products. The PMs, designers, and engineers are budgeted for, and the exercise is largely about ensuring we're working on the most impactful stuff at any given time.
All that work is coming out of OpEx.
Occasionally, we may work on initiatives that come out of CapEx. For example:
- Our software product requires considerable computing power (an algorithm, data processing, AI product, etc.) and we're proposing to move to more cost-effective servers to improve our pricing margins.
- We're proposing investment in new equipment for our hardware product to help scale production.
When we understand where the money comes from, we can:
- Plan better
- Pitch more effectively
- Partner more closely with finance and exec teams
This isn't about becoming an accountant. It's about building just enough financial fluency to avoid unforced errors and accelerate our product plans.
Let's discuss CapEx and OpEx each in turn, and then I'll provide some examples relevant to product managers.
Capital Budget
Let's cover CapEx first. Here are some common expenses that come out of the capital budget:
- Infrastructure and hardware – servers, equipment, facilities
- Long-term software tools – especially custom-built internal tools
- Big IT or platform projects – like rebuilding your billing system or analytics stack
- Major upgrades – replacing aging systems or tools
If it's going to last more than a year and deliver value over time, it's likely CapEx.
Where does CapEx money come from?
Since CapEx is about long-term investment, the money usually comes from:
- Company profits or retained earnings
- External funding (e.g., VC, PE, or other investor money)
- Debt (loans or lines of credit)
Because the dollar amounts are often larger, these decisions usually involve higher level stakeholders, such as finance leadership, the senior executive team, and even the board.
Operating Budget
This is the stuff we're more used to seeing on product teams. Think:
- Salaries and benefits
- Contractors or short-term vendor work
- Software subscriptions
- Customer support tools
- Travel, training, events
- Advertising and marketing spend
These are all part of the operating budget. They are paid for out of regular revenue and reviewed more frequently, sometimes quarterly or even monthly.
Where does OpEx money come from?
Most of the time, OpEx is funded directly from the company's revenue. If our company is profitable, OpEx is covered by the money the business is bringing in. If not, it might be funded by venture capital, debt, or other investment until the business is sustainable.
(Quick side note: Yes, when a company raises VC money or debt, it needs to decide how much of it to allocate for OpEx vs CapEx.)
Because OpEx is ongoing and repeatable, and comes out of revenue, it's often the most tightly controlled part of the budget.
So, how do we use this as PMs?
- Make better business cases. Knowing whether our initiative is CapEx or OpEx helps us pitch it in the right way.
- Manage timelines better. CapEx approvals usually take longer. If something is CapEx-heavy, we need to bake that into our planning. Don't be surprised when it needs a few more sign-offs and more robust business case analysis.
- Speak finance's language. When we frame our ideas in budget terms, we show we understand how those ideas will be paid for, and we build trust and credibility with finance and leadership.
Examples
Example 1:
Bug fixes, ongoing enhancements, and feature development — in other words, most PM work — all fall under OpEx.
Now, this work typically doesn't require separate budget requests unless we're advocating for additional resources to get more of these done in the same time span. (People = salaries = OpEx. Tools = OpEx.)
Otherwise, the daily work we're doing here is ensuring the existing OpEx is being spent wisely — on the things that will give us the biggest bang for the buck given the existing spend.
Example 2:
We want to hire a full-time QA specialist to reduce bugs and improve release confidence. This is OpEx because salaries are an ongoing expense. This will come out of the team's headcount or functional budget.
Example 3:
We hire a UX research agency to run a 4-week discovery project. It's a short-term, non-recurring service — classic operating expense.
Example 4:
We want to sign up for a monthly or annual subscription to a UX research platform like Maze or Optimal Workshop. That’s OpEx. This could be approved by a functional lead or department head with the right context.
Example 5:
We want to subscribe to an analytics tool like Mixpanel or Kissmetrics, or a new A/B testing tool, with a monthly or annual subscription. That's OpEx.
(Side note: most subscription based or usage based 3rd party SaaS and software vendor tools we use are OpEx.)
However, let's say we want to purchase a major internal analytics platform that requires a big upfront investment, but will improve decision-making for years. That may qualify as CapEx, and we'll likely need buy-in from senior leaders and a longer approval runway.
Example 6:
We're leading a full redesign of our mobile app — new architecture, UI overhaul, and feature set. The project is expected to take 6–9 months and we expect it to generate revenue for us for years to come.
This is likely CapEx. It's a major, strategic rebuild with long-term value. Budget might need to be pulled from a capital plan.
(Fun side note: I once did such a project, but pulled it out of OpEx for faster traction. But that's a story for another time. 🙂)
Example 7:
We want to move the company from an old CRM to a new vendor. It will require a big data migration, custom integrations, and a multi-year contract.
This could be a mix. The upfront migration and integration might be CapEx, while the ongoing license and support costs would be OpEx. Finance might need to split the costs across both.
Example 8:
We propose building a custom workflow tool for the ops team to automate a manual process. Engineering will spend several months on it, and it will save time for years to come.
Finance could likely mark it as CapEx. It's a one-time, long-term investment. As a result, it might need special budget approval and capital planning.
Key Takeaways
- CapEx = long-term investments. Think infrastructure, big platform builds, or major software investments that pay off in the long-run.
- OpEx = day-to-day operations. Think salaries, subscriptions, and ongoing vendor costs.
- Different money, different rules. These budgets are funded, reviewed, and approved differently.
- Use this knowledge to plan smarter, pitch better, and build trust. Understanding these distinctions lets us tailor our approach and, thus, move faster.
The more we understand how our work ties into how the business spends money, the more effective — and strategic — we become.
