SG&A expenses: Definition, examples, and industry benchmarks

Selling, general and administrative expenses (SG&A) are the overhead costs a business incurs to run day-to-day operations that aren't directly tied to producing goods or services. These expenses include sales and marketing costs, office rent, executive salaries, accounting, and other administrative functions that support the business but don't generate revenue on their own.

The Hackett Group's 2026 North American SG&A Cost Study found that median SG&A costs rose to 16.2% of revenue among the 1,000 largest publicly traded companies in North America. Tracking SG&A helps you understand operating efficiency, control overhead, and see how non-production costs affect profitability.

What is SG&A?

SG&A stands for selling, general, and administrative expenses. SG&A expenses are the overhead costs a business incurs to support operations that aren't directly tied to producing goods or delivering services, such as marketing, administrative payroll, and office utilities. These are period costs, meaning they're expensed in the period they're incurred rather than capitalized over time.

SG&A expenses appear on the income statement below gross profit. Subtracting SG&A and any other operating expenses, such as research and development (R&D), from gross profit gives you operating income, which shows how profitable your core operations are before interest and taxes.

It helps to distinguish SG&A from direct costs. Direct costs tie directly to production, including raw materials, factory labor, and manufacturing equipment. SG&A covers indirect costs that keep the business running but can't be traced to a specific product or service.

SG&A vs. COGS

SG&A and cost of goods sold (COGS) capture different types of business expenses. COGS includes the direct costs of producing goods or delivering services, while SG&A covers the indirect costs required to run the business but not tied to production.

COGS includes expenses like raw materials, production labor, and manufacturing overhead. For example, a bakery's COGS includes flour, sugar, baker wages, and oven maintenance, while a software company's COGS may include hosting fees and customer support tied directly to service delivery.

SG&A includes costs that support operations more broadly. The bakery's SG&A includes storefront rent, marketing, accounting software, and the owner's salary. A software company's SG&A includes sales commissions, office space, legal fees, and executive compensation.

This distinction matters because investors and lenders analyze COGS and SG&A separately to assess efficiency. High COGS can signal production or pricing issues, while high SG&A often points to operational inefficiencies that can be addressed through cost controls.

SG&A vs. operating expenses

SG&A expenses are a subset of operating expenses, but the two terms aren't interchangeable. Operating expenses include all costs a business incurs to run its operations outside of cost of goods sold, while SG&A focuses specifically on selling, general, and administrative activities.

Operating expenses may include SG&A along with other categories such as research and development, depreciation, and amortization. SG&A captures the overhead tied to sales, management, and administrative support rather than broader operational investments.

How companies report SG&A vs. operating expenses

Many companies report SG&A as its own line item within operating expenses, while others fold it into a single operating-expenses total. Reporting SG&A separately makes it easier to see how much a business spends on overhead compared to revenue.

The image below shows an example from Apple's financial statements, where SG&A is broken out under operating expenses. This separation gives investors and operators clearer insight into operating efficiency and cost structure.

New disclosure rules for selling expenses

Public companies will soon have to show more detail inside SG&A. Under the Financial Accounting Standards Board's ASU 2024-03, public business entities must disclose their total selling expenses. In annual reporting periods, they must also disclose their own definition of selling expenses.

ASU 2024–03 applies to annual reporting periods beginning after Dec 15, 2026, and interim periods beginning after Dec 15, 2027. Calendar-year public companies first apply it in their fiscal 2027 annual reports, and they can adopt it early.

The new disclosures sit in the notes, so the captions on the face of the income statement don't change.

If you run a private company, ASU 2024–03 doesn't apply to you. It's still a good prompt to define what counts as selling vs. G&A in your own chart of accounts. A clear definition keeps SG&A in accounting consistent from one period to the next.

SG&A vs. overhead

SG&A is a specific income statement category, while overhead is a broader term for any indirect cost of running your business. Some overhead lands in SG&A, and some lands in COGS.

The dividing line is production. Manufacturing overhead, such as factory rent, production equipment depreciation, and production management salaries, is an inventoriable cost that flows into product cost, not SG&A. Corporate rent, executive salaries, and marketing are overhead that sits in SG&A.

Components of SG&A expenses

SG&A expenses fall into three main categories that reflect different parts of your business operations: selling expenses, general expenses, and administrative expenses. Many companies combine general and administrative expenses into a single G&A line, so in practice SG&A often splits two ways: selling vs. G&A.

For example, a 50-person software company might report one general and administrative line that rolls up office rent, finance salaries, and legal fees. It would report sales and marketing on a separate line. Some selling costs trace to specific sales, like commissions, while others, like CRM software, are shared across every product.

Selling expenses

Selling expenses are costs directly related to generating revenue and acquiring customers.

• Sales salaries and commissions: Compensation for sales teams, including base pay and performance-based incentives
• Advertising and marketing campaigns: Digital ads, print media, trade shows, and promotional materials
• Travel and entertainment for sales activities: Client meetings, conferences, business meals, and presentations
• Sales software and tools: CRM platforms, lead generation tools, and sales enablement software
• Demo products and samples: Items used for demonstrations, trade shows, and customer trials

Selling expenses often scale with revenue as you invest more in customer acquisition.

General expenses

General expenses cover the day-to-day operating costs that keep your business running, such as:

• Office rent: Lease payments for offices, retail locations, or warehouses
• Utilities: Electricity, water, internet, and phone services
• Office supplies and equipment: Furniture, computers, printers, and everyday materials
• Depreciation of office assets: Allocated cost of buildings, furniture, and equipment over their useful life
• Insurance: Property, liability, workers' compensation, and business interruption coverage
• Legal fees: Contract review, compliance work, and general legal services

These expenses tend to be relatively stable and form your operational baseline.

Administrative expenses

Administrative expenses support management and coordination across the organization:

• Executive and management salaries: Compensation for executives and department leaders
• Accounting and finance costs: Controllers, accountants, bookkeepers, and financial analysts
• Human resources expenses: Recruiting, benefits administration, payroll, and training
• IT infrastructure and support: Software licenses, cybersecurity, network maintenance, and technical support
• Professional services: Fees for auditors, consultants, tax advisors, and other specialists

Administrative expenses typically grow as a company adds complexity and management layers.

What's included vs. not included in SG&A

Understanding which expenses belong in SG&A helps ensure consistent financial reporting and prevents misclassification across accounting periods.

Industry-specific considerations

Expense classification can vary by industry. Retailers often include warehouse and distribution costs in COGS because inventory movement is central to operations. Software companies may classify onboarding or customer support as COGS if those services are required to deliver the product, while manufacturing firms typically have clearer boundaries between production and overhead.

How to calculate SG&A expenses

To calculate SG&A expenses, add together all selling, general, and administrative costs recorded during a specific period. These figures typically come from your accounting system and are summarized on your income statement.

The SG&A formula

The SG&A formula combines the three main categories of overhead expenses:

SG&A = Selling expenses + General expenses + Administrative expenses

You'll find these amounts in your general ledger, where expenses are categorized throughout the period. Most accounting systems allow you to generate reports that group expenses by type, making it easier to calculate SG&A accurately.

Step-by-step calculation example

Consider a small consulting firm calculating SG&A for Q4 2025.

First, identify selling expenses. The firm spent $45,000 on sales salaries and commissions, $12,000 on digital advertising, $8,000 on client travel and entertainment, and $3,000 on CRM software. Total selling expenses equal $68,000.

Next, add general expenses. Office rent totaled $18,000 for the quarter, utilities cost $2,400, office supplies were $1,800, insurance was $3,600, and legal fees came to $5,000. Total general expenses equal $30,800.

Then, calculate administrative expenses. Executive salaries were $90,000, accounting costs were $24,000, HR expenses reached $8,000, and IT infrastructure cost $6,500. Total administrative expenses equal $128,500.

Add the three categories together to get total SG&A expenses for Q4 2025:

SG&A = $68,000 + $30,800 + $128,500 = $227,300

SG&A ratio and benchmarks

The SG&A ratio shows how much of each revenue dollar goes toward overhead expenses, making it a useful measure of operating efficiency.

How to calculate the SG&A ratio

The SG&A ratio expresses SG&A expenses as a percentage of net sales.

SG&A ratio = SG&A expenses / Net sales * 100

A lower ratio generally indicates better efficiency, while a higher ratio suggests a larger share of revenue is going toward overhead.

Using the consulting firm example, SG&A expenses were $227,300 and revenue for Q4 2025 totaled $850,000. Dividing SG&A by net sales gives 0.267, or 26.7%. This means the firm spent about 27 cents on SG&A for every dollar of revenue.

SG&A ratio = $227,300 / $850,000 * 100 = 26.7%

Industry benchmarks for SG&A

Acceptable SG&A ratios vary widely by industry. Aswath Damodaran's Margins by Sector (U.S.) dataset at NYU Stern reports average SG&A as a percentage of sales by sector, using data as of January 2026:

These are averages for U.S. public companies, so use them for direction, not as a target for a private company. Across the total market, SG&A averaged 15.94% of sales, or 13.97% excluding financial firms.

A healthy SG&A ratio typically falls within your industry's range and remains stable or declines as revenue grows. Early-stage or fast-growing companies may run higher ratios temporarily as they invest in infrastructure to support scale.

Strategies for managing and reducing SG&A expenses

Reducing SG&A expenses is about improving efficiency, not cutting blindly. The goal is to lower overhead while protecting the activities that support growth and day-to-day operations.

Separate investments from overhead

Not every SG&A dollar is overhead. Before you cut, sort each line into spend that drives growth and spend that only keeps the lights on.

Then compare SG&A growth to revenue growth each quarter. If SG&A grows faster, you're losing operating leverage. The Hackett Group's 2026 North American SG&A Cost Study found that SG&A costs have outpaced revenue growth for 5 consecutive years at North America's largest companies.

Optimize selling expenses

Focus sales spending on channels that consistently generate returns. Tracking customer acquisition costs by channel helps you identify where marketing and sales dollars are working and where they aren't.

Low-performing campaigns, overlapping sales tools, and commission structures that reward volume over profitability often inflate SG&A without improving results. Reallocating spend toward high-performing channels can reduce overhead without slowing revenue growth.

Reduce administrative overhead

Regularly review headcount and administrative costs relative to revenue. As you grow, administrative roles can expand faster than necessary, especially when responsibilities overlap.

Three levers can reduce fixed costs while maintaining operational coverage:

• Cross-training employees: Covers overlapping responsibilities without adding headcount
• Renegotiating vendor contracts: Revisiting vendor terms at renewal lowers recurring administrative costs
• Outsourcing functions: Handing off payroll or IT support replaces fixed staffing costs with a predictable service fee

Use technology and automation

Automation reduces manual work across finance and administrative functions. Expense management tools, accounting software, and automated approval workflows can lower labor costs and reduce errors.

For example, Ramp's Policy Agent, an always-on AI reviewer trained on your real expense policy, catches 7x more out-of-policy spend than traditional rule-based flags.

While technology requires upfront investment, it pays off through time savings and better cost controls.

Review expenses regularly

Quarterly reviews help catch cost creep early. In The Hackett Group's 2026 study, 51.6% of large North American companies still saw SG&A grow faster than revenue in 2025. Comparing actual spending to budget highlights line items that consistently exceed expectations and deserve closer scrutiny.

Subscriptions that auto-renew, underused software, and vendor price increases often drive SG&A growth quietly unless reviewed on a regular schedule.

Follow budgeting best practices

Budgeting SG&A as a percentage of revenue keeps overhead aligned with business performance. Zero-based budgeting, approval thresholds for large purchases, and escalation processes for out-of-budget spend add discipline without slowing operations.

Effective SG&A management means making sure every dollar supports the business in a measurable way, rather than simply spending as little as possible.

Track and reduce SG&A spend with Ramp

SG&A expenses can add up quickly when spending is spread across teams, vendors, and categories without real-time visibility. Manual tracking often means you're reacting to costs after they hit your books instead of preventing overspending in the first place.

Ramp's accounting automation software gives you visibility into SG&A spend as it happens. You can see where money is going, track budgets in real time, and reduce wasted spend before it affects your financials.

Here's how Ramp helps you track and control SG&A:

• Real-time spend visibility: Monitor SG&A expenses across departments, vendors, and categories as transactions occur
• Live budget tracking: See plan vs. actuals in real time across cards, reimbursements, Bill Pay, and committed PO spend
• Automatic transaction coding: Ramp's Accounting Agent codes GL and department fields as transactions post, which keeps your SG&A lines accurate
• Vendor spend analysis: Identify consolidation opportunities and negotiate better rates
• Policy enforcement: Prevent out-of-policy purchases before they happen

With Ramp, you can close your books 3x faster by letting the Accounting Agent code transactions and surface only what needs review, freeing up time to focus on analysis and cost control.

Try an interactive demo to see how Ramp helps you manage SG&A more efficiently.