Selling, general and administrative expenses (SG&A)

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.

According to McKinsey, CPG companies spend an average of 21% of their revenue on SG&A expenses, highlighting just how significant this expense category can be for businesses. 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 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.

Cost of goods sold (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

Companies can choose to report SG&A as a separate line item or include it within total operating expenses. 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.

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.

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.

• 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:

$68,000 + $30,800 + $128,500 = $227,300 in total SG&A expenses for Q4 2025.

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.

Industry benchmarks for SG&A

Acceptable SG&A ratios vary widely by industry.

• Retail: 20%–30%, driven by rent, staffing, and marketing costs
• Software and SaaS: 40%–60%, reflecting heavy investment in sales, marketing, and customer success
• Manufacturing: 10%–25%, since most costs sit in COGS rather than SG&A
• Professional services: 25%–40%, due to labor-intensive operations
• Healthcare: 15%–30%, with clinical costs outweighing administrative overhead

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.

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 companies grow, administrative roles can expand faster than necessary, especially when responsibilities overlap. Cross-training employees, renegotiating vendor contracts, and outsourcing functions like payroll or IT support can reduce fixed costs while maintaining operational coverage.

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.

While technology requires upfront investment, many businesses see payback within a year through time savings and better cost controls.

Review expenses regularly

Quarterly reviews help catch cost creep early. 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 isn’t about minimizing spending. It’s about ensuring every dollar supports the business in a measurable way.

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, enforce budgets automatically, 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
• Automated budget controls: Set spending limits by team or category and enforce them without manual approvals
• Automatic transaction coding: Code transactions to the correct general ledger accounts in real time
• Vendor spend analysis: Identify consolidation opportunities and negotiate better rates
• Policy enforcement: Prevent out-of-policy purchases before they happen

With Ramp, finance teams save hours each month by eliminating manual receipt collection and transaction coding, freeing up time to focus on analysis and cost control.

Try a demo to see how Ramp helps businesses manage SG&A more efficiently.