What is SG&A
SG&A, or selling, general and administrative expenses, refers to all the operating costs a business incurs that are not directly tied to producing a product or delivering a service. In simple terms, it is everything it costs to run and grow the business beyond making the product.
After the cost of goods sold, SG&A is the most integral cost head on an income statement. Understanding where both sit helps founders read their P&L with clarity:
- COGS is subtracted from revenue first, giving you gross profit. This tells you how efficiently you produce what you sell
- SG&A is subtracted next, moving you toward operating profit. This tells you how efficiently you run the business beyond production
Together, COGS and SG&A account for the two largest cost pools on most income statements, and each serves a completely different analytical purpose.
What are the 3 components of SG&A expenses
SG&A expenses fall into three distinct categories. Each covers a different part of your business operations.
Selling expenses
Costs directly and indirectly associated with generating revenue and getting your product or service to customers. This includes costs like sales commissions, advertising spend, marketing campaigns, sales team salaries, CRM software subscriptions, and travel for client meetings and trade shows.
It also includes outbound shipping, which is the cost of delivering a finished product to the customer. This is worth clarifying: outbound shipping, product to customer, is a selling expense and part of SG&A. Inbound shipping, for example raw materials travelling from a factory to your warehouse, is a production cost and part of COGS.
General expenses
The overhead costs a business incurs to keep its operations running, regardless of sales volume or product line. Office rent, utilities, insurance, and office supplies all fall here. These are largely fixed costs, and they continue whether you sell 10 units or 10,000.
Administrative expenses
The costs of managing the company itself. Executive and management salaries, accounting and legal fees, HR and recruitment, IT support, and payroll processing all sit here. These are the general and administrative expenses that form the structural backbone of the business.
What is not included in SG&A: research and development costs, interest expenses, income taxes, and financing costs are all excluded. These appear as separate line items on the income statement.
Components at a glance
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SG&A expense formula and how to calculate it
SG&A = Selling expenses + General expenses + Administrative expenses
Where SG&A sits on the income statement
Revenue − COGS = gross profitGross profit − SG&A (and R&D, depreciation where applicable) = Operating profit (EBIT)
Operating profit − Interest and taxes = Net profitGross profit tells you how efficiently you produce. Operating profit tells you how efficiently you run the entire business.
For instance, consider a SaaS startup in its growth phase. Its monthly SG&A breaks down across the three components:
Selling expenses: sales team salaries and commissions, performance marketing spend, content and SEO costs, CRM and sales tools. General expenses: office rent, utilities, business insurance. Administrative expenses: CEO and CFO compensation, accounting and audit fees, legal retainer, HR and payroll processing
The total of these three buckets is the company's SG&A for the month.
In growth or expansion mode, this number will be high relative to revenue, and that is expected. Early-stage SaaS companies invest aggressively in customer acquisition to grab market share quickly. Marketing spend per customer is high because the customer base is still small. As those customers renew, refer others, and generate recurring revenue without heavy re-acquisition costs, the SG&A ratio naturally decreases.
A similar pattern plays out for a scaling eCommerce brand. In its early years, it ran heavy performance marketing campaigns to build brand awareness and acquire its first customers. Over time, as organic search, word-of-mouth, and retention channels mature, the cost to acquire each new customer falls, and SG&A as a percentage of revenue starts to compress.
SG&A vs COGS: what's the difference
COGS tracks the direct cost of making or acquiring what a business sells, costs like raw materials, direct labour, manufacturing overhead, and inbound logistics. SG&A captures all the overhead and support costs that sit around that production activity.
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What is the SG&A ratio
SG&A ratio = SG&A ÷ Net revenue × 100
The SG&A ratio is an explicit operational efficiency indicator. It tells you how many cents a business spends on overhead for every dollar of revenue it earns. An SG&A ratio of 25% means SGD $0.25 is spent on selling, general and administrative expenses for every SGD $1.00 of revenue generated. The lower this ratio, the more efficiently the business is converting revenue into operating profit.
Benchmarks by industry
SG&A ratios vary significantly across industries because of the fundamental differences in how businesses operate. Manufacturing companies typically run ratios of 10–15%, as their cost structure is dominated by COGS, with relatively lean sales and administrative functions. Technology and SaaS businesses typically run 25–40% because customer acquisition, sales teams, and software infrastructure form the bulk of their cost base, none of which is production. Professional services firms in consulting, legal, and accounting sit in the 20–30% range, driven by high business development and administrative costs. Retail and eCommerce businesses vary widely depending on their marketing intensity and whether distribution costs sit in COGS or SG&A.
The reason for these differences is structural: industries with high physical production costs naturally have a lower share of expenses left for SG&A, while knowledge and service businesses have minimal COGS and carry most of their cost in the overhead layer.
Benchmarks by company stage
Within the same industry, SG&A ratios shift considerably depending on where a company is in its growth journey. A pre-revenue or early-stage SaaS startup may run SG&A at 50% or higher of revenue, spending heavily on sales, marketing, and team-building before the customer base has scaled enough to absorb those costs. As the product matures, customers renew without heavy re-acquisition spend, and the team structure stabilises, the ratio normalises. A mature SaaS business that has reached efficient scale might bring its SG&A ratio down to 20–30%.
The SG&A ratio is not a fixed target. It is a moving benchmark that should trend downward as a business scales efficiently. A rising ratio over consecutive quarters signals that overhead is growing faster than revenue, which may be intentional during a growth push, but warrants attention if it persists.
A word of caution on the other extreme: a very low SG&A ratio is not always a positive signal. It can indicate underinvestment in sales, marketing, or management infrastructure, which eventually limits growth.
How to manage and reduce SG&A expenses
Managing SG&A well does not mean minimising it. It means optimising it relative to the revenue it helps generate. Here is how founders can approach it practically:
- Audit recurring subscriptions and vendor contracts quarterly. Unused software tools, overlapping services, and auto-renewing contracts quietly inflate SG&A. A quarterly review often surfaces easy wins
- Optimise selling expenses by channel. Track cost per acquisition across every marketing and sales channel. Shift budget toward the highest-performing channels and reduce spend on campaigns with poor return on investment. As organic and retention channels mature, the selling expense component of SG&A should compress naturally
- Automate repetitive administrative tasks. Expense reporting, invoice processing, and payroll management are areas where automation reduces the headcount cost of administrative functions without affecting output quality
- Use spend controls to prevent SG&A creep. Issuing corporate cards with per-team spending limits and approval workflows means overhead costs stay within planned boundaries rather than drifting upward across departments
- Track SG&A by department or cost centre. A single SG&A number tells you the total; breaking it down by team reveals which function's overhead is growing fastest relative to the value it generates
- Review the SG&A ratio monthly. Benchmark it against your prior quarter and against industry peers, not just your annual budget. This gives you an early warning signal before a spending trend becomes a structural problem
Aspire's spend management platform and budget management tools give founders real-time visibility into SG&A spend across teams, making it easier to track, control, and benchmark overhead without the manual work of pulling reports from multiple sources. Pairing this with variance analysis each month turns SG&A from a lagging accounting number into a live operational lever.
Frequently asked questions about SG&A
What is SG&A?
SG&A stands for selling, general and administrative expenses. It refers to all the operating costs a business incurs that are not directly tied to producing goods or services, covering everything from marketing spend and office rent to executive salaries and legal fees.
What are examples of SG&A expenses?
Common examples include sales commissions, advertising and marketing costs, office rent, utilities, insurance, executive salaries, accounting fees, legal retainers, HR costs, IT support, and outbound shipping costs.
Does SG&A include salaries?
Yes, but only non-production salaries. Executive compensation, administrative staff salaries, sales team salaries, and HR are all part of SG&A. Salaries of workers directly involved in manufacturing or producing goods belong in COGS, not SG&A.
What is a good SG&A ratio?
It depends on the industry and stage of the business. Mature businesses typically target 10–20%. High-growth startups, particularly in SaaS and tech, can run at 30–50% during customer acquisition phases. Manufacturing companies often run below 15%. The most useful benchmark is your own trend over time, as a declining ratio as revenue grows signals improving efficiency.
How is SG&A different from COGS?
COGS covers the direct costs of producing what you sell, including raw materials, direct labour, and production overhead. SG&A covers the cost of running the business beyond that production, including marketing, rent, management salaries, and administrative functions. COGS affects gross profit; SG&A affects operating profit. Both appear on the income statement but serve different analytical purposes.
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