SG&A

SG&A expenses include all the costs involved with the day-to-day operations of a business. It covers many different business items and functional areas such as:

• Rent and utilities for office space
• Sales and marketing costs
• Office supplies
• Business insurance
• Software
• Salaries for positions other than those directly related to the production of goods and services

SG&A is one of the main categories, along with cost of goods sold (COGS), on a business’ income statement. The selling portion of SG&A generally involves indirect costs related to selling a product or service (e.g., advertising), whereas direct costs (e.g., packaging and shipping) are listed under COGS.

How SG&A works

SG&A breaks into two categories:

• Selling expenses: Costs tied to selling products or services, such as advertising, sales commissions, sales team payroll, promotional costs, and certain customer delivery or fulfillment costs, depending on how the business classifies them.
• General and administrative (G&A) expenses: Costs tied to running the business overall, such as executive and administrative salaries, accounting and legal fees, office supplies, insurance, software, and non-production office rent.

Some companies report SG&A as one line item, while others break out selling, marketing, administrative, research, depreciation, or other operating expense categories separately. The format depends on the business, industry, materiality, and reporting requirements.

Why SG&A matters

SG&A is an important expense category because it shows how much the business spends to sell products or services and support operations. SG&A ratios vary widely by industry and business model. 

A technology company may run SG&A at 30 – 40% of revenue, while a grocery retailer may run it under 10%. A high SG&A ratio may signal heavy growth spending, inefficient overhead, or a business model that requires more sales and support costs.

Investors, lenders, and acquirers routinely examine SG&A when evaluating financial health. For a small business seeking outside funding or preparing for a sale, a bloated SG&A can raise concerns about scalability. Internally, tracking SG&A helps owners identify where overhead grows and informs pricing decisions.

SG&A vs. COGS

SG&A and cost of goods sold (COGS) measure fundamentally different things. COGS captures direct production costs: raw materials, direct labor, and manufacturing overhead. SG&A covers the day-to-day costs of running the business that aren’t directly tied to production.

A company can have strong gross margins but poor operating income if SG&A runs too high. Misclassifying expenses between COGS and SG&A distorts both metrics, which can mislead investors and complicate tax filings.

Related terms

These related terms can help explain how SG&A connects to income statements, operating expenses, and profitability.

• Cost of goods sold: COGS includes direct costs tied to goods sold or services delivered during a specific period.
• Gross profit: Gross profit is revenue minus COGS.
• Operating income: Operating income is gross profit minus operating expenses.
• Overhead: Overhead refers to indirect costs that support operations or production but are not easily traced to a specific product, service, job, or sale.
• Distribution in business: Businesses calculate profit distributions after SG&A and other operating expenses reduce net income.

FAQs about SG&A

What is a good SG&A ratio?

There is no universal benchmark. The most useful comparison is against companies of similar size and business model. A software company at 40% of revenue may operate efficiently. A manufacturer at the same ratio likely has a problem.

Does SG&A include salaries?

Yes, SG&A includes salaries for most positions other than those involved in the production or manufacturing of goods and services; those salaries would be included under COGS. Businesses typically include executive salaries as well as those of sales and marketing teams, human resources, accounting, and other administrative staff.

Does SG&A include owner salary in a small business?

If the owner performs executive or administrative functions, their compensation is generally classified as G&A. If the owner also performs direct production or service delivery work, part of the compensation may belong in COGS or cost of services, depending on the business and accounting method. An accountant or tax professional can help classify it correctly.

How is SG&A different from operating expenses?

Operating expenses are the broader category and can include R&D, depreciation, and other items companies report separately. When a company reports a single operating expense line below gross profit, it often labels it SG&A and uses it as the primary operating expense category.