What is SG&A (selling, general, and administrative expenses)?

What is SG&A?

SG&A is every operating cost a business incurs that is not a direct cost of producing what it sells. Sales commissions, office rent, the finance team's salaries, business insurance, and the software the whole company uses all land here.

The formula:

The letters unpack in a way that hides a real distinction. The S covers the cost of winning revenue. The G and the A cover the cost of existing at all. Two companies with identical SG&A totals can be running completely different businesses, one pouring money into a sales force and the other carrying heavy administrative overhead, which is why analysts rarely look at the combined number without breaking it apart first.

What counts as a selling expense?

Selling expenses are the costs of generating revenue, whether or not a sale closes.

• Sales salaries and commissions: Base pay for account executives and SDRs, plus variable compensation tied to closed business.
• Advertising and marketing: Paid media, content production, agency retainers, and campaign spend.
• Trade shows and events: Booth costs, sponsorships, and the travel that goes with them.
• Sales travel and entertainment: Client visits, meals, and the mileage and per diem claims that follow.
• Outbound shipping and distribution: In product businesses, the cost of getting goods to the buyer rather than making them.

What counts as a general and administrative expense?

General and administrative expenses are the costs of keeping the company running, regardless of sales volume.

• Office rent, utilities, and facilities: Lease payments, power, maintenance, and cleaning.
• Administrative salaries: Executives, finance, HR, legal, and IT staff who are not tied to production or selling.
• Professional fees: External accounting, legal counsel, audit, and consulting.
• Insurance, licenses, and compliance: General liability, directors and officers coverage, regulatory filings, and permits.
• Company-wide software and IT: Tools every department uses, from the ERP to the expense platform.

If you want the detail on just this half of the line, see our guide to general and administrative expenses.

SG&A vs. G&A vs. COGS vs. operating expenses

These four terms get used loosely in conversation and precisely in accounting, which is where most of the confusion starts.

Two rules settle most classification arguments. First, if the cost would disappear when production stopped, it is probably COGS. Second, if it would continue whether or not anything sold that month, it is probably G&A.

Where SG&A appears on the income statement

SG&A appears below gross profit and above operating income:

Research and development is normally reported on its own line rather than folded into SG&A, because investors want to see it separately. Depreciation is handled inconsistently. Some companies report it separately, others distribute it into SG&A and COGS, which is one reason SG&A comparisons between two companies in the same industry are less clean than they look.

How to calculate SG&A, with an example

Add every selling cost and every general and administrative cost for the period. Nothing more complicated than that happens mathematically. The difficulty is in classification, not arithmetic.

Take a 140-person specialty contractor closing its second quarter, running its existing commercial card program through ExpensePoint. Field labour, materials, and equipment on the job are costed to projects, so they sit in COGS. Everything below is SG&A.

Selling expenses

• Sales salaries: $186,000
• Commissions: $42,000
• Advertising and events: $31,000
• Sales travel and client meals: $18,500
• Subtotal: $277,500

General and administrative expenses

• Finance, HR, and legal salaries: $214,000
• Office rent and utilities: $96,000
• Company-wide software: $34,000
• Professional fees: $28,000
• Insurance and licenses: $19,500
• Subtotal: $391,500

SG&A for the quarter is $669,000. Against quarterly revenue of $4.2 million, that is an SG&A ratio of 15.9%.

Three systems produced that list. Payroll supplied the two salary lines and commissions. Accounts payable supplied rent, professional fees, insurance, and most of the software and event invoices. ExpensePoint supplied the rest: the $18,500 of sales travel and client meals in full, plus roughly $21,000 of card spend sitting inside the events and software lines.

That last group is where the classification risk concentrates. Payroll and rent arrive pre-coded from one system on a fixed schedule and are almost never wrong. The $39,500 arrives from 140 people, each deciding in the moment whether a dinner with a client is a selling expense or an administrative one, and each of those decisions flows straight into the statement unless someone catches it at close. Under 6% of the line carries nearly all of the error, and it is the only part ExpensePoint governs: categories are applied at submission from policy rules and the card feed rather than being reassigned during close.

What the SG&A ratio tells you

The SG&A ratio is SG&A divided by revenue, expressed as a percentage, and it answers a question the raw dollar figure cannot: how much overhead the business carries for every dollar it earns.

Rising revenue with a flat SG&A ratio means overhead is scaling with the business, which is usually fine. Rising revenue with a rising ratio means the cost of running the company is growing faster than the company, which is the pattern that triggers cost reviews. Falling revenue with a flat dollar figure is the most uncomfortable version, because fixed overhead does not shrink on its own.

Benchmarks vary widely by industry, so compare against peers rather than against a universal target. A software company with a large sales organization and a manufacturer with a lean back office can both be healthy at very different ratios.

Why SG&A is harder to get right than the formula suggests

In practice, finance teams do not struggle to add two numbers together, they struggle to trust the inputs.

• The same expense gets coded three different ways: A flight to a customer site is a selling expense. The same flight to a vendor negotiation is G&A. An employee submitting an expense report rarely knows the difference, and the category they pick is the one that flows into the statement unless someone catches it.
• Card spend and expense reports arrive on different clocks: Corporate card transactions post continuously while expense reports arrive in a rush before close. When a claim lands after the period is cut, the cost sits in the wrong month, and both months' SG&A are wrong.
• Software subscriptions drift into the wrong bucket: A design tool bought by marketing is a selling expense. The same tool rolled out company-wide is G&A. Nobody revisits the coding when the rollout happens.
• Allocation rules get set once and never revisited: Shared costs like facilities or IT are split across departments using percentages that were reasonable when they were written and rarely match the current headcount.

None of these are accounting errors in the technical sense. They are data quality problems, and they are why two consecutive quarters of SG&A can move several points without any underlying change in spending behaviour.

How to reduce SG&A without cutting capability

• Fix classification before cutting anything: A ratio that is inflated by miscoded expenses will produce cuts aimed at the wrong department. Clean categorization first, then decide.
• Close the gap between spend and submission: The longer the delay between a purchase and its appearance in the books, the more period-end distortion you carry. Receipt capture at the point of purchase removes most of it.
• Enforce policy at entry, not at approval: Rules applied when an expense is submitted catch problems while the employee still remembers the context. Rules applied at approval turn managers into auditors.
• Consolidate overlapping software: Company-wide tools sit in G&A and multiply quietly. An annual review of what every department is separately subscribed to usually finds duplicates.
• Track the ratio monthly, not quarterly: By the time a quarterly review flags a trend, the quarter is already spent.

How ExpensePoint helps with SG&A accuracy

ExpensePoint sits at the point where SG&A data is created, when an employee submits a claim or a card transaction posts. Receipt capture and policy rules applied at submission mean expenses arrive coded correctly rather than being reclassified during close. Because ExpensePoint is card-agnostic, transactions from the corporate cards you already hold at Visa, Mastercard, and American Express issuers flow into the same categorization rules as out-of-pocket claims, so selling and administrative costs are separated consistently across both.

Exports feed NetSuite, QuickBooks, Sage Intacct, Xero, Microsoft Dynamics 365, and SAP Business One, so the categories set at entry are the ones that reach the income statement.

Frequently Asked Questions