SG&A expenses: What finance teams should track and control
Every business has costs that don't show up in the cost of goods sold, like salespeople, office rent, legal fees, executive salaries, and marketing campaigns. None of these go into making the product, but all of them have to be paid to keep the business functioning. That's selling, general, and administrative expenses, or SG&A.
It looks like a clean category until you try to manage it. The line between what counts as SG&A and what doesn't gets blurry fast. SG&A spans departments, meaning that costs creep without anyone noticing until a quarterly review surfaces an uncomfortable trend.
Key takeaways
- SG&A stands for selling, general, and administrative expenses: the operating costs that keep a business running but aren't tied to making a product.
- Most healthy businesses run SG&A between 15–25% of revenue, but the right benchmark depends heavily on industry and company stage.
- Between 2013 and 2024, the median SG&A ratio across 882 large companies improved by 0.43 percentage points per year, but that pace is slowing.
- Median SG&A costs hit a five-year high in 2024, with 62% of the largest U.S. companies seeing SG&A rise as a share of revenue and 78% failing to keep cost growth below inflation.
- Realtime spend tracking and automated categorization are the fastest ways to close the gap between what you think you're spending and what you actually are.
What is included in SG&A?
SG&A breaks into three buckets, each covering a distinct layer of business cost:
Selling expenses
Selling expenses are the costs tied to generating and supporting revenue, such as:
Sales team salaries and commissions
Advertising and paid media
Marketing campaigns and content production
Trade shows and events
Customer service and support staff
General expenses
General expenses are the fixed and variable costs of keeping the lights on, and they involve:
Office rent and facilities
Utilities
Office supplies and equipment
Business insurance
General IT infrastructure
Administrative expenses
Administrative expenses cover the cost of managing the organization itself, like the following:
Executive and management salaries
Legal and compliance fees
Accounting and audit costs
HR and recruiting
Corporate software and subscriptions
What's not included in SG&A
SG&A does not include cost of goods sold (COGS), which covers direct production costs: raw materials, direct labor, and manufacturing overhead. Research and development (R&D) is sometimes broken out separately on the income statement rather than folded into SG&A, particularly in tech and pharma.
And depreciation may appear within SG&A or be reported separately, depending on how a company structures its P&L.
Knowing whatbelongs in each expense category is the foundation of clean SG&A reporting. When the boundaries get fuzzy, the numbers stop being useful.
SG&A vs COGS: What's the difference?
COGS covers what it costs to make the product, and SG&A covers what it costs to run the business. The distinction comes down to where costs appear on the P&L: COGS is subtracted from revenue to get gross profit, and SG&A is subtracted from gross profit to get operating income.
| COGS | SG&A | |
|---|---|---|
| What it covers | Direct production costs | Operating and overhead costs |
| Examples | Raw materials, direct labor, manufacturing overhead | Sales commissions, rent, executive salaries, legal fees |
| P&L position | Subtracted from revenue to get gross profit | Subtracted from gross profit to get operating income |
| Direct or indirect? | Direct | Indirect |
| On the balance sheet? | No | No |
Is SG&A a direct or indirect expense?
SG&A is an indirect expense. It supports the business broadly and can't be traced to a specific unit of production. COGS expenses are direct: you can tie them to a specific product or job.
Is SG&A an operating expense?
Yes. SG&A is an operating expense because it represents the cost of running the business day to day, below the gross profit line. It's distinct from non-operating items like interest expense or one-time charges that appear further down the income statement.
Is SG&A part of the P&L?
Yes. SG&A is an income statement line item, not a balance sheet item. It reduces operating income in the period it's incurred and flows through to net income.
The line gets blurry in a few real-world scenarios. A salesperson who also manages implementation creates a COGS/SG&A split question. A warehouse that serves both production and distribution does the same.
The rule of thumb: if you can tie the cost directly to producing a unit of product or delivering a service, it belongs in COGS. If it's overhead, it's SG&A.
How to calculate SG&A and benchmark your ratio
When calculating expenses, remember the SG&A formula:
SG&A ÷ Net Revenue × 100 = SG&A as a % of revenue
If a company has $2M in SG&A and $10M in revenue, its SG&A to sales ratio is 20%. The ratio matters more than the absolute number; for example a $2M SG&A spend looks very different at $5M in revenue versus $50M.
What is a good SG&A ratio?
There's no universal answer. Industry and stage matter more than the number itself, but here’s a typical breakdown:
| Industry | Typical SG&A % of revenue |
|---|---|
| Manufacturing | 10–15% |
| Retail | 15–25% |
| Professional services | 20–35% |
| SaaS / technology | 25–40% |
| Healthcare | 15–25% |
Early-stage companies typically run higher SG&A ratios as they build go-to-market infrastructure before revenue scales. Mature businesses tend to run lower. The goal isn't to minimize SG&A in absolute terms but to grow revenue faster than SG&A grows.
According to a McKinsey analysis of 882 large companies, the median SG&A ratio improved by 0.43 percentage points per year between 2013 and 2024. That's meaningful progress, but the pace is slowing. The easy efficiency gains have already been captured and future improvement requires more deliberate management.
A rising SG&A ratio is a problem when costs are growing faster than revenue without a clear return. It's defensible when it's funding deliberate growth like a new market, a sales build-out, or a product launch, and the revenue case is trackable. The distinction requires visibility into what's actually driving the increase, which is exactly what most companies lack.
That visibility is where financial management tools and custom financial reporting earn their place in the stack.
SG&A in the context of EBITDA and operating income
SG&A doesn't just affect one line on the income statement. It flows through the entire profitability picture. Where it sits, how it's treated, and what it does to EBITDA are questions that come up constantly in financial reporting and analysis.
What is SG&A in EBITDA?
EBITDA adds back depreciation and amortization to operating income, but SG&A itself is not added back. Since SG&A is deducted before operating income, it's fully baked into the EBITDA calculation. High SG&A means lower EBITDA, all else equal. Cutting SG&A is one of the fastest ways to move EBITDA margin.
Where does SG&A go on the balance sheet?
It doesn't. SG&A is an income statement item expensed in the period it's incurred. The only balance sheet effect is indirect, through its impact on net income, which flows into retained earnings over time.
Should SG&A include depreciation?
Typically, yes. Depreciation on SG&A assets (office equipment, leasehold improvements, corporate software) is usually included within SG&A. Some companies break it out separately, particularly when they want EBITDA to be clearly visible. Neither approach is wrong, but the treatment needs to be consistent period over period or comparisons become useless.
Common SG&A categorization mistakes
Bad categorization is a bigger problem than most finance teams want to admit. When costs are miscategorized, gross margins are wrong, operating income is wrong, and benchmarking against industry ratios becomes meaningless.
The Hackett Group's 2024 SG&A study found that median SG&A as a percentage of revenue hit a five-year high, with 62% of the 1,000 largest U.S. public companies seeing SG&A rise as a share of revenue and 78% failing to keep cost growth below inflation. That's a categorization and control problem as much as a spending one.
The most common mistakes include the following:
Mixing COGS and SG&A. The salesperson who also handles implementation, or the warehouse serving both production and distribution. When the line is genuinely ambiguous, companies often default to one category rather than splitting, which distorts both gross margin and SG&A.
Inconsistent depreciation treatment. Including depreciation in SG&A one quarter and breaking it out the next makes period-over-period comparison unreliable.
Misclassifying R&D. R&D is sometimes a separate P&L line, or sometimes folded into SG&A. The treatment needs to be deliberate and documented rather than arbitrary.
Lumping everything into "general." Without subcategory discipline, the "general" bucket becomes a catch-all that obscures where money is actually going, and makes it impossible to identify which costs are discretionary.
Not accounting for headcount changes. When a department adds headcount, SG&A rises. Without tracking headcount by department against SG&A by department, ratio creep is invisible until it's already a problem.
What is not included in SG&A matters as much as what is. A clean P&L requires clear rules for every cost that could reasonably land in either COGS or SG&A, and consistency in applying them. Clean expense reports are the starting point, and making sure miscellaneous expenses don't become a dumping ground is the part that requires ongoing discipline.
How to track and control SG&A
Controlling SG&A starts with seeing it clearly. Most companies have a spend problem disguised as a categorization problem: costs are rising, but no one can say where, because the data isn't clean or timely enough to act on. Here’s how to fix that:
Set category-level budgets, not just a total SG&A number. A $5M SG&A budget in one line tells you nothing. Break it into selling, G&A, and subcategories within each. When marketing overspends and legal underspends, you need to know that; not just that SG&A is on track overall.
Review SG&A monthly, not quarterly. Quarterly reviews catch problems three months late. Monthly reviews with department owners create accountability before costs compound.
Flag ratio creep early. A 1–2 percentage point increase in SG&A as a share of revenue can look small in isolation. Tracked monthly against the trend, it signals a structural shift before it becomes a margin problem.
Use spend data to drive headcount and vendor decisions. SG&A growth is usually driven by headcount and recurring vendor contracts. Realtime visibility lets you evaluate those costs before they're locked in.
Automate recurring admin costs. Subscription management, expense categorization, invoice processing: every manual step introduces error and delay. Automating these reduces both admin cost and miscategorization risk.
Is a higher or lower SG&A better?
Lower is better when it reflects genuine efficiency. Higher is acceptable when it's funding deliberate investment with a clear revenue connection. The number itself matters less than whether it's trending in the right direction relative to revenue, and whether you can explain why.
A faster, easier way to track SG&A expenses
Expensify gives finance teams realtime spend visibility across the SG&A categories that are the hardest to track: employee expenses, corporate card spend, and recurring costs that accumulate quietly between budget cycles.
AI-powered expense categorization reduces the manual work of keeping those buckets clean, and the spend control framework closes the loop between what's budgeted and what's actually spent.
In short, SG&A isn't just a line item to minimize, but a signal. Tracked cleanly and reviewed regularly, it tells you where the business is investing, where it's leaking, and where the next efficiency gain is hiding.
FAQs about SG&A expenses
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SG&A stands for selling, general, and administrative expenses. In accounting, the SG&A meaning is the full set of operating costs a business incurs to function, sell, and manage itself, which is separate from the direct costs of producing a product or service.
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SG&A expenses are the indirect operating costs that keep a business running. They include sales commissions, advertising, office rent, executive salaries, legal fees, accounting costs, HR, and IT infrastructure. SG&A expenses meaning, in plain terms: every cost that isn't COGS and isn't a non-operating item like interest.
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In accounting, SG&A is an income statement expense category covering the costs of selling, running, and administering the business. It's reported below gross profit and above operating income. Controllers and finance teams use it to assess operational efficiency, benchmark against peers, and identify where spending is growing faster than revenue.
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In business, SG&A represents the overhead cost structure of the company. It’s the aggregate of every cost center that isn't directly tied to production: the sales team, the finance function, the executive team, the office, the marketing budget. Managing it well is how companies protect margins as they scale.
