Understanding SG&A Expenses: Breakdown, Examples, and Importance

SG&A will not include interest expense since interest expense is reported as a nonoperating expense. In this article, we’ll discuss what SG&A stands for, break down its components, how to calculate it, and explain why controlling your SG&A can affect your business’s overall success. Our team is ready to learn about your business and guide you to the right solution. Excessive SG&A Expenses will hurt the company’s profit figures and, in return, reduce the shareholder’s returns.

Depending on a company’s financial strategy and historical performance, the SG&A figure can be estimated as a proportion of sales, a growth rate, or a fixed value. Post a job on UpCounsel to speak with a business lawyer in your state to help with any legal or compliance concerns related to managing your SG&A expenses. As with any ordinary and necessary business expense, SG&A expenses are deductible in the year that they were incurred.

What is a Good SG&A Expense?

On the other hand, companies with low selling expenses and efficient sales processes may generate higher profits. Therefore, while SG&A expenses are focused on selling and promoting the company’s products or services, general and administrative expenses are focused on running the business. In contrast, operating expenses are focused on the day-to-day operations required to produce and sell those products or services. A company incurs SG&A expenses in the daily operations of a company, excluding the costs of producing goods or services. These expenses are necessary for the company’s sales and administrative functions and support its operations, regardless of whether it generates sales. It’s important to note that the specific expenses included in SG&A can vary depending on the company and the industry in which it operates.

How should I control my SG&A expenses?

Overall, tracking and managing SG&A expenses is a critical aspect of financial management and can provide valuable benefits for companies and their stakeholders. SG&A expenses are disclosed in the notes to a company’s financial statements, providing additional information and transparency to investors and analysts. A company incurs these expenses to support the company’s administrative functions and management activities. Apple’s R&D expenses slightly exceed SG&A, highlighting the company’s emphasis on product development.

Typically you’ll calculate SG&A when putting together an income statement, which you can do easily with the help of our handy income statement template. Your COGS are the direct costs related to making, packaging and shipping the soaps—raw materials, the wages you pay your soap maker Cheryl, the fancy packaging paper you use, shipping costs, etc. Given below is a list of all the different categories of expenses that are included in it. Generally speaking, the lower a company’s SG&A expense, the better – since that implies the company is more profitable, all else being equal.

Tracking and managing SG&A expenses is an integral part of financial management, as it can provide valuable insight into a company’s operations and help to improve its profitability and efficiency. Tracking SG&A expenses provides valuable insight into a company’s operations, including its sales and administrative functions. It can help companies to make informed decisions about their operations and to improve their efficiency and effectiveness. If the company’s SG & A expenses are consistently increasing, it may struggle to control costs or invest heavily in growth opportunities.

From 2019 to 2024, while the bottom nine income deciles saw modest growth in household income, the top decile experienced a decline. The top decile’s average income was $15,605 per member in 2024, significantly higher than the $748 for the lowest, suggesting a more nuanced inequality story over this period. Stagnant wage growth for average households, the precarious existence of a vast migrant workforce, and a relentlessly high cost of living paint a portrait of deepening socio-economic divides. For example, calculate the SG & A expense for the entire year or a particular quarter. By clicking “See Rippling,” you agree to the use of your data in accordance with Rippling’s Privacy Notice, including for marketing purposes. Identify inefficiencies, streamline spending, and regularly review expenditures to ensure that purchases contribute to company growth.

On the income statement, total revenue is shown and reduced by COGS to arrive at gross profit. This shows how much revenue remains to cover operating expenses and hopefully still leave a profit. Selling, general & administrative expenses (SG&A), also known as operating expenses, are the costs involved in daily business operations.

How To Forecast Selling, General, and Administrative Expenses?

Your business still benefits from professional expertise without shouldering additional overheads. Investors and lenders may demand that this information be broken out into multiple line items for their perusal. This information can be quite useful for financial statement readers, who can plot expense amounts on a trend line, as well as a percentage of net sales, to ascertain how efficiently the business is being managed. Salaries for general and administrative personnel (non-production employees) are listed under SG&A, while salaries for production employees would be listed under COGS.

These expenses, sometimes referred to as operating expenses, capture virtually all business sg and a expense expenses that can’t be directly attributed to the manufacturing of a product or service. You can calculate SG&A by adding up all the expenses not related to production your business incurs over a given period. These costs are listed on the income statement and subtracted from gross profit to calculate your operating profit. General & Administrative Expenses are the overhead expenses of the company. They are the fixed costs incurred by the company like the rent, mortgages, and insurance that need to be paid.

But these expenses are also important to carry on a day to day activities. Therefore a balanced amount should be spent keeping in mind the structure of the company (more fixed costs than variable costs and vice versa). The SG&A expense is recorded on the income statement of companies in the section below the gross profit line item. SG&A stands for “selling, general & administrative”, and is a catch-all category of expenses that is inclusive of spending that isn’t a direct cost, otherwise known as cost of goods sold (COGS).

• This information can be quite useful for financial statement readers, who can plot expense amounts on a trend line, as well as a percentage of net sales, to ascertain how efficiently the business is being managed.
• Companies with high SG&A expenses may not operate as efficiently as those with low overhead costs, which can negatively impact their bottom line.
• Zero-base budgeting can also be used to maintain control over the SG&A expense category.
• These costs are not related to specific products, so they are categorized separately from the cost of goods sold (COGS) on the income statement.

Impact on Operating Income

• He needs to calculate the Selling General & Administrative expenses, including the depreciation.
• It can make it challenging to compare SG&A expenses between companies, and it’s important to consider other factors, such as revenue and operating income when comparing.
• Consequently, it is especially important to maintain tight control over SG&A costs, which can be achieved through the continual review of discretionary costs, trend analysis, and comparisons of actual to budgeted costs.
• If the ratio is too high or increases with time, this may indicate difficulties sustaining profitability.

Individual businesses might have higher or lower SG&A percentages based on their unique cost structures and strategies. By comparing their SG&A expenses to industry averages, companies can assess their competitiveness and identify areas for improvement. The SG&A expenses are also disclosed in the notes to the financial statements, providing additional information and transparency to investors and analysts. Apple’s SG&A expenses were exactly the same over both quarters, suggesting consistent operational efficiency.

This includes salaries, rent, utilities, advertising, marketing, technology, and supplies not used in manufacturing. Some of the most common expenses that do not fall under SG&A or COGS are interest and research and development (R&D) expenses. The two main categories of expenses on an income statement are the cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses. COGS is the expense that most directly drives revenue and refers to the direct costs of manufacturing goods sold. SG&A is an important point to remember when calculating a company’s profitability.

By tracking SG&A expenses, a company can identify areas where it can reduce costs and improve its profitability. Calculate the Selling, General, and Administrative expenses (SG&A) by adding all the expenses incurred by a company in its daily operations, excluding the costs of producing goods or services. You do this by adding the costs of selling, general, and administrative expenses. Because these employees support business operations without contributing to revenue generation, their compensation counts as an overhead cost. Selling, General & Administrative expenses are major drivers of operating income.

SG&A expenses are mostly comprised of costs that are considered part of general company overhead, since they cannot be traced to the sale of specific products. For example, sales commissions directly relate to product sales, and yet may be considered part of SG&A. When an SG&A cost is considered a direct cost, it is acceptable to shift the cost into the cost of goods sold classification on the income statement. A company incurs SG&A expenses in its daily operations, and many of these expenses may be necessary for the company’s sales and administrative functions. It can limit a company’s ability to control its SG&A costs and may limit the impact of cost-saving measures.

Once SG&A is deducted from gross profit – assuming there are no other operating expenses – operating income (EBIT) remains. Overall, understanding SG&A expenses is an essential aspect of financial management and can help companies to make informed decisions and to achieve financial stability and growth. Gross profit is calculated by listing your company’s total revenue and subtracting the cost of goods sold.