SG&A stands for selling, general, and administrative expenses: the costs of running your business that aren’t directly tied to producing your product or delivering your service. Think of it as everything required to keep the lights on, sell your offering, and manage the organization, including rent, salaries for non-production staff, marketing, software subscriptions, accounting fees, and more.

On your income statement, SG&A appears below gross profit and above operating income.

It’s the expense category that most directly separates efficient operators from bloated ones.

What’s Included in SG&A?

SG&A is a catch-all for three distinct cost buckets:

1. Selling Expenses

These are costs tied directly to acquiring customers and closing deals:

• Sales team salaries, commissions, and bonuses
• Advertising and digital marketing spend
• Trade show attendance and promotional materials
• Travel and entertainment for client-facing staff
• CRM software and sales tools

2. General Expenses

The fixed costs of keeping the business operational:

• Office rent and utilities
• Business insurance premiums
• Office supplies and equipment
• Phone systems and internet

3. Administrative Expenses

Costs related to managing the company itself:

• Executive and management salaries
• Accounting, bookkeeping, and legal fees
• HR administration and payroll processing
• General business software (ERP, project management, communication tools)

What’s not in SG&A: the cost of goods sold (COGS). The raw materials, labor, and overhead directly involved in producing or delivering your product sit in COGS, above gross profit. SG&A lives below it. If you miscategorize direct production costs as SG&A or vice versa, your gross margin and operating margin both get distorted.

Research and development costs are also typically reported separately, not inside SG&A.

How to Calculate Your SG&A

The calculation is straightforward:

SG&A = Total Selling Expenses + Total General Expenses + Total Administrative Expenses

The more useful number is your SG&A ratio — what percentage of revenue you’re spending on overhead:

SG&A Ratio = SG&A ÷ Revenue × 100

If your business generated $800,000 in revenue last year and spent $200,000 on SG&A, your ratio is 25%.

What Is a Good SG&A Ratio?

SG&A ratios vary widely by industry. A December 2025 Hackett Group study found the median SG&A hit 14.3% of revenue in FY2024 — a five-year high. But that average hides significant differences by sector.

Ramp’s 2026 benchmarks break it down:

• Retail: 20–30% (rent, staffing, marketing-heavy)
• Manufacturing: 10–25% (most costs sit in COGS)
• Professional services: 25–40% (labor-intensive delivery)
• SaaS: 40–60% (heavy sales and customer success investment)

For field service businesses (HVAC, plumbing, electrical, IT services), FieldEdge puts healthy overhead at 25–35% of revenue.

If you struggle with underpriced services, redundant software, or admin overhead that should be automated, your SG&A will remain above 35%.

SG&A growing slower than revenue means your overhead is scaling efficiently, and if it outpaces revenue, you have a problem to fix.

SG&A vs. COGS: Understanding the Difference

This distinction trips up a lot of small business owners because it determines how your financials read to any outside party like a lender, investor, or buyer.

• COGS includes only the direct costs of producing or delivering your product or service: labor hours on jobs, materials used, subcontractor costs, direct commissions tied to delivery.
• SG&A covers the costs that would exist even if you delivered zero jobs that month. For instance, your office manager’s salary, your Google Ads budget, your accounting software subscription, etc.

One practical test: if you paused all sales and operations tomorrow, would the cost stop?

If yes, it’s likely COGS. If it continues regardless, it’s SG&A.

Getting this right matters for gross margin visibility. A business with 60% gross margins and 45% SG&A looks very different from one with 45% gross margins and 15% SG&A, even if their operating income is identical.

How to Reduce SG&A Without Gutting Your Business

Cutting SG&A indiscriminately is how businesses eliminate the things that actually drive revenue. The goal is to reduce overhead.

• Audit fixed vs. variable costs first: Fixed SG&A (rent, base salaries, insurance) is harder to cut quickly. Variable SG&A (advertising, travel, software) is where you find immediate wins. Start there.
• Eliminate redundant software: Most SMBs are paying for 6 to 12 tools that partially overlap. A business running separate systems for CRM, invoicing, project management, scheduling, and HR can often consolidate into a single platform and cut software spend by 30–50%.
• Move administrative functions to platforms, not headcount: Hiring an office administrator to chase invoices, schedule jobs, and manage paperwork is expensive. Business operations software that automates those workflows cuts the administrative cost without cutting the output.
• Review vendor contracts annually: Insurance, leases, and service contracts often auto-renew at higher rates. A calendar reminder to renegotiate before renewal can save meaningful dollars without changing anything about how you operate.
• Watch marketing spend relative to pipeline: Selling expenses should produce a measurable result — leads, demos, closed deals. If your SG&A has a significant advertising component and you can’t tie it to revenue outcomes, you’re seeing zero returns for additional payment.

Where SG&A Fits in Your Broader Financial Picture

SG&A is one line on your P&L, but it connects to everything:

• High SG&A relative to gross profit means thin operating income, even if gross margins look healthy.
• SG&A growing faster than revenue is a scalability warning sign — your overhead isn’t leveraging your growth.
• Low SG&A with declining revenue often means you’ve cut the sales and marketing engine keeping the business alive.

Using small business management software that gives you real-time visibility into these line items — rather than waiting for month-end reports — lets you catch SG&A creep before it becomes a problem.

Try Utiliko’s all-in-one platform for free to get better visibility into your business expenses and identify gaps or leaks undermining your revenue.

Frequently Asked Questions

What does SG&A stand for?

It stands for selling, general, and administrative expenses — the overhead costs of running a business that aren’t directly tied to producing goods or services.

What is included in SG&A expenses?

Sales salaries and commissions, advertising, marketing, executive pay, accounting and legal fees, office rent, utilities, insurance, software subscriptions, and HR administration.

What is a good SG&A ratio?

It depends on the industry. Field service businesses typically run 15–25% of revenue. Professional services often run 30–40%. Therefore, what matters most is whether SG&A is growing more slowly than revenue over time.

Is SG&A the same as operating expenses?

No. It is a subset of operating expenses. Operating expenses may also include depreciation, amortization, and R&D, which you typically report separately.

How can a business reduce SG&A?

Audit software for redundancy, consolidate to integrated platforms, move administrative tasks to automation, and review vendor contracts annually.