Selling, General, and Administrative Expense (SG&A)
Selling, general, and administrative expenses (SG&A) are the non-production costs a company incurs to run its business. Recorded below gross profit on the income statement, SG&A—often called overhead—includes costs that support operations but are not directly tied to manufacturing goods or delivering services.
Key points
SG&A covers all non-production operational costs (selling, general, administrative).
These are usually period costs (expensed in the period incurred) under GAAP.
Many SG&A items are fixed, but some are variable or semi-variable (commissions, utilities, distribution).
Management often targets SG&A for cost control, but cuts must avoid harming essential functions.
Why SG&A is separated from COGS
Separating cost of goods sold (COGS) from SG&A helps analysts and managers assess operating leverage—how changes in sales affect profitability. Service businesses with low COGS often have SG&A as their largest operating expense. Monitoring SG&A trends and ratios helps evaluate operational efficiency and capital allocation.
Types of SG&A expenses
Selling expenses
These are costs directly related to generating revenue:
Advertising and marketing (campaigns, digital, social media)
Sales commissions and bonuses
Promotional costs (trade shows, product launches, sampling)
Distribution and logistics (shipping, warehousing, handling)
General expenses
Costs that support the business environment and facilities:
Rent and utilities (office and warehouse space, electricity, internet)
Office supplies and equipment (computers, furniture, consumables)
Insurance (property, liability, other business coverage)
Maintenance and repairs
Administrative expenses
Costs tied to corporate governance and support functions:
Executive salaries and benefits
Human resources (recruiting, training, payroll administration)
Accounting and legal fees (audit, tax, counsel)
Information technology and cybersecurity
How SG&A affects profitability and analysis
Common metrics and practices:
SG&A-to-sales ratio = SG&A / Net Sales. It shows how much of each sales dollar goes to overhead.
Compare SG&A with R&D to understand balance between product development and selling/support.
* Include SG&A in operating expenses when calculating operating income.
Example (Apple, Q3 2024)
SG&A: $6.52 billion
Net sales: $94.93 billion
SG&A-to-sales = 6.52 / 94.93 ≈ 6.87% (about $0.0687 of every sales dollar)
Operating income calculation (simplified from the same period):
* Net sales: $94.93 billion
Cost of sales: $51.05 billion
Operating expenses (R&D + SG&A): $7.77B + $6.52B = $14.29 billion
Operating income = 94.93 − 51.05 − 14.29 = $29.59 billion
These calculations illustrate how SG&A contributes to operating expenses and overall profitability. Analysts track changes in SG&A ratios over time and across peers to judge efficiency and strategic focus.
Managing SG&A
Regular budgeting and reviews identify inefficiencies and opportunities to reallocate spending.
Cost reductions should be targeted and strategic—cutting critical functions can undermine growth.
* Industry norms matter: acceptable SG&A levels vary widely by sector and business model.
Bottom line
SG&A captures the overhead needed to run a business outside of direct production. Monitoring SG&A levels, composition, and trends helps companies and investors assess operational efficiency, make budgeting decisions, and balance investment in growth versus cost control.
Sources
Apple, Inc., Condensed Consolidated Statements of Operations (unaudited)
U.S. Securities and Exchange Commission, Financial Reporting Manual
* Financial education resources on SG&A analysis