# SG&A: Selling, General, and Administrative Expenses

![SG&A Expenses](https://www.investopedia.com/thmb/G-a4-fWAaek9V_aKkSohFg7tpJI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/sgaExpenses-57d2c13f16bf417c805124f301e13ec4.jpg)

*— Investopedia / Zoe Hansen*

> **Definition**
>
> Selling, general, and administrative expenses (SG&A) are overhead expenses that keep a business running but are not directly tied to producing goods or services. 

When you look at a company's income statement, you'll find selling, general, and administrative (SG&A) expenses listed. These are all the business costs that aren't directly involved in making products or providing services—the day-to-day costs of keeping the lights on. Examples include marketing, advertising, rent, and utilities.

Often called "[overhead](https://www.investopedia.com/terms/o/overhead.asp)," most SG&A expenses are incurred regardless of sales volume, making them fixed costs. However, some SG&A expenses may be semi-variable or variable such as commissions paid to sales staff, utilities, and distribution costs.

### Key Takeaways

*   SG&A expenses represent all non-production operational costs a company must pay to do business.
*   Also known as overhead, SG&A costs are segmented into three main types: selling/marketing, general, and administrative expenses.
*   Reducing overhead in these areas is often a prime target for company management.

## What Are SG&A Expenses?

SG&A are the ongoing costs of running a business while bracketing out the level of production. These expenses are typically recorded below the gross profit line on the [income statement](https://www.investopedia.com/terms/i/incomestatement.asp). The reason for separating the costs that directly relate to producing a product—the [cost of goods sold (COGS)](https://www.investopedia.com/terms/c/cogs.asp)—from the indirect costs that support overall business operations is for companies to assess their [operating leverage](https://www.investopedia.com/articles/stocks/06/opleverage.asp), or how changes in sales volume affect profitability.

SG&A expenses are often the most significant operational cost center for service-based businesses with minimal COGS. While essential for business operations, these expenses are frequently scrutinized during cost-reduction initiatives as they directly impact a company's operational efficiency and bottom line.

How do companies keep these expenses in check? Usually, through careful budgeting and periodic reviews for ways to cut costs. When times get tough, SG&A is often the first place managers look to trim spending, though they have to be careful not to cut too deep since that can end up hurting operations.

> **Important**
>
> SG&A expenses are considered period costs, meaning they are expensed in the period incurred rather than capitalized or assigned to products. This treatment aligns with generally accepted accounting principles (GAAP) and provides transparency in financial reporting. 

## Types of SG&A Expenses

Here, we'll detail further the three different categories that make up SG&A:

### Selling Expenses

Selling expenses are those directly tied to the efforts made to generate revenue:

*   **Advertising and marketing**: Advertising campaigns, [digital marketing](https://www.investopedia.com/terms/d/digital-marketing.asp), print media, and social media outreach are all included. So are skills training and other efforts used to improve the performance of sales staff.
*   **Sales commissions and bonuses**: Sales teams often earn commissions or bonuses based on performance. These incentive-based expenses are designed to motivate the sales force and directly link compensation to generating more revenue for the firm.
*   **Promotional costs**: Costs related to [promotional events](https://www.investopedia.com/terms/p/promotional-budget.asp), trade shows, product launches, and sampling programs fall under this category.
*   **Distribution and logistics**: While not directly part of manufacturing, expenses related to the delivery of products to customers—such as shipping, warehousing, and handling—are typically included in selling expenses.

> **Tip**
>
> Companies often provide footnotes that accompany their financial statements, where they may explain what exactly makes up the different categories of expenses such as for SG&A.

### General Expenses

[General expenses](https://www.investopedia.com/ask/answers/073115/what-are-some-examples-general-and-administrative-expenses.asp) cover the costs necessary to support the overall business environment. These costs are not directly related to sales or administration but are essential for maintaining the company’s infrastructure.

*   **Rent and utilities**: The cost of office space, warehouses, and related utilities (electricity, water, internet) falls under this category. These are basic operational expenses that keep the business environment functional.
*   **Office supplies and equipment**: Everyday supplies like computers, printer paper, stationery, furniture, and other office equipment are included here. These items, although seemingly small in cost, can add up over time.
*   **Insurance**: General [business insurance](https://www.investopedia.com/types-of-business-insurance-plans-how-to-decide-which-is-right-for-you-7485484)—including property or liability insurance and other forms of coverage—is vital for protecting the company from unforeseen risks and is an essential part of risk management.
*   **Maintenance and repairs**: Keeping the company’s facilities and equipment in good working order requires ongoing maintenance and occasional repairs.

### Administrative Expenses

[Administrative expenses](https://www.investopedia.com/terms/a/administrative-expenses.asp) are often the backbone of the company’s governance and overall management. These costs are associated with the central functions that support business strategy and day-to-day management.

*   **Executive salaries and benefits**: Compensation for top management, including the CEO, CFO, and other executives, is a significant part of administrative expenses.
*   **Human resources (HR)**: [HR functions](https://www.investopedia.com/terms/h/humanresources.asp) such as recruiting, training, payroll processing, and employee relations are essential to maintaining an efficient workforce.
*   **Accounting and legal fees**: Professional services for accounting, auditing, tax preparation, and legal counsel are needed to ensure the company is following regulations and maintaining financial integrity. These fees also cover strategic advice on complex issues.
*   **Information technology (IT) support**: IT infrastructure, [cybersecurity](https://www.investopedia.com/cybersecurity-4427739), and software maintenance fall under administrative expenses. In the digital age, IT is a central part of almost any business.

## Examples of SG&A Expenses

SG&A expenses are reported on a company's income statement, which is part of a company's annual report. For publicly traded companies, these reports must be filed with the U.S. Securities and Exchange Commission (SEC).

Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) reported $14.29 billion in operating expenses as part of its financial reporting for the third quarter of 2024. Of this, $7.77 billion was for research and development and $6.52 billion was for selling, general, and administrative costs.  

![A snippet of the consended consolidated statement of operations for Apple Inc, Q3 2024.](https://www.investopedia.com/thmb/mMwyVeWVBlCa00TEwqaZqEoLjFo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AppleInc-44ceedca2845443f87ac0aba631c454e.png)

*A snippet from Apple Inc.'s third quarter 2024 condensed consolidated statement of operations.*

Want to see how well Apple handles its overhead costs? One oft-used method is to look at what percentage of the company's sales goes to SG&A.

Here's the calculation for the quarterly statement above:

*   **SG&A**: $6.52 billion
*   **Net Sales**: $94.93 billion

> SG&A-to-sales = 6.52/94.93 = 6.87%

More clearly put, for every dollar of sales, Apple spent about 6.87 cents on overhead expenses

We can then compare that figure to the same quarter the year before (this accounts for seasonality):

Here are the details for the third quarter of 2023:

*   **SG&A**: $6.15 billion
*   **Net Sales**: $89.50 billion

> SG&A-to-sales = 6.15/89.50 = 6.87%

  
Apple's SG&A expenses were exactly the same after rounding in both quarters, suggesting consistent operational efficiency. Moreover, a ratio below 7% is exceptionally efficient for a large technology company, where SG&A ratios are often well over 20% (see the table above for those industries involved in [Big Tech](https://www.investopedia.com/articles/markets/030816/worlds-top-10-technology-companies-aapl-googl.asp)).  

It's also useful to compare SG&A to [R&D expenses](https://www.investopedia.com/terms/r/research-and-development-expenses.asp). Apple’s R&D expenses slightly exceed SG&A, highlighting the company’s emphasis on product development. Analysts might track the ratio of R&D to SG&A to understand the balance between developing new products and marketing existing lines. A healthy balance can indicate that the company is both forward-looking and effective in promoting its current offerings.

### Impact on Operating Income

[Operating income](https://www.investopedia.com/terms/o/operatingincome.asp) is calculated after subtracting the cost of sales and operating expenses (including SG&A) from net sales. Working from the same Apple quarterly statement, we get the following:

*   **Net Sales**: $94.93 billion
*   **Total Cost of Sales**: $51.05 billion
*   **Operating Expenses (R&D + SG&A)**: $7.77 billion + $6.52 billion = $14.29 billion

> Operating Income = 94.93 – 51.05 - 14.29 = $29.59 billion

By examining SG&A within the broader context of operating expenses, we see that Apple’s revenue generation capacity remains strong enough to absorb higher overhead costs as the company grows. However, further analysis would be needed to determine if these costs are producing proportional benefits in sales or brand equity.  

> **Tip**
>
> Operating costs comprise all expenses for day-to-day operations, including both direct costs (raw materials, labor, etc.) and indirect costs (overhead), making SG&A a subset of total operating costs.

## The Bottom Line

Getting SG&A right is a balancing act that can make or break a company. While these overhead costs directly impact the bottom line, simply slashing them isn't always the answer. Savvy company leaders look at what's typical for their industry and make sure they're investing enough in areas that give them an edge over competitors. The key is to take a hard look at these expenses now and again to figure out where you can trim fat without cutting into muscle. After all, you need to keep growing, but you can't do that without keeping the lights on.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Financial Reporting Manual](https://www.sec.gov/about/divisions-offices/division-corporation-finance/financial-reporting-manual/frm-topic-1)."
>     
> 2.  Apple, Inc. "[Condensed Consolidated Statements of Operations (Unaudited)](https://www.apple.com/newsroom/pdfs/fy2024-q4/FY24_Q4_Consolidated_Financial_Statements.pdf)." Page 1.
>     
> 3.  Wall Street Prep. "[SG&A Expense](https://www.wallstreetprep.com/knowledge/selling-general-administrative-sga/)."