What Is Typically Considered Part of SG&A?

Selling, General, and Administrative (SG&A) expenses are a significant component of a company’s financial statements. This category on the income statement provides insight into the costs a business incurs beyond the direct expenses of producing goods or services. SG&A encompasses the necessary expenditures for running the business and selling its products, distinguishing them from manufacturing costs.

Understanding SG&A

SG&A stands for Selling, General, and Administrative expenses, a broad category of operating costs found on a company’s income statement. These expenses are listed below the Cost of Goods Sold (COGS), which represents the direct costs of producing goods or services. SG&A includes all non-production-related operational expenses necessary for a business to function and sell its offerings. For instance, while raw materials and direct labor are part of COGS, the salary of an administrative assistant or the cost of advertising falls under SG&A.

These expenses are often grouped because they are overhead costs that support the entire business. SG&A costs are largely fixed expenses, incurred regardless of sales volume for many items. However, some components, like sales commissions, can fluctuate with sales activity.

Common Selling Expenses

Selling expenses are the costs a business incurs to promote, sell, and distribute its products or services to customers. Marketing and advertising costs encompass expenditures for campaigns across various media, digital marketing efforts, and public relations activities. This also includes the costs of maintaining a company website or social media presence. Salaries and commissions paid to sales personnel, including base pay, performance-based bonuses, and other incentives, are also direct selling expenses.

Travel and entertainment expenses incurred by sales teams for client meetings, product demonstrations, or participation in trade shows also fall into this category. Shipping and delivery costs are generally considered selling expenses unless already embedded within the Cost of Goods Sold. Rent for dedicated sales offices or showrooms, distinct from general administrative spaces, and the purchase of sales-specific supplies are also included.

Common General and Administrative Expenses

General and administrative (G&A) expenses represent the broad range of overhead costs necessary to run a business, excluding those directly related to selling or production. These expenses support the overall operations and management of the company.

Executive and administrative salaries constitute a substantial part of G&A, covering compensation for management, human resources, finance, legal, and other support staff. Rent and utilities for the corporate headquarters or main administrative offices are also common G&A expenses. Office supplies and equipment, such as everyday consumables, computers, and printers, along with professional fees paid for legal, accounting, auditing, and consulting services, are typical administrative costs.

General business insurance premiums are included within G&A. Depreciation and amortization charges for non-production assets, such as office buildings and software licenses, allocate the cost of these assets over their useful lives. Research and development (R&D) costs, if not capitalized as assets, are often reported as G&A expenses. Information technology (IT) expenses, including software licenses and IT support, along with employee training and development programs, also fall under this category.

The Significance of SG&A

SG&A is an important financial metric that offers insights into a company’s operational efficiency and cost management. Analyzing SG&A levels can reflect how effectively a business controls its overhead.

This expense category directly impacts a company’s profitability. When SG&A is subtracted from gross profit, it helps determine the operating income, also known as Earnings Before Interest and Taxes (EBIT). This calculation reveals how much profit a company generates from its core operations before accounting for interest and taxes. SG&A also allows for valuable comparative analysis, enabling stakeholders to assess a company’s cost structure against competitors or its own historical performance. Businesses often examine SG&A for potential cost control opportunities to enhance their financial performance.