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