SG&A Expenses: What They Are & How to Manage Them in Your Business Plan

Staring at your business plan, trying to figure out where costs like marketing, rent, and salaries actually fit? 😰 You’re not alone. Financial projections can be filled with confusing jargon, and one of the biggest culprits is SG&A. These are the essential, everyday costs of simply running your business—but if you can’t categorize or control them, they can quickly make your venture look unprofitable.

Forget the complicated accounting lessons. This is your simple, jargon-free guide to mastering Selling, General, and Administrative expenses. We’re cutting through the noise to give you exactly what you need to build a rock-solid financial forecast, fast. No more guessing, no more stress.

In the next few minutes, you’ll get a crystal-clear definition of SG&A, learn a quick way to calculate it for your financial statements, and discover actionable strategies to manage these costs effectively. The result? A stronger, more professional business plan that proves you have a firm handle on your numbers. Let’s get it done. ✓

What Are SG&A Expenses? The Simple Definition for Founders

In simple terms, Selling, General, and Administrative (SG&A) expenses are all the costs your business incurs that are not directly tied to producing a product or delivering a service. These are the expenses you need to pay just to keep the lights on and the business running, regardless of whether you make one sale or one thousand.

Think of a coffee shop. The coffee beans, milk, and cups are the Cost of Goods Sold (COGS)—they are directly used to make the product you sell. But the rent for the shop, the salary for your marketing manager, the software used for accounting, and the cost of your digital ads? That’s all sg&a.

Separating these costs is critical because it reveals your true profitability. Subtracting COGS from revenue shows your gross profit, but subtracting SG&A shows your net profit—what the business actually keeps. Investors and lenders watch this number like a hawk; it tells them how efficiently you run your company.

Why SG&A Matters in Your Business Plan

Getting your SG&A right isn’t just an accounting exercise. It’s fundamental to building a business plan that works in the real world. Here’s why it’s so important:

• It shows you understand the full cost of business. Anyone can calculate the cost of a product. Founders who master their SG&A prove they understand the total cost of operations.
• It’s essential for accurate financial projections. Your income statement and cash flow forecasts are pure fiction without a realistic budget for SG&A.
• It helps determine your break-even point. You can’t know how much you need to sell to be profitable until you know your total overhead costs. This directly impacts your pricing strategy.

SG&A vs. Operating Expenses (OpEx): What’s the Difference?

This is simpler than it sounds. SG&A is a major component of your company’s total Operating Expenses (OpEx). OpEx is the broader term for all the money a business spends on its normal operations. Think of it like this: Operating Expenses are the big bucket, and inside that bucket are two smaller ones—SG&A and COGS. That’s it. Getting this structure right is key to creating a clean, professional, and accurate income statement.

Breaking Down the Components: What’s Included in SG&A?

Think of SG&A as the command center for all your non-production costs. These are the expenses you incur to run the business, find customers, and manage operations—everything except the direct cost of creating your product or service. Getting this categorization right is the first step in effectively analyzing SG&A expenses and understanding your company’s true operational health. Let’s break it down into its three core parts.

S is for Selling Expenses

These are the direct and indirect costs required to market and sell your product. If an expense helps you land a customer, it likely belongs here. For modern startups and small businesses, this category is critical for tracking customer acquisition cost (CAC).

• Salaries & Commissions: Pay for your sales team and performance-based commissions.
• Advertising & Marketing: Includes everything from Google Ads and social media ad spend to content marketing efforts.
• Tools & Services: Costs for SEO services, marketing automation software, and graphic design.
• Events & Materials: Fees for trade shows, travel costs for sales meetings, and printing costs for marketing materials.

G is for General Expenses

These are the broad operational overhead costs that keep the lights on for the entire company, not just one department. They are essential for day-to-day business but aren’t tied directly to selling a product or a specific administrative function.

• Rent & Utilities: Payments for your office space, plus electricity, internet, and water.
• Office Supplies: Everything from paper and pens to coffee for the break room.
• Insurance: General liability or property insurance for your business.
• Depreciation: The depreciation expense for non-manufacturing assets like office furniture and computers.

A is for Administrative Expenses

These are the “back-office” costs related to management, organization, and core business functions. Think of them as the expenses for the infrastructure that supports the entire company, including leadership and finance.

• Salaries: Pay for executives (CEO, CFO), HR, accounting, and other administrative staff.
• Professional Fees: Costs for legal services, accounting, and consulting.
• Software & Tech: SaaS subscriptions for your CRM, accounting software (like QuickBooks), and project management tools.
• IT Support: Costs associated with maintaining your company’s tech infrastructure.

Sometimes, a cost can be split. A startup founder’s salary, for example, might be 50% Administrative (for running the company) and 50% Selling (for direct sales efforts). The most important rule? Be consistent. How you categorize your sg&a costs this month should be the same way you do it next month. This consistency ensures your financial reports are accurate and comparable over time.

How to Calculate SG&A for Your Business Plan

Calculating your SG&A is a critical step in understanding your business’s true profitability. The good news? It’s not complex math. It’s a straightforward process of addition that gives you a clear picture of your operational spending and is essential for building a credible business plan.

The SG&A Formula and a Worked Example

The calculation itself is a simple summation of all the different Selling, General, and Administrative (SG&A) Expenses we detailed in the previous section. You just add them all up.

The Formula:
SG&A = Selling Expenses + General & Administrative Expenses

Let’s walk through a quick example for a fictional startup, ‘AI SaaS Co.’, for one month:

Finding SG&A on an Income Statement

Your total SG&A figure is a key line item on your income statement. It appears directly after Gross Profit and is subtracted to determine your company’s operating income. The flow looks like this:

• Revenue
• Less: Cost of Goods Sold (COGS)
• = Gross Profit
• Less: SG&A Expenses
• = Operating Income

This structure instantly shows investors how efficiently you run day-to-day operations. A lower sg&a cost relative to gross profit signals a lean and healthy business model.

Forecasting SG&A for Your Financial Projections

When building financial projections, you’ll need to forecast SG&A. Start by separating costs into two types:

• Fixed Costs: Expenses that stay the same regardless of sales, like rent or fixed salaries.
• Variable Costs: Expenses that change with sales volume, like commissions or advertising spend.

For a fast forecast, use your own historical data if you have it. If not, research industry benchmarks for companies of a similar size to create a realistic baseline. Done stressing about spreadsheets? Generate your financial projections automatically with our AI business plan tool.

Analyzing SG&A: What’s a ‘Good’ Number for Your Business?

Looking at your total SG&A expenses as a raw number doesn’t tell you much. Is $150,000 in operating costs good or bad? It’s impossible to say without context. To get real, actionable insight, you need to analyze your sg&a as a percentage of your revenue. This simple step transforms a static number into a powerful performance metric.

This ratio allows you to measure your operational efficiency against two critical benchmarks: your own past performance and your direct competitors. It answers the crucial question: “Are we spending the right amount to run our business and drive growth?”

Calculating the SG&A to Sales Ratio

This is the fastest way to see how much you’re spending on operations for every dollar you earn. The formula is straightforward:

SG&A to Sales Ratio = (Total SG&A / Total Revenue) * 100

Using the example from our previous section, if your business had $150,000 in SG&A expenses and $500,000 in revenue for the quarter, the calculation is:

($150,000 / $500,000) * 100 = 30%

This means that for every dollar of sales you generate, you spend 30 cents on selling, general, and administrative costs.

Benchmarking Your SG&A Ratio

A 30% ratio might be fantastic for one business and a sign of trouble for another. The ‘ideal’ number varies dramatically by industry, which is why benchmarking is essential. Comparing your ratio to industry averages tells you if you’re overspending or operating with lean efficiency.

You can find benchmarks from:

• Industry trade associations
• Market research firms (like Gartner or IBISWorld)
• Publicly traded competitors’ financial reports

Here are a few examples of typical ranges:

• Software-as-a-Service (SaaS): Often high, from 30% to over 50%, due to massive investment in sales and marketing to acquire customers.
• Retail: Typically much lower, around 15% to 25%, as the business model relies on volume and tight cost control.
• Manufacturing: Can be very lean, sometimes below 15%, because the bulk of expenses fall under Cost of Goods Sold (COGS), not SG&A.

Understanding where you stand is a non-negotiable for any serious business plan. It shows investors and lenders that you have a firm grasp on your company’s financial health. To build a plan that includes these crucial financial metrics instantly, check out the tools at growth-grid.ai.

Actionable Strategies to Reduce & Optimize SG&A Expenses

Understanding your SG&A is the first step. The next is turning that knowledge into profit. Reducing these expenses isn’t about slashing budgets and stunting growth—it’s about making smart, strategic shifts to boost efficiency and drive more dollars to your bottom line. Remember, small, consistent savings compound into significant capital over time.

Here are three key areas where you can start making an immediate impact.

Leverage Technology and Automation

The old way involved manual data entry and wasted hours. The smart way is automation. By leveraging modern software, you can reclaim valuable time and reduce human error, directly cutting administrative overhead. This is about working smarter, not harder.

• Automate Admin Tasks: Use software for accounting, payroll, and scheduling to eliminate repetitive work and free up your team for high-value activities.
• Empower Your Sales Team: A Customer Relationship Management (CRM) system automates follow-ups and data tracking, allowing your sales team to focus on building relationships and closing deals.
• Streamline Workflows: Project management tools like Asana or Trello keep teams aligned, reduce redundant work, and ensure projects are completed on time and on budget.

Optimize Marketing and Sales Spend

Don’t just spend on marketing—invest. Every dollar should be accountable. By tracking performance closely, you can double down on what works and cut what doesn’t, maximizing your customer acquisition budget without increasing your overall spend.

• Focus on High-ROI Channels: Use analytics to identify and allocate more budget to your most profitable marketing channels.
• Build Organic Growth: Invest in content marketing and SEO. These are cost-effective, long-term strategies for attracting qualified leads.
• Negotiate Smarter: Regularly review contracts with advertising vendors and explore performance-based models like affiliate marketing to reduce fixed costs.

Rethink General & Administrative Costs

Your general and administrative costs can hide significant savings. From office space to software subscriptions, a regular audit reveals opportunities to trim expenses without impacting your core operations or company culture.

• Consider Remote or Hybrid Work: A flexible work model can drastically reduce your largest fixed costs, including office rent, utilities, and supplies.
• Outsource Non-Core Functions: You don’t need to do everything in-house. Consider third-party services for specialized functions like bookkeeping, HR, or IT support.
• Cancel Unused Subscriptions: Perform a quarterly audit of all software licenses and subscriptions. Cancel services that are redundant or no longer providing value.

Optimizing your sg&a expenses is an ongoing process, not a one-time fix. By systematically implementing these strategies, you can build a more resilient, efficient, and profitable business. Just as a smart business plan provides a roadmap, smart expense management provides the fuel for the journey. Tools from GrowthGrid help you focus on what matters most: building a stronger business. ✨

From SG&A Insight to Investor-Ready Action

Mastering your Selling, General, and Administrative expenses is the difference between surviving and thriving. It’s not just about crunching numbers; it’s about making strategic decisions that fuel sustainable growth. By clearly defining, accurately calculating, and actively optimizing your sg&a, you gain powerful control over your company’s profitability and operational efficiency. This knowledge transforms confusing financial records into a clear, actionable roadmap for success.

But manually building these projections is the old way—slow, stressful, and prone to error. Why spend weeks buried in spreadsheets? Trusted by thousands of entrepreneurs worldwide, GrowthGrid is the smart way. Our AI-powered platform helps you create a professional, 40+ page business plan instantly, complete with the automated financial statements that bring your analysis to life. Stop guessing. Generate a complete business plan with accurate financial projections in minutes.

Your vision deserves a professional plan. Go build it.

Frequently Asked Questions About SG&A

What is a good SG&A as a percentage of sales?

A “good” SG&A to sales ratio varies widely by industry. A software company might have a high ratio (e.g., 30-50%) due to large marketing and sales teams, while a manufacturing firm might aim for 10-20%. The most effective approach is to benchmark against your direct competitors. A consistently lower ratio than your peers often signals strong operational efficiency, meaning more of your revenue is turning into profit. Track it quarterly to spot trends.

Are salaries and wages included in SG&A?

Yes, but only for non-production employees. Salaries for your marketing, human resources, accounting, and executive teams are a core component of SG&A. In contrast, wages for factory workers or any staff directly involved in creating your product are classified under Cost of Goods Sold (COGS). This separation is critical for accurately calculating your gross profit and understanding your true overhead costs. It gives you a clearer view of where your money is going.

Is rent an SG&A expense?

Absolutely. Rent for any facility not directly used for production is a classic SG&A expense. This includes your corporate headquarters, sales offices, and administrative buildings. If you operate from a single facility, you must allocate the cost. For instance, the portion of rent for manufacturing space goes to COGS, while the portion for office space is allocated to your sg&a budget. This ensures your financial reporting is precise and actionable.

How is SG&A different from operating expenses (OpEx)?

Think of Operating Expenses (OpEx) as the parent category. OpEx includes all costs required for day-to-day business functions. SG&A is a major subcategory within OpEx, alongside other expenses like research and development (R&D). Therefore, all SG&A costs are operating expenses, but not all operating expenses fall under the SG&A line item. This distinction helps you analyze different parts of your operational spending with greater clarity and control.

Can a company have zero SG&A?

In practice, it is virtually impossible for an operating company to have zero SG&A. Even a solo entrepreneur has costs related to selling (like payment processing fees) or administration (like bank fees or accounting software). Any action taken to market a product, process a sale, or manage the business generates an expense. A functioning business will always incur some level of sg&a to support its core operations and drive growth.

Is depreciation included in SG&A?

It depends entirely on the asset being depreciated. Depreciation for non-production assets—such as office furniture, computers for the admin team, or a sales vehicle—is included in SG&A. However, depreciation for manufacturing equipment or a factory building is allocated to Cost of Goods Sold (COGS). The rule is simple: match the expense to the business function it supports, whether that’s production or general operations, for accurate financial insights.