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Definition of Selling General and Administrative SG&A Expenses Gartner Finance Glossary

what is sg&a expense

For example, the ratio for manufacturers can range anywhere around 20% of revenue, while in healthcare it can be up to 50% of revenue. Generally speaking, the lower the SG&A ratio, the better – but the average benchmark varies significantly based on industry. If unchanged in recent years, the ratio assumption for projected periods can be extended throughout the entirety of the forecast period.

what is sg&a expense

However, a few of these costs can be considered direct costs. For example, sales commissions directly relate to product sales, and yet may be considered part of SG&A. When an SG&A cost is considered a direct cost, it is acceptable to shift the cost into the cost of goods sold classification on the income statement. Selling, general & administrative costs (SG&A)—also sometimes referred to as operating expenses—are any costs your business pays that aren’t directly tied to making or delivering your product or service. SG&A expense is listed below gross profit, followed by other expenses that do not fall under SG&A or COGS, such as financial expenses which do not directly relate to central operations. After all these expenses are deducted from revenue, profit or loss is what we call net income, quite literally, “the bottom line” on the income statement. SG&A expenses include most expenses related to running a business outside of COGS.

What’s the difference between SG&A and operating expenses?

The best way to do this is to go through all of your SG&A expenses line by line to see if there are expenses that need to be trimmed or eliminated. There may be a few areas in particular that would benefit from a more in-depth review. Compensation may impact the order of which offers appear on page, but our editorial opinions and ratings sg&a are not influenced by compensation. She is a Certified Public Accountant with over 10 years of accounting and finance experience. Though working as a consultant, most of her career has been spent in corporate finance. Helstrom attended Southern Illinois University at Carbondale and has her Bachelor of Science in accounting.

Where is SG&A on balance sheet?

Selling, general, and administrative expenses (SG&A) are included in the expenses section of a company's income statement. SG&A expenses are not assigned to a specific product, and therefore are not included in the cost of goods sold (COGS).

Think of an importer that has only a warehouse and almost no other fixed expenses. It has just a 15% commission that it pays to independent road salesmen.

Where do I find selling, general & administrative expenses?

The SG&A classification never includes the cost of goods sold, and generally does not include the expenses incurred by the research and development department. In addition, it does not include financing costs, such as interest income and interest expense, since they are not considered to be operating costs. SG&A expense represents a company’s non-production costs in selling goods and running daily operations. Properly managing and understanding SG&A is crucial to control costs and sustain long-term profitability.

Company ABC’s total selling, general, and administrative expenses for the period is $8,600. In short, direct costs are directly related to the product being sold, while indirect costs are what you spend money on to earn sales.

How to Forecast SG&A Expense

A business’s SG&A is the sum of all direct and indirect selling expenses and all general and administrative (G&A) costs. Again, your selling expenses can include both direct and indirect costs of selling a product.

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