# SG&A Expenses: What They Are, How to Analyse Them, and What They Tell Investors Published: 2026-01-08 Author: Warren Team URL: https://www.heywarren.com/blog/sg-and-a --- SG&A — Selling, General, and Administrative expenses — is the line on the income statement that tells investors how much a company spends to run and sell its business, above and beyond the direct cost of making its products. It's one of the most important levers of profitability, and how efficiently a company manages SG&A relative to revenue reveals a great deal about its business model, competitive position, and management discipline. ## What Is SG&A? SG&A encompasses all operating expenses that are not directly tied to producing goods or services (which fall under Cost of Goods Sold/COGS). It has two broad components: ![SG&A splits into Selling expenses (revenue-generating costs) and G&A expenses (overhead costs to run the organisation).](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20600%20211%22%20width%3D%22600%22%20height%3D%22211%22%20role%3D%22img%22%3E%3Ctitle%3EHierarchy%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%22220%22%20y%3D%2220%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22300%22%20y%3D%2254%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22white%22%3ESG%26amp%3BA%3C%2Ftext%3E%3Cpath%20d%3D%22M%20300%2078%20L%20300%20105.5%20L%20210%20105.5%20L%20210%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22130%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22210%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ESelling%3C%2Ftext%3E%3Ctext%20x%3D%22210%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3ESales%2C%20marketing%2C%20ads%3C%2Ftext%3E%3Cpath%20d%3D%22M%20300%2078%20L%20300%20105.5%20L%20390%20105.5%20L%20390%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22310%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22390%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EGeneral%20%26amp%3B%20Admin%3C%2Ftext%3E%3Ctext%20x%3D%22390%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3EExecs%2C%20legal%2C%20IT%2C%20HR%3C%2Ftext%3E%3C%2Fsvg%3E) *SG&A splits into Selling expenses (revenue-generating costs) and G&A expenses (overhead costs to run the organisation).* **Selling expenses** — costs incurred to generate revenue: - Sales force salaries, commissions, and bonuses - Advertising and marketing spend - Trade shows and promotional materials - Customer acquisition costs - Travel and entertainment for sales **General and Administrative (G&A) expenses** — costs to run the organisation: - Executive and corporate staff salaries - Rent and occupancy for corporate offices - Legal and professional services - IT infrastructure and software - Finance, HR, and compliance functions - Insurance ## SG&A on the Income Statement SG&A appears below gross profit on the income statement: ``` Revenue $500M - COGS ($200M) = Gross Profit $300M (60% gross margin) - SG&A ($150M) = Operating Income (EBIT) $150M (30% operating margin) ``` The gap between gross margin and operating margin is largely explained by SG&A intensity. A company with 60% gross margin but 30% operating margin is spending 30% of revenue on SG&A. ## SG&A as a Percentage of Revenue The most useful way to analyse SG&A is as a ratio to revenue — this normalises for company size and enables benchmarking. **Industry benchmarks for SG&A/Revenue**: | Industry | Typical SG&A / Revenue | |---|---| | SaaS / Software | 40–80% (high customer acquisition costs) | | Pharmaceuticals | 25–35% (heavy marketing and sales) | | Consumer staples | 15–25% | | Industrial manufacturing | 10–20% | | Retail | 20–30% | | Financial services | 20–40% | | Asset-light tech (mature) | 8–15% | High-growth companies often have very high SG&A ratios because they're investing heavily in customer acquisition. The key question is whether that investment is generating sufficient lifetime value from acquired customers. ## Operating Leverage and SG&A A crucial concept for investors is **operating leverage** — the degree to which revenue growth translates to disproportionate profit growth. Companies with high fixed SG&A benefit enormously from scale. ![A 50% revenue increase drove a 250% jump in operating income when SG&A remained largely fixed.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20800%20210%22%20width%3D%22800%22%20height%3D%22210%22%20role%3D%22img%22%3E%3Ctitle%3EComparison%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Ctext%20x%3D%22230%22%20y%3D%2257.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EBefore%20%28%24100M%20rev%29%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%2225%22%20width%3D%22128.57142857142856%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22380.57142857142856%22%20y%3D%2257.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%232563eb%22%3EM10%3C%2Ftext%3E%3Ctext%20x%3D%22230%22%20y%3D%22152.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EAfter%20%28%24150M%20rev%29%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%22120%22%20width%3D%22450%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%237c3aed%22%2F%3E%3Ctext%20x%3D%22702%22%20y%3D%22152.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%237c3aed%22%3EM35%3C%2Ftext%3E%3C%2Fsvg%3E) *A 50% revenue increase drove a 250% jump in operating income when SG&A remained largely fixed.* **Example**: - Company has $100M revenue, $40M COGS (40% COGS), $50M SG&A → $10M operating income (10% margin) - Revenue grows to $150M; COGS scales to $60M; SG&A grows only to $55M (partially fixed) - New operating income: $150M − $60M − $55M = **$35M (23% margin)** Revenue grew 50% but operating income grew 250%. This is operating leverage at work — and it's why investors value businesses with scalable, partially-fixed cost structures. See our guide on [marginal cost](/blog/marginal-cost) for how this plays out at the unit economics level. ## What Rising SG&A Signals **Positive signals**: - Investment in sales capacity ahead of anticipated revenue growth - Expansion into new markets or geographies - Compliance build-out ahead of regulatory requirements (one-time) **Negative signals**: - SG&A growing faster than revenue over multiple periods (loss of leverage) - Overhead bloat from excessive headcount at the corporate level - Aggressive [revenue recognition](/blog/recognise-revenue) masking the true cost of acquiring that revenue - Management perquisites and empire-building in G&A The trend matters more than the absolute level. A rising SG&A/revenue ratio over 3–5 years, without corresponding margin improvement or growth acceleration, is a red flag. ## SG&A in Financial Analysis **R&D treatment**: Research and development is sometimes included in SG&A, sometimes reported separately. For technology and pharmaceutical companies, always separate R&D to understand the underlying G&A and selling efficiency. **Stock-based compensation (SBC)**: Much of the SBC expense for corporate employees flows through SG&A. Many analysts add back SBC to get "cash SG&A" — though this understates the true economic cost since SBC dilutes shareholders. **Adjusted vs. [GAAP](https://www.fasb.org/) SG&A**: Companies often report "non-GAAP" operating income by excluding restructuring charges, deal costs, or other items from SG&A. Scrutinise what's excluded — recurring "one-time" items are not truly one-time. For related profitability analysis, see our guides on [profit and loss statements](/blog/profit-and-loss-statement) and [operating vs. capital expenditure](/blog/opex-vs-capex). ## Conclusion SG&A is where a company's cost structure efficiency — or lack of it — shows up most clearly. A declining SG&A/revenue ratio signals scaling leverage and improving margins; a rising ratio signals cost creep or over-investment without return. The best businesses in the world tend to have SG&A structures that are both lean (low as a % of revenue relative to peers) and highly leveraged (small incremental SG&A needed to support large revenue additions). Always analyse SG&A alongside gross margins and revenue growth to get a complete picture of operating quality. Warren at [heywarren.com](https://heywarren.com) breaks down SG&A trends, operating leverage, and margin progression for any public company — so you can see exactly how efficiently management is running the business. --- ## Related Reading **More from Warren**: - [Profit and Loss Statement: How to Read a P&L and What It Tells Investors](/blog/profit-and-loss-statement) - [CapEx vs OpEx: The Difference and Why It Matters for Investment Analysis](/blog/opex-vs-capex) - [Marginal Cost: Definition, Formula, and Why It Determines Business Profitability](/blog/marginal-cost) **Authoritative sources**: - [FASB — Accounting Standards Codification (ASC 420, 450)](https://asc.fasb.org/) - [SEC EDGAR — Income Statement Analysis](https://www.sec.gov/edgar/searchedgar/companysearch) - [CFA Institute — Financial Statement Analysis](https://www.cfainstitute.org/)