What Are SG&A Costs? (Plus Examples and How To Calculate)

Updated June 24, 2022

Including a selling, general and administrative expense (SG&A) section on an income statement can help a company optimize its costs and improve its overall profitability. It involves varied expenses that a business determines through a multistep process. By learning some fundamental information about this expense category, you can better determine a financial method that works for you. In this article, we define SG&A, explain why calculating it can be important, describe the difference between SG&A and operational costs, provide some examples of expenses to add and list steps for how to calculate an SG&A sum.

What is SG&A?

SG&A describes the costs a company accumulates from overhead expenses, which involve any day-to-day operational tasks and activities that allow executives to generate revenue. The "selling" components may also involve any costs related to promoting or selling products to customers, such as marketing and distribution. For example, you can categorize the salaries of administrative staff as SG&A because they complete essential tasks for a business.Here are more common elements a company's SG&A may include:

Advertisement materials
Rent, utilities and supplies
Legal expenditures
Software and technology costs
Human resources activities
Security expenses
Insurance-related costs

Why is calculating SG&A important?

Calculating SG&A is important because accountants typically include these costs on a company's annual income statement, allowing them to compare revenue to expenses effectively. Consider the following reasons why preparing an SG&A is important for a business:

Finding the break-even point: Accountants can use a resulting income statement to measure a company's break-even point, which describes an equal number of revenue and costs. This sum can help companies set prices and prepare a constructive budget.
Reducing overall costs: Compiling and examining a company's SG&A can help executives determine which costs they can adjust, allowing them to find strategies to increase profits. For example, a business may review these costs and decide to rent a new office space that has the same amenities and a lower monthly fee.
Creating efficient operations: Evaluating a company's SG&A sum can help executives improve the efficiency of operational processes. For instance, they might use an SG&A sum to reduce the number of steps and materials required for a marketing strategy, allowing costs to decrease and profits to expand.
Streamlining a merger process: When one company merges with another, becoming one taxable entity, executives often review personnel information to determine the best way to restructure the hierarchy. By reviewing salary costs, they can better strategize and ensure they keep essential positions.

Differences between SG&A and operating expenses

SG&A and operating expenses (OPEX) both describe nonproduction operational costs and may involve similar elements, but companies often differentiate these sums when writing an income statement. Using this approach often allows executives to examine certain elements individually, helping them identify new ways to increase profits. Depending on a company's needs during a certain accounting period and overall preferences, they can determine which elements to include in the SG&A versus the OPEX section. For example, you might place the cost of legal representation in an SG&A section to evaluate it separately from day-to-day expenditures, like salaries and utilities.Read more: What Are Operating Expenses? (With Examples)

Examples of SG&A

Here are examples of specific items to include in a company's SG&A:

Marketing costs

Most companies hire marketing professionals to advertise products and services on varied mediums, which can help them engage potential customers. These endeavors often involve several events and require multiple materials so staff members can create effective campaigns. As a result, it's helpful to include these costs on an SG&A, as you can better decide which items are most valuable long term. Consider the following types of marketing costs:

Webpage maintenance
Customer data collection
Webinars and video production
Digital advertisements
Public relations campaigns
Marketing staff salaries
Travel fees

Rent and real estate costs

Companies often require building spaces to conduct day-to-day tasks. Administrative corporations often require office space, while retail and manufacturing companies may use a production facility or warehouse locations. Depending on a business's needs, executives can either lease these spaces or purchase their own buildings. As these costs are often prominent, it's often helpful to include them on a separate SG&A. here are some examples of rent and real estate costs:

Monthly rent
Lease agreements
Property taxes
Building repairs
Mortgage interest

Utility expenses

If a company has an office space or facility, they likely have to pay utility costs to an external agency or governmental department. When determining ways to reduce an SG&A sum, it's often helpful to prioritize these elements to ensure all personnel has access to basic amenities. Here are some common examples of utility expenses:

Building electricity
Water access
Trash services
Telephone services
Sewage and pipes
Air-conditioning equipment

Office supply costs

Office environments often require owners and executives to purchase certain supplies, including furniture, appliances and writing utensils. Some items may involve a one-time purchase, while others may require administrative personnel to re-order regularly. New companies may especially benefit from including these costs on an SG&A, but all businesses can use this sum to decide which supplies are most essential. Consider the following examples of supply expenses:

Refrigerator for the staff room
Desks and chairs
Binders, files and folders
Bookcases
Large table for meetings
Lighting equipment

Legal fees

Many companies seek representation from an attorney to help comply with federal and state laws, draft essential contracts and settle legal disputes. They can also help executives file patents and protect other types of intellectual property, plus offer critical advice during any decision-making processes. As a result, you can include these fees on an SG&A to better determine how many funds to reserve for adequate legal representation. Consider these examples of legal fees:

Consultation fees: Companies typically obtain a consultation fee, which describes an initial meeting between executives and a lawyer.
Hourly rate: Most lawyers charge a specific amount of money per hour of their services, meaning this item can determine most legal fees in an SG&A.
Flat fees: If a lawyer completes short-term or routine work for a company, they may charge one fee overall instead of an hourly rate.

Software and technology costs

Businesses often require certain hardware equipment and software programs to conduct daily operational activities. For instance, a retail company may purchase cash registers for store locations alongside an application program that allows staff members to sell items. Companies may also have technology needs for administrative tasks, like data entry and document preparation. Here are some examples to consider:

Staff computers
Spreadsheet software
Printers and scanners
Network servers
Accounting database
Inventory control systems
Customer management systems

Human resources costs

A company's human resources (HR) department typically manages the hiring process and provides resources for employees. They may also remind staff members of essential tasks, like mandated training requirements and paperwork submissions, and help a company comply with any labor-related laws. If you include HR costs on an SG&A figure list, you can better optimize these processes and determine how much personnel the department requires. Consider these examples of HR costs:

401(k) administration
Employee retention efforts
HR staff wages
Payroll software
Health insurance policies
Life insurance policies

Security expenses

If a business stocks valuable merchandise, it might invest some funds into a security system or specialized personnel. Executives can also hire a security company to activate these devices and monitor the company's facilities on a day-to-day basis, which are services that may involve an additional fee. As a result, you may benefit from tracking these expenses through an SG&A sum. Here are some examples of security expenses:

Alarms and motion detectors
Security personnel salaries
Facility monitoring
CCTV and video camera activation
Specialized door locks
Security consulting fees

Insurance-related costs

Businesses often purchase insurance policies to protect their employees, assets and customers. Some states also require companies to purchase an insurance policy, as they can help reduce costs overall. Including these costs on an SG&A may help you better prioritize your list of expenditures, as it's often important to purchase a high-quality insurance policy. Here are some examples of insurance costs you may include:

Product liability insurance: Retail companies and similar businesses may purchase this type of insurance to ensure revenue if products have defects or they lose inventory items.
Professional liability insurance: Medical practices and similar companies often purchase this type of insurance, as it can protect a business during a lawsuit involving a professional's services.
Commercial property insurance: Many companies that own property purchase this type of insurance, as it can help executives protect all their assets during an emergency event.

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How to calculate SG&A

Follow these steps to calculate an SG&A sum successfully and use it to support your organization:

1. Track the company's expenditures

To prepare an SG&A section on an income statement, be sure to monitor and record all expenses throughout a year. This approach allows you to streamline the process and better ensure accuracy. It may be helpful to use budgeting and spreadsheet software to prepare your figures for an SG&A calculation, as they can organize this information chronologically. You can also use these tools to store the figures in an accessible location.For example, consider a retail company called Adam's Apples that calculates an annual SG&A sum. To prepare for this process, its executives and accountants might track all expenses every month in a spreadsheet. They can use this spreadsheet and other records to create a financial report, which lists details about each item and presents changes from a previous month. Afterward, they can label these files clearly and concisely to ensure they can find them in the future.Related: Expense Report FAQs

2. Identify each expense element

Determine which cost element to include in an operational expenses report versus an SG&A. To perform this step efficiently, you might consult with an accounting department or use specialized software, such as a program that can analyze financial data. Then, review your financial records to learn whether a company's spending habits changed or whether executives encountered unexpected costs. Afterward, you can add each element and each current total expense to another chart.Consider the retail company Adam's Apples. Its accounting team might calculate all monthly costs and decide to place all operational costs separate from day-to-day expenses in the SG&A section, including sales-related travel costs, website maintenance expenses, legal fees and facility repair rates. This strategy can help them identify whether to increase or decrease these types of expenses. Afterward, the accountants place each item on a new spreadsheet to determine annual costs. Here are some potential figures for the company's SG&A annual costs:

$2,000 for sales-related travel costs
$1,500 for website-maintenance expenses
$3,000 for legal fees
$1,000 for facility repair rates

3. Add these elements together

To calculate an SG&A figure, add all your selling expenses together, then add all your general and administrative costs. Afterward, you can add both sums together to find your SG&A sum. Here is the formula to follow:SG&A = selling expenses + general and administrative expensesIn the example of the company Adam's Apples, its accountants can add the sales-related travel and website maintenance costs together, as they might consider these expenses to be "selling" components. Their sum totals $3,500. Then, they can add all the general and administrative expenses, which total $4,000. They determine their final SG&A annual sum equals $7,500.