Selling, General & Admin
SellingGeneralAndAdministrativeExpenseSellingAndMarketingExpenseGeneralAndAdministrativeExpenseSelling, general and administrative expense (SG&A) is the combined cost of selling a company's products and services and of running the business as a whole, other than the direct costs of production and, usually, research and development. It covers items such as sales staff pay and commissions, advertising, corporate salaries, rent for offices, legal and accounting fees, and technology used outside production.
SG&A is typically the largest operating expense after cost of revenue. It is subtracted from gross profit on the way to operating income.
Regulation S-X Rule 5-03.4 names selling, general and administrative expenses as a standard caption. Companies tag the combined figure in XBRL as SellingGeneralAndAdministrativeExpense. Many split it into two lines: selling and marketing, tagged SellingAndMarketingExpense, which covers costs directly tied to promoting and selling products, and general and administrative, tagged GeneralAndAdministrativeExpense, which covers the costs of managing the company that are not linked to any product.
What goes into SG&A varies. Research and development is usually its own line, since ASC 730 requires it to be expensed and investors want to see it separately, but some companies report it within SG&A. Depreciation of offices and equipment outside production is often included, as is stock-based compensation for sales and corporate employees. Shipping and handling costs may be in cost of revenue or in SG&A depending on company policy, which the notes disclose. These choices shift costs between gross margin and SG&A, so SG&A ratios are best compared among close peers.
Analysts track SG&A as a percentage of revenue. Because much of it, such as corporate headcount and office leases, does not rise one for one with sales, a growing company should see this ratio fall over time, which widens operating margin. A rising SG&A ratio can signal heavy investment in sales capacity, weakening pricing, or costs growing out of control. The split between selling and administrative costs helps separate spending aimed at growth from overhead.
A: Sales and marketing costs such as commissions and advertising, and general and administrative costs such as executive and staff salaries, office rent, insurance, and professional fees. Direct production costs are excluded.
A: It is mixed. Commissions and some marketing rise with sales, while corporate salaries and rent are largely fixed in the short run. That mix creates operating leverage.
A: Usually not. Most companies report R&D separately, but some include it in SG&A. Check the income statement before comparing SG&A ratios across companies.
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