SG&A

SG&A groups together three types of overhead costs that commonly appear on a P&L. Selling expenses: the costs of generating revenue — sales salaries, commissions, advertising, marketing, trade shows. General expenses: costs of running the business — rent, utilities, insurance, office supplies, equipment not tied to production. Administrative expenses: management and back-office costs — executive salaries, accounting fees, legal fees, HR.

SG&A on the P&L

In a standard P&L, gross profit is calculated first (revenue minus COGS), then SG&A is subtracted to get operating profit. For most small businesses, SG&A is simply labeled "operating expenses" rather than broken into the three SG&A subcategories — the detailed breakdown is more common in larger company reporting. But the concept is the same: all the overhead that isn't directly tied to making or delivering what you sell.

SG&A as a percentage of revenue

Tracking SG&A as a percentage of revenue over time tells you whether overhead is growing in line with the business or outpacing it. If SG&A was 28% of revenue two years ago and is 35% today, overhead has grown faster than revenue — a trend that erodes profitability even if top-line numbers look strong. Greg Crabtree's Simple Numbers framework targets OpEx (equivalent to SG&A) at under 30% of revenue for most small businesses.

What to watch in SG&A

The largest single component of SG&A for most small businesses is administrative and management labor. This is the "indirect labor" that doesn't go into the LER calculation — the owner's non-client-facing time, office managers, bookkeepers, and others who support the business without directly serving clients. When SG&A is out of line, this is usually where to look first.