So, you’ve built a product.
People are buying it.
You think you’re doing great.
But then you look at the bank account and realize the money isn’t really there. Now think about that for a second.
It’s hidden in the spreadsheets somewhere.
From what I’ve seen in the startup world, this happens all the time.
Founders get obsessed with growth metrics—user acquisition, conversion rates.
But they often ignore the operational side of things.
Specifically, SGA expenses.
If you don’t know what SGA is or how to control it, you are basically driving a car with the handbrake on. And this is where things get interesting.
Let’s break this down without using a bunch of boring corporate jargon.
What Exactly is SGA?
SGA stands for Sales, General, and Administrative.
It sounds fancy, but it’s really just the cost of running the business day-to-day that isn’t tied directly to making the product.
It’s the salaries of the sales team, the rent on the office, the software subscriptions, the legal fees, and the office supplies.
Most people overlook this bucket until it’s too big.
But if your revenue is $100k and your SGA is $90k, you aren’t profitable, even if you sold a lot of stuff.
And, I’ve made this mistake before.
I thought spending money on marketing was the only way to grow.
Turns out, managing overhead is just as important.
Now think about that for a second.
SGA vs.
COGS: Are They the Same?
It’s important to note that SGA is NOT the same as COGS (Cost of Goods Sold).
COGS is what it costs to build or buy the item you sell—a widget, a service hour, raw materials.
SGA is what it costs to keep the lights on. Now think about that for a second.
For example, if you sell shoes:
– The leather and labor to make the shoe = COGS.
– The salary of the person answering the phones and the rent for the warehouse = SGA.
The SGA Margin Formula (And Why You Need It)
You need a number to watch, not just a list of costs.
That’s where the SGA Margin comes in.
Here is the formula, plain and simple:
SGA Margin = (Revenue – COGS – SGA) / Revenue
Or, looking at it as a percentage:
SGA % = (Total SGA Expenses / Total Revenue) x 100
If this number is too high, you’re bleeding money.
Most healthy companies try to keep SGA below 20-30% of revenue, but this varies wildly by industry.
Retail has different benchmarks than software.
Here’s the interesting part.
Common SGA Expenses You Might Be Missing
- Sales Costs: Commission for salespeople or sales travel.
- Admin Salaries: HR, legal, accounting, and executive salaries.
- Rent & Utilities: Office space, internet, electricity.
- Marketing (Not Product): Brand awareness ads, not the ad spend that directly creates a sale.
- Software: CRM tools, email marketing software, and cloud storage.
How to Reduce SGA Without Cutting Corners
Now, the hard part.
How do you lower SGA without making your team miserable? You have to be smart about it. But there’s a catch.
Most people try to cut budgets across the board.
That’s a mistake.
You want to cut waste, not efficiency.
1. But there’s a catch.
Remote Work: I don’t care what your HR department says.
For many admin roles, working from home saves a ton on rent and utilities.
It’s a no-brainer for lowering overhead. Here’s the interesting part.
2.
Outsource Non-Essentials: Do you really need a full-time CFO? Or can you use an accounting software like QuickBooks or Xero and outsource the monthly review to a freelancer?
3.
Consolidate Subscriptions: We all have 10 different tools for project management, chat, and file storage.
Pick one or two and cancel the rest.
The Danger of Ignoring SGA
If you ignore SGA, you are essentially flying blind.
You might be growing revenue, but if your margins are negative due to high overhead, you will run out of cash before you ever see a profit. Here’s the interesting part.
And its not just about survival. Now think about that for a second.
Investors look at SGA heavily when deciding if they want to give you money.
They want to see a scalable business model, not a company that is just burning cash on administrative bloat.
Think about your profit margins like a diet.
If you keep eating junk (high SGA) but keep eating more food (revenue), you might get bigger, but you’ll get unhealthy.
Final Thoughts
Managing SGA isn’t the most exciting part of running a business.
It’s rarely the thing that gets written about in tech blogs. And this is where things get interesting.
But it is the foundation of a stable company.
So, take a look at your numbers this week.
Find one area of high SGA and see if you can optimize it.
Small changes add up fast.
Also, if you aren’t sure how to track all this effectively, investing in good bookkeeping software is probably the best move you can make right now.
It saves you hours of manual work and prevents costly errors.
Image source: pexels.com
Image source credit: pexels.com