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SG&A: what belongs in overheads, and what does not

The overhead list is where a budget is usually too small. Not because anyone lied, but because things were forgotten.

5 minute read · part of the free minekop guides

SG&A stands for selling, general and administrative expenses. It is the cost of running the company as opposed to the cost of making the thing you sell. Rent, salaries for people who are not making the product, software, accountants, insurance, the coffee.

It matters because it is the part of the plan people underestimate most, and because it is mostly fixed. Sales can halve; the rent cannot.

The line that decides everything: above or below?

Every cost sits either in cost of sales (also called cost of goods and services) or in overheads. The test is simple: if you sold one more unit tomorrow, would this cost go up?

Cost	Where	Why
Coffee beans in a café	Cost of sales	One more coffee, more beans.
The café's rent	Overheads	Same rent whether you sell 50 or 500.
A developer building the product	Usually overheads	Their pay does not change with one more sale.
Payment processing fees	Cost of sales	A percentage of every sale.
Delivery to the customer	Cost of sales	One more order, one more delivery.
The accountant	Overheads	Fixed fee, unrelated to volume.

Put a cost in the wrong place and your gross margin is wrong, which makes every "can we afford this" question unanswerable. Whichever way you decide a borderline case, decide it once and keep it there, or you cannot compare one month with the next.

The list people forget

Ask somebody for their overheads and you get rent, salaries and software. Here is what usually gets left out until the money is already gone:

• Employer taxes and pension. Not salary. Frequently 15% to 40% on top of it, depending on the country.
• Severance and holiday provisions, where your law requires them. A cost that builds up quietly and lands all at once.
• Recruitment. Agency fees, job adverts, the time of the people doing interviews.
• Insurance of every kind.
• Bank charges and card fees, which look small per transaction and are not small per year.
• Accounting, legal, audit and translation.
• Equipment for each new person. A laptop, a desk, a phone.
• Depreciation on anything you bought that lasts years.
• Bad debt. Some customers will not pay. Budget a percentage rather than pretending it is zero.
• The subscriptions nobody cancelled. Go through the card statement line by line once a year; the number is always a surprise.

Splitting overheads between products

If you sell more than one thing, at some point you will want to know which one actually makes money. That means pushing a share of the overheads onto each product, and there is no perfect way to do it — only defensible ways.

1. By revenue. A product that is 60% of sales carries 60% of the overheads. Crude, quick, and fine as a first pass.
2. By people. Count the time each product actually consumes. More work, much closer to the truth, especially in services.
3. By driver. Split warehouse costs by space used, support costs by tickets raised, and so on. The most accurate and the most effort.

Some costs genuinely belong to no product. The founder's time, the audit fee, the company registration. Leave those unallocated and show them as their own line rather than smearing them across products to make the sheet look tidy. An honest "unallocated" row tells the reader something; a fake split tells them nothing.

Fixed, variable, and the bit in between

Overheads are usually called fixed, but very few are truly fixed forever. They are stepped. The office fits twelve people; at thirteen you need a bigger one, and the rent jumps. One support agent covers 200 customers; at 201 you hire a second.

Draw those steps into the plan at the month they happen. A cost line that rises smoothly by 2% a month is a fiction, and it hides exactly the moments that hurt.

Cost per head, the quickest sanity check

Divide total overheads by headcount. In a small service company the answer is usually somewhere between one and two times the average salary, because most of what is not salary — the desk, the laptop, the software licence, the share of the rent — scales with the number of people.

The number is useful in two directions. Forwards, it turns a hiring plan into a cost: five more people is five times cost per head, not five times salary. Backwards, it flags trouble — if cost per head jumps 30% in a year and the team did not move office, something is being counted that was not there before, or something has quietly grown.

It is a rough check, not a target. A manufacturer with heavy machinery and a two-person office will get a wild answer, and should ignore it.

Reviewing the list

Once a quarter, read the whole overhead list and mark each line: keep, cut, or question. Most companies find something they have paid for twice, something they stopped using a year ago, and something that has crept up 30% without anybody noticing. It is the cheapest hour of work in the business.

Where these numbers end up is the subject of the P&L guide.

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