What is a typical SG&A percentage?
Sales, General, and Administrative (SG&A) expenses are a crucial component of a company’s financial health. These expenses encompass a wide range of costs associated with running a business, such as salaries, marketing, and office supplies. Understanding the typical SG&A percentage can help businesses assess their operational efficiency and compare their performance with industry benchmarks. In this article, we will explore what a typical SG&A percentage is and how it can be influenced by various factors.
Defining SG&A Percentage
The SG&A percentage is calculated by dividing the total SG&A expenses by the company’s net sales. This percentage provides insight into the proportion of a company’s revenue that is allocated to administrative and operational costs. While the ideal SG&A percentage can vary across industries, a typical range is often used as a reference point for comparison.
Typical SG&A Percentage Range
In general, a typical SG&A percentage for a company falls between 15% and 25% of its net sales. However, this range can be influenced by several factors, including the industry, company size, and business model. For instance, technology companies may have lower SG&A percentages compared to manufacturing or retail businesses, as they often require less administrative overhead.
Factors Influencing SG&A Percentage
1. Industry: Different industries have varying SG&A percentages. For example, financial services companies may have lower SG&A percentages due to their streamlined operations, while consumer goods companies may have higher percentages due to the costs associated with marketing and distribution.
2. Company Size: Larger companies often have higher SG&A percentages, as they have more administrative staff and infrastructure. Conversely, smaller companies may have lower SG&A percentages due to their leaner operations.
3. Business Model: Companies with a subscription-based business model may have lower SG&A percentages, as they can predict revenue more accurately and allocate resources accordingly. On the other hand, companies with a product-based business model may have higher SG&A percentages due to the costs associated with manufacturing, distribution, and marketing.
4. Geographical Location: Companies operating in countries with higher labor costs may have higher SG&A percentages, as they need to allocate more resources to compensate their employees.
Monitoring SG&A Percentage
Monitoring the SG&A percentage is essential for businesses to ensure they are operating efficiently. Companies should regularly review their SG&A expenses and compare them to industry benchmarks. If a company’s SG&A percentage is consistently higher than the typical range, it may be necessary to investigate cost-saving measures or adjust their business strategy.
Conclusion
In conclusion, a typical SG&A percentage for a company ranges between 15% and 25% of its net sales. However, this range can be influenced by various factors, such as industry, company size, and business model. By understanding and monitoring their SG&A percentage, businesses can ensure they are operating efficiently and remain competitive in their respective markets.
