Operating costs associated with business management and support functions, including salaries, rent, and other operational expenses (business management and support expenditures)
Reducing Selling, General, and Administrative (SG&A) Expenses: Strategies for Business Growth
In the pursuit of profitability, businesses often focus on reducing Selling, General, and Administrative (SG&A) expenses. These expenses, which include executive salaries, insurance, advertising, travel, and marketing costs, among others, can significantly impact a company's bottom line. Here, we explore effective strategies to optimize SG&A expenses without compromising on growth.
- Identifying and Eliminating Inefficiencies
By focusing on operational waste and non-labor spend inefficiencies within SG&A, businesses can unlock substantial savings without resorting to layoffs. This approach preserves workforce morale and long-term capability, ensuring the company's resilience.
- Zero-Based Budgeting (ZBB)
Implementing ZBB can lead to significant SG&A reductions, as much as 20%. This method assigns clear cost-category ownership, making individuals accountable for monitoring, approving, and optimizing expenditures. A global beverage company, for instance, realized $285 million in SG&A savings by rigorously applying ZBB and shifting support functions to shared services.
- Reducing Non-Essential Expenses & Streamlining Operations
Cutting discretionary costs such as travel, entertainment, and excessive marketing, and streamlining processes help reduce selling expenses while maintaining effectiveness.
- Facility and Workforce Cost Optimization
Moving offices to less expensive locations or expanding remote work can reduce fixed costs like rent and utilities without negatively affecting productivity.
- Leveraging Data and Benchmarking
Using data-driven methods and benchmarking across industries identifies best practices and areas with the highest saving potential, aligning cost-cutting with strategic goals to maintain competitiveness and growth.
- Shared Services and Consolidation
Shifting administrative support and other back-office functions into shared services reduces redundant labor costs, lowering fully loaded people expenses by up to 10% in some cases.
These strategies emphasize sustainable, strategic cost optimization rather than quick fixes or headcount reduction, helping businesses reduce SG&A expenses while fueling ongoing growth and resilience.
It's essential to note that SG&A expenses increase the breakeven point of a business because they consist mostly of fixed costs. During mergers or acquisitions, managing SG&A expenses is crucial to ensure operational efficiency and increased profits.
Empowering technology can increase productivity and operational efficiency, reducing costs. Outsourcing non-main administrative activities can also provide cost savings. General expenses, such as rental expenses, utilities, and computer equipment in offices, are categorized as fixed costs because the company must pay them, regardless of production or sales volume.
By focusing on these strategies, businesses can effectively manage their SG&A expenses, ensuring long-term profitability and growth.
- Wealth-management and Personal-Finance Considerations
The strategies for reducing SG&A expenses can be valuable lessons for individuals aiming to optimize their personal financial management, as they show the importance of identifying inefficiencies, prioritizing essential expenses, and leveraging technology for operational efficiency.
- The Intersection of Wealth-management and Business Finance
Effective wealth management often relies on business principles such as optimization of expenses, strategic cost allocation, and leveraging technology, much like the strategies used to reduce SG&A expenses in the business context.
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