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SG&A comparables as a percentage of net sales

SG&AMy company is going thru a "right-sizing" exercise and we are looking for updated benchmarks for IT, marketing, finance and HR spend as a % of net sales.  I know that this is oversimplifying but would like as many sources as possible when I present to the team.

We are a US distribution company, about $200m in sales, 700 employees, JD Edwards ERP, 3,000 skus.  Any input from experience or point me in the direction of data resources would be greatly appreciated! 

Answers

Anonymous
(Manager, Business Analytics) |

I went through an exercise like this before. The issue that I ran into is that there isn't an SG&A (or overheads) standard out there. E.g. some companies put research and development costs into their operational expense while others place it as an SG&A expense. It isn't apples to apples even within the same industry.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Anonymous,in addition to the excellent insights from the community on this page, those interested might also want to take a look at this free white paper titled,

"2016 Expense Management Trends:"

https://www.proformative.com/whitepapers/2016-expense-management-trends

I hope that helps. Enjoy!

Best... Sarah

albert greenhut
Title: student
Company: Kellogg School of Management
(student, Kellogg School of Management) |

Anonymous,
I had to do a similar exercise and I had a hard time because of the apples to apples problem you mentioned. Each company seems to calculate it differently and it is frustrating.
I found an interesting tool though. SG&A Benchmarks - from Schonfeld & Associates – uses Compustat accounting measures so the data follows standardized accounting rules (it’s constructed from data in company 10Ks so the data should pass muster), and it’s updated yearly to reflect changes. They give away some free info on their website, maybe enough to help, here is the address
(http://tinyurl.com/hjqhzu8)
Before I bought anything I followed @Joan Varrone’s advice (near the top of the thread) and looked at companies in yahoo as well - that’s useful but couldn’t compare across a larger numbers of comps! I spent plenty of time trying to generate my own comparisons. Once I bought the Schonfeld report, it listed companies in more specific groups (and in subsets by revenues) and upon further research I found that companies in the same industry generally followed similar reporting techniques and classifying methods for SG&A (I’m sure the larger ones choose from the same couple of accounting firms).
Anonymous, if your company is ~$200M you’re probably publicly traded, so this could help. @David Waltz I think this might solve the problem you pointed out as well, at least within similar industries.

My two cents, but I hope it helps.

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

If you look at public company filings Sales and Marketing will be combined but G&A is separated. Look at Yahoo Finance for comparable public companies and when you have one you can then look at who Yahoo compares them with and be able to drill down from there. The Hackett Group has a benchmarking practice focued on the G&A function and their components

http://www.thehackettgroup.com/solutions/business-benchmarking.jsp

Joseph Stephen
Title: CFO
Company: CR architecture + design
(CFO, CR architecture + design) |

You could try Robert Morris Assoc industry specific information. Your accounting firm should be able to access this source. You can also try out ProfitCents.com whcih allows you to benchmark yourself directly against others in your industry.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I wasn't aware of ProfitCents.com, thank you!

Linda Keith
Title: Principal
Company: Linda Keith CPA Inc
(Principal, Linda Keith CPA Inc) |

I second Joseph's recommendation. ProfitCents is by Sageworks Inc and their data is updated in real time by the thousands of CPAs who use the service for their clients.

I train bankers in loan decision-making and know that Sageworks uses the same data to help lenders when utilizing your financial statements in a loan decision.

Derek Quackenbush
Title: CFO
Company: Rising Data Solutions
(CFO, Rising Data Solutions) |

We used a service named OPEXEngine to benchmark ourselves. I don't know how it compares to the recommendations above or for your industry. But it worked for us and was useful--although we were a venture-backed, SaaS, healthcare IT company. We did a "right-size" exercise and it's not a fun thing to do. Good luck.

Jeffrey McCandless
Title: Managing Partner
Company: Stone Harbour Partners
(Managing Partner, Stone Harbour Partners) |

Anonymous, there are a lot of ways to look at this exercise in the context of what I understand that you are trying to accomplish. To some extent, different measurements yield much different results even across a broad vertical industry such as "US distribution company". My suggestion would to critically assess your company's situation and go with your gut as to what the problem might be and focus there.

For example, it could be sales and marketing effectiveness and that is what you would want to focus on in terms of productivity, cost of client acquisition, or co-op ad support spend. Perhaps rather than (or in addition to the S) G&A is the problem, in which case the Efficiency Ratio might be best to use. I wouldn't rule out problems above the G&A line in which case different metrics and analysis would be appropriate.

At the end of the day, there is no one size fits all approach that is really effective and truely the analysis needs to be occurring at a granular level. Good luck, I've done what you're doing and it is really, really, hard.

david waltz
Title: Assistant Treasurer
Company: Integrys Energy Group
(Assistant Treasurer, Integrys Energy Group) |

Anonymous,

One of the difficulties of the exercise are in making sure you have apples-to-apples comparisons with the benchmark, for items like some have mentioned here such as rolling in R&D, or combining S with the G&A.

A second difficulty is that the decision to spend on items reflects a mix of stakeholder concerns, which each company will treat differently, so that costs are not just about costs.

Finally, cost studies often reflect the underlying agenda's of those who initiate them, which may become problematic.

With respect to the measure you mentioned, a final caution is to make sure your revenue items are comparable. For example, the price of corn has approximately doubled since last year, so if you were a producer that used corn as a raw material and the cost was fully passed through in revenue, even if your firm did the exact same amount of volume as last year and everything else (headcount, etc.) was exactly the same as last year, your % spend vs. revenues will have halved, even though nothing changed!

I'm sure in distribution there are some types of distributors with high margin and some with low, some with high revenue volatility and some not, etc., so even within an industry the process of sorting apples and oranges is important if you are to have any faith in the benchmark.

All that being said, if you have to go through the exercise you have to go through the exercise. I agree with Jeffrey that the more granular you can do it the better, as some (though not all) of the things that make the exercise not so valuable are at least minimized to the extent possible.

Am I inferring correctly from the question that you are able to establish the metric (i.e. it was not supplied via the project team, sr. management, etc.)? One piece of advice I have heard about these exercises is that you should shoot for the 2nd quartile, good enough to avoid the magnifying glass, but not too good that folks think you got something wrong in the analysis or are hiding something!

Thanks.

Dave

albert greenhut
Title: student
Company: Kellogg School of Management
(student, Kellogg School of Management) |

Anonymous,
I had to do a similar exercise and I had a hard time because of the apples to apples problem you mentioned. Each company seems to calculate it differently and it is frustrating.
I found an interesting tool though. SG&A Benchmarks - from Schonfeld & Associates – uses Compustat accounting measures so the data follows standardized accounting rules (it’s constructed from data in company 10Ks so the data should pass muster), and it’s updated yearly to reflect changes. They give away some free info on their website, maybe enough to help, here is the address
(http://tinyurl.com/hjqhzu8)
Before I bought anything I followed @Joan Varrone’s advice (near the top of the thread) and looked at companies in yahoo as well - that’s useful but couldn’t compare across a larger numbers of comps! I spent plenty of time trying to generate my own comparisons. Once I bought the Schonfeld report, it listed companies in more specific groups (and in subsets by revenues) and upon further research I found that companies in the same industry generally followed similar reporting techniques and classifying methods for SG&A (I’m sure the larger ones choose from the same couple of accounting firms).
Anonymous, if your company is ~$200M you’re probably publicly traded, so this could help. @David Waltz I think this might solve the problem you pointed out as well, at least within similar industries.
My two cents, but I hope it helps.

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