It costs money to make money, especially when starting a small business. One thing small business owners have to account for in their budget is selling expenses. A crucial component of selling, general, and administrative (SG&A) expenses aren’t cheap. In 2023, median SG&A expenses totaled 13.7% of a company’s revenue, according to research from The Hackett Group.
Read on to learn how selling expenses affect your business and get some useful tips from experts on how to reduce your costs.
What are selling expenses?
Selling expenses are various costs a business incurs when promoting and selling products. They include everything from maintaining your ecommerce website to shipping products across the country. Selling costs can be either fixed or variable.
Selling costs are a part of SG&A expenses. Together, SG&A expenses are the costs associated with your business operations. Also known as overhead expenses, the general and administrative buckets include things like office rent, office supplies, office equipment, insurance, salaries for administrative staff or a finance team, and legal fees. While they affect profit margins, SG&A expenses are not directly connected to producing a product or service.
In other words, SG&A expenses do not include the actual cost of a product; instead, they cover the direct cost of getting the product into a customer’s hands. Think of them as operating expenses.
Types of selling expenses
Typically, selling expenses are broken down into three categories: They include the distribution costs, marketing costs, and selling costs that a business incurs.
1. Distribution
When a customer orders a product, you’ll need a distribution system to get it to them. This is often the biggest unavoidable selling expenses in ecommerce; even without marketing and advertising expenses you’ll need to pay distribution costs.
Examples of distribution costs include:
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Customs and duties (for international shipping)
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Fulfillment service fees (if using a third-party logistics provider)
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Inventory management software
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Packaging materials
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Returns and restocking costs
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Shipping and delivery fees
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Warehousing and storage costs
2. Marketing
Potential customers won’t know about your products unless you market them. That makes marketing one of the most important sales expenses, especially if your company is newer and hasn’t yet built up a customer base. These customer acquisition costs are part of operating expenses: They put your brand name into the world and showcase what makes your products different from the competition, giving you a competitive advantage.
Examples of marketing costs include:
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Email marketing tools and software
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Pay-per-click (PPC) advertising campaigns
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Promotional and marketing materials
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Social media advertising costs
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Sponsorships or events
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Website maintenance and design
3. Selling
The act of conducting a sale costs money, too. You’ll need an ecommerce platform that accepts and verifies payment; this technology costs money. If your business sells in-person, you’ll also need physical point-of-sale (POS) hardware to conduct the sale. Many sales costs, such as your website or POS system, are fixed costs because they’ll stay the same no matter how much you sell.
Examples of selling costs include:
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Customer service wages or tools
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Ecommerce platform fees
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Professional services, including point-of-sale system fees (if selling in person)
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Retail slotting fees (if placing product in physical stores)
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Sales commissions and salesperson salaries (if employees involved in selling directly)
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Sample or giveaway costs
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Trade show fees
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Transaction fees, such as credit card processing fees
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Transportation costs and other travel expenses for sales representatives
Tips for controlling selling expenses
- Consider analyzing selling expenses regularl
- Factor in your customer acquisition costs
- Save money by promoting affiliate sales
- Offer self customer service
The less you spend on acquiring customers and getting products out the door, the more can flow through to the bottom line. Here are a few tips on controlling expenses related to selling, with pointers from Nik Sharma, the founder of the agency Sharma Brands.
Consider analyzing selling expenses regularly
You won’t know how much you’re actually spending on selling expenses unless you track them. The first step for analyzing selling expenses is keeping good financial records, including an income statement, ideally in accounting software like QuickBooks or Xero. Review your financial performance at least once a month.
Effective financial management can help you cut out selling expenses that aren’t leading to wins. For example, if you see you’re spending $1,000 a month on Google Ads but not generating any revenue from it, you’ll be able to reassess your marketing efforts for better marketing ROI while fine-tuning your selling process.
You might also consider conducting customer feedback surveys to see what your audience has to say about your packaging and shipping. If you’re paying extra for customized boxes, but customers don’t notice them, then you can probably cut these selling expenses and use cheaper shipping materials instead.
Factor in your customer acquisition costs
Your product pricing should cover not only the cost of production but also all SG&A expenses, including the cost of acquiring customers. If your selling expenses fluctuate month to month, price your products and services with a built-in margin of safety so you don’t slip into the red.
A key metric here is your customer acquisition cost (CAC)—the average amount you spend on marketing and sales to gain one new customer. You can calculate this by dividing your total marketing spend by the number of new customers acquired in the same period. For example, if you spent $1,000 on marketing last month and brought in 25 new customers, your CAC would be $40.
“[Your marketing] budget really depends on what the projected acquisition cost is, and that correlates directly to how expensive the product is,” adds Nik. For instance, if you’re selling high-end bookshelves and estimate a CAC of $100, your pricing should reflect not just the cost of materials but also that acquisition spend.
That said, a high CAC doesn’t always correlate with higher prices. If your profit margins are healthy or your customers make repeat purchases—leading to a higher customer lifetime value (LTV)—you might be able to absorb the cost. Instead of raising prices, many businesses focus on lowering CAC by improving marketing efficiency, conversion rates, or customer retention.
Save money by promoting affiliate sales
Four out of five marketers use affiliate marketing tactics, and for good reason—it’s more affordable than traditional marketing campaigns, especially if you’re only paying sales commissions on completed sales. Letting others promote your product on a commission basis is a major cost containment opportunity.
“Take Jolie, for example,” Nik says, referencing the filtered showerhead brand. “Jolie has created 10,000 pieces of content this year alone with a network of content creators. They reach out and say, ‘We’d love to send you a showerhead,’ and that’s pretty much it. They relied a lot on people who are open to taking the product and just creating content for them.”
Offer self customer service
When your customers have questions, it takes up valuable time to answer them. You’ll need to hire more customer service agents and bigger sales teams with properly trained sales representatives, all of which can drastically increase your selling expenses and sales performance.
Luckily, you can circumvent this by having answers to popular questions ready and accessible on your website and other marketing materials. This is known as self customer service.
“Really, it comes down to four or five main questions that you’re answering,” Nik says. “What is the product, why does it exist, who’s the product for, why is it better than the competitive set, when would I get it if I order it today? These are the questions you want to answer over and over and over again, whether it’s a landing page or a website that you’re driving people to.”
Answering these questions upfront with knowledge hub content, FAQs on your website, and blog posts should drive your selling costs down over time. You might even consider using marketing technology like a customer service AI chatbots to answer questions 24/7.
Selling expenses FAQ
What is another name for selling expenses?
You might also hear selling expenses called “sales and marketing expenses” or “selling and distribution expenses.”
What is the difference between selling expenses and COGS?
COGS stands for “cost of goods sold.” This affects gross profit, the direct cost a business incurs when producing a product. COGS include expenses around manufacturing labor, raw materials, and more. Selling expenses are the costs incurred for indirect costs, including marketing, distributing, and selling a product.
How do you calculate selling expenses?
To calculate selling expenses, add up the costs related to promoting, distributing, and selling your product or service. Leave out general and administrative expenses, as these aren't costs directly related to sales, and they can reduce your tax burden.
