It starts innocuously. Marketing signs up for a new analytics platform. IT renews that enterprise license even though only 40% of seats are used. HR adds another recruiter. Travel spending creeps back to pre-pandemic levels despite hybrid work.
Then one day: SG&A as percentage of revenue climbed from 22% to 28% over three years. Your margins are compressed. The board is asking questions. And now you're facing the dreaded mandate: "Cut 15% across all departments."
This is how overhead kills companies slowly, then suddenly.
Overhead costs grow incrementally and rarely get the same scrutiny as direct costs. Without active management, SG&A expands like a gas-filling whatever space you give it.
The pattern repeats:
Departments duplicate tools. Department A subscribes to Tool X. Six months later, Department B subscribes to Tool Y, which does 80% of what Tool X does. Nobody realizes because procurement happens at department level.
"Small" subscriptions proliferate. $99/month here, $299/month there. Multiply by 50 departments. Finance sees one line: "Software & Subscriptions: $847K annually." Nobody knows what that actually buys.
Support function headcount grows faster than revenue. You hire an analyst. Then another to help the first. Then a manager to coordinate them. Finance team doubled while revenue grew 40%.
None of these individual decisions were wrong. They just weren't coordinated, tracked, or questioned. And small inefficiencies compound into major margin erosion.
When overhead costs aren't transparent, department heads don't feel accountable to manage them.
If the IT director doesn't see "Your department: $2,400/employee in software costs. Company average: $1,600. Industry benchmark: $1,400," they have no reason to investigate.
If marketing doesn't know how the percentage of revenue climbed from 3% to 5.2%, they can't explain whether that investment is working or just scope creep.
What gets measured gets managed. What's hidden gets ignored.
Result: When cost-cutting time comes, you make blunt decisions. "Everyone cut 10%" feels fair but isn't smart. You slash training budgets that generate 10X ROI while preserving software subscriptions nobody uses.
SG&A as Percentage of Revenue
Overhead Cost per FTE
Software Utilization Rate
Department Efficiency Ratios
Overhead vs. Revenue Growth Delta
Calculate SG&A from GL by excluding direct costs. Track monthly to identify trends. Survey departments quarterly for software utilization data. Benchmark against industry peers. Establish internal benchmarks comparing similar departments or offices.
Instead of seeing "SG&A: $4.2M," you see:
Overhead by Category:
Immediate Insights:
Flagged Opportunities:
Detailed Breakdown & Dashboards: Aggregate all overhead into standardized categories by department, showing amounts and ratios (% of revenue, per FTE). Reveals outliers: "Why does Department A have 2X the software cost per employee?"
Benchmarking & KPI Tracking: Track against industry benchmarks or internal comparisons (regional offices, business units). "Why is the UK office spending more on admin than Germany office of similar size?"
Identifying Quick Wins: Highlight expense lines that grew unusually or look high relative to output. Sort top 10 items by spend or growth. Scan descriptions for duplicates-multiple subscriptions to similar services.
Scenario Simulation: Run scenarios instantly: "If we cut travel 30%, renegotiate facilities to save $200K, and consolidate software, what's the new SG&A ratio?" Model hiring freeze versus cutting discretionary spend to see which yields desired margin improvement.
4-6 Week Implementation: Connect ERP, categorize overhead into standard taxonomy, establish department allocation logic, build dashboards showing current state and trends.
Classification Standards: Define overhead vs. direct costs, establish department coding, create allocation rules for shared expenses.
Ongoing Governance: Quarterly department reviews, monthly executive updates, automated alerts for unusual patterns, annual strategic reviews.
"What's our SG&A ratio today versus three years ago?" If it climbed >3 points without strategic justification, you have margin compression.
"Can you show software spending by department with utilization rates?" If you can't answer this, you're likely paying for hundreds of thousands in unused licenses.
"Which overhead categories grew faster than revenue?" If multiple show concerning growth, you lack active management.
"If we needed to cut 15% of overhead, which expenses would we eliminate?" If the answer is "across-the-board cuts" rather than specific targets, you lack visibility to cut intelligently.
Overhead management isn't about austerity. It's about intentionality.
Every dollar should be a deliberate choice, not an accumulated accident. Software should exist because it delivers value, not because nobody canceled it. Travel policies should reflect actual business needs. Support headcount should scale with a plan.
The technology exists to shift from reactive cost-cutting during crises to proactive overhead optimization as ongoing discipline. The question is whether you'll implement it before the next board meeting where margins are questioned.
About This Article
Published: [Date] | Updated: [Date]
Based on overhead optimization implementations across organizations managing $50M-$500M+ in annual SG&A spending.
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