A food manufacturer generates $50M revenue with a cost structure of:
- COGS: $25M (50%)
- SG&A (sales, general, administrative): $12M (24%)
- Operations (maintenance, facilities): $5M (10%)
- Other: $3M (6%)
- Net Income: $5M (10%)
A competitor with $50M revenue has:
- COGS: $25M (50%)
- SG&A: $8M (16%)
- Operations: $5M (10%)
- Other: $3M (6%)
- Net Income: $9M (18%)
Same revenue, same COGS, vastly different profitability. The difference: SG&A cost control.
The Operating Expense Framework
Operating expenses typically break down as:
| Category | Typical % of Revenue | Components |
|---|---|---|
| Salaries and Benefits | 8-12% | Management, office, R&D |
| Marketing and Sales | 2-4% | Advertising, trade shows, sales commissions |
| Facilities and Utilities | 2-3% | Rent, electricity, water, waste |
| IT and Communications | 1-2% | Software, hardware, phones |
| Professional Services | 1-2% | Accounting, legal, consulting |
| Other G&A | 2-3% | Insurance, travel, office supplies |
| Total SG&A | 16-26% | High performers: 12-18% |
The SG&A Benchmarking
Compare your facility to industry peers:
Your Facility (24% SG&A):
- Salaries: 10% of revenue ($5M)
- Marketing: 3% ($1.5M)
- Facilities: 2.5% ($1.25M)
- IT: 1.5% ($750K)
- Professional: 1.5% ($750K)
- Other: 5% ($2.5M)
- Total: $12M
Peer Benchmark (16% SG&A):
- Salaries: 7% ($3.5M)
- Marketing: 2% ($1M)
- Facilities: 2% ($1M)
- IT: 1% ($500K)
- Professional: 1% ($500K)
- Other: 3% ($1.5M)
- Total: $8M
Gap: $4M (8% of revenue) = profitability drag
Cost Reduction Opportunities
Salary Structure (typical opportunity: 15-25% reduction):
- Review organizational structure (layers of management)
- Benchmark compensation to market
- Reduce headcount through automation
- Target: 2-3% revenue reduction
Marketing and Sales Spend (typical opportunity: 20-30% optimization):
- Audit marketing ROI by channel
- Reduce low-ROI spending
- Shift to higher-ROI digital channels
- Consolidate agency relationships
- Target: 0.5-1% revenue reduction
Facilities Costs (typical opportunity: 10-15% reduction):
- Renegotiate facility leases
- Consolidate locations if possible
- Energy efficiency improvements
- Optimize waste disposal contracts
- Target: 0.3-0.5% revenue reduction
IT and Professional Services (typical opportunity: 20-30% optimization):
- Audit software subscriptions (eliminate duplicates)
- Consolidate professional service providers
- Bring in-house high-volume services
- Leverage shared services
- Target: 0.4-0.6% revenue reduction
Other G&A (typical opportunity: 15-25% reduction):
- Travel policy tightening
- Office supply consolidation
- Renegotiate insurance
- Target: 0.5-0.75% revenue reduction
Total Opportunity: 4-6% of revenue
A $50M facility with 20% SG&A ($10M) can reduce to 14-16% ($7-8M) through:
- Salary restructuring: $1M
- Marketing optimization: $500K
- Facilities improvement: $250K
- IT consolidation: $300K
- Other reductions: $400K
- Total: $2.45M potential EBITDA improvement
Implementation Approach
- Benchmark: Map current state vs. peer performance
- Analyze: Identify highest-impact opportunities
- Prioritize: Sequence changes minimizing disruption
- Implement: Execute with change management
- Monitor: Track results vs. targets
For food manufacturing companies, systematic SG&A cost management identifies overhead reduction opportunities while maintaining operational effectiveness.
