General and administrative expenses

General and administrative expenses (G&A) are the overhead costs of running a company as a whole: executive pay, accounting, legal, human resources and the office. They sit below the gross margin line, not tied to making or selling any one product.

The category is defined by what it is not. If a cost can be traced to producing the goods or delivering the service, it belongs in cost of revenue; if it drives a sale, it is a selling cost.

That boundary gets argued over constantly — moving a cost across it changes reported gross margin without changing a penny of cash.

Key takeaways

• G&A is a category on the income statement, not a cost reduction programme.
• It starts below the gross margin line: cost of revenue stops, then selling and G&A begin.
• Allocation rules decide how shared overhead lands on products, contracts or sites.
• Benchmarks only compare when two companies draw the same line between G&A and cost of revenue.

How it works

G&A is collected in a pool and then allocated. Costs serving the whole business go into one or more indirect pools, and an allocation base such as headcount, labor cost or total cost input spreads that pool across the units that benefit.

The base matters more than the pool. Spreading overhead on labor cost rewards automation, spreading it on revenue punishes your highest priced line, and spreading it on headcount ignores what each team consumes.

Consistency matters more than precision. Whatever base you choose, apply it the same way every period, because changing the base mid year makes two periods incomparable and invites an argument with your auditor.

Activity based costing is the response to that problem. It traces overhead to the activities that cause it, which gives a truer unit cost of production but takes real effort to maintain.

Shared services sit awkwardly in the middle. A group finance team serving three divisions is clearly overhead, but a billing team embedded in one division is arguably part of delivering that division’s service.

Public rules put the same discipline in writing. Under the Federal Acquisition Regulation, when a cost input base allocates G&A, all items properly in that base bear a pro rata share, allowable or not.

The content of the category is written down too. Office of Management and Budget guidance for federal awards defines administration as general administration and general expenses such as accounting and personnel.

Read G&A next to total cost, never alone. A low G&A ratio can simply mean the costs were pushed into cost of revenue — the same spend wearing a different label.

None of this is about spending less. Cost-cutting is a decision you take after the category is measured properly, and cutting G&A blind usually moves cost somewhere less visible.

Examples

What lands in G&A varies by sector, and the variation is legitimate. A software firm books most engineering salaries in cost of revenue or research, while a law firm books almost everything except fee earner time as overhead.

Business process outsourcing providers draw the line at the seat. Agent wages, supervisor wages and floor space are cost of revenue; recruitment, finance, legal and the executive team are G&A.

Manufacturers put plant supervision in cost of revenue and head office in G&A. The argument is usually about shared engineering, quality and procurement teams that genuinely serve both sides of the line.

Professional services firms argue hardest about partner time. Hours sold to clients are cost of revenue, while the same partner chairing a management meeting is overhead, and the split is self reported.

Technology companies face the same question about security and platform teams. A team protecting the production service is arguably cost of revenue, while the same team protecting the corporate network is plainly G&A.

Nonprofit and grant funded bodies face the hardest version, because funders cap the share of a grant that overhead may absorb — pressure to reclassify rather than to reduce.

Related terms

• Payroll: the mechanism that pays everyone; G&A is where the non production share of that pay is reported.
• Transition costs in outsourcing: one off costs of moving work to a provider, usually G&A in the year incurred.
• Total cost: the whole picture of what something costs; G&A is one slice of it.
• Cost-cutting: the action you take; G&A is one of the categories you act on.
• Activity based costing: the method for allocating G&A with more precision than a single base allows.

FAQ

What is included in general and administrative expenses?

Executive pay, finance, legal, human resources, insurance, head office rent, audit fees and general software. Anything serving the whole company rather than one product or one sale. The practical test is whether the cost would survive losing a single product line.

Is G&A the same as operating expenses?

No. Operating expenses are the wider group that also includes selling and marketing — G&A is the overhead slice sitting inside it.

How is G&A allocated to products or contracts?

Through a pool and a base. The pool gathers the shared cost, and the base, such as headcount or labor cost, spreads it across the things that benefited. Document the choice, because auditors and contract reviewers will ask.

What is a healthy G&A ratio?

It depends entirely on the sector and on where the company draws its cost of revenue line. Compare like with like, or the ratio tells you nothing at all. Track your own ratio over time rather than against a published average.

Does outsourcing reduce G&A?

It can, when back office functions move to a provider at a lower cost per transaction. It can also just relabel the cost, so check the contract against the ledger line it replaces.

Browse provider options and outsourcing benchmarks across Outsource Accelerator before you redraw your own overhead lines.