You can close a record number of sales and still watch your profit disappear. Why? Because unchecked overhead is the fastest way to sabotage a successful team.
Good business decision-making is built on forecasting. When you're in growth mode, you need clarity on critical questions like: When should we hire? How much can we really spend? And, most importantly, how can we remain profitable?
The answer lies in mastering your selling, general, and administrative (SG&A) expenses. Forecasting costs like marketing, software, insurance, and professional services is the key to protecting your operating margin and seeing what's truly driving profit.
Selling, General, and Administrative (SG&A) encompasses all non-production costs, meaning every expense incurred to sell your service and run the business, excluding the direct costs associated with delivering the service (which fall under Cost of Goods Sold/COS and direct personnel).
Basically, SG&A is the collective cost of your overhead, and a comprehensive forecast demands clarity in these numbers. You must know where every dollar is going to ensure you're investing, not merely spending.
While you should avoid excessive granularity in your accounting, you must forecast the following major buckets:
Software is often one of the biggest categories. For agencies, that might include HubSpot, GoHighLevel, or data tools such as ChatGPT. Some of these costs may be passed through to clients as part of service delivery, but many are not.
Professional fees could include a fractional CFO, CPA, legal expenses, HR support, or coaches.
Business insurance includes general liability, cyber coverage, or other policies that may be required to work with certain clients.
By isolating and forecasting these specific SG&A costs, you gain the power to manage them actively rather than allowing them to passively erode your profits.
Your Operating Margin is more than just a profitability metric. It is the single best measure of your company's financial health and, ultimately, its market value.
This margin is the profit left over after your strong Gross Margin has successfully absorbed all your SG&A and overhead costs. Because firms are valued as a multiple of operating profit (EBITDA), a high Operating Margin directly translates to a premium business valuation. To maximize your worth, let's dive into the 20% rule and strategic investment:
I look for an operating margin of 20% or more. This is the financial gold standard, signaling that the company is both operationally efficient (good Gross Margin) and financially disciplined (controlled overhead).
If you’re currently below this target, don't try to jump straight there. Your primary goal must be consistent, incremental improvement. If you're at 10%, engineer your next forecast to hit 15%, and then relentlessly drive toward 20%. The power is in the consistent, focused movement.
It is not only acceptable but encouraged to take a temporary margin hit if you are strategically investing for outsized future revenue or efficiency.
This is the key difference between bad overhead and a power move. This includes heavy, calculated spend on a new business development push or purchasing software that promises significant labor efficiency and time savings down the road.
The mandate here is simple: The margin dip must be intentional, tied to a measurable future return, and temporary. You are investing a dollar to get two dollars back.
A robust SG&A forecast provides the clarity to diagnose poor performance. When your overall operating profit is low or negative, your model provides the two distinct answers you need:
Symptom: Your Gross Margin is too low (ideally it should be 50–60%).
Diagnosis: You likely have too many people servicing your clients relative to the revenue being generated. Your resource allocation (labor) is inefficient.
Symptom: Your Gross Margin is healthy (50–60%), but your final Operating Margin is thin.
Diagnosis: You have too much overhead and SG&A. You are overspending on non-client-facing costs (like excessive software subscriptions or administrative costs), and these expenses are eating into the profit your team is successfully generating.
This clarity is power. It tells you whether you need to focus on staffing efficiency and pricing (Margin Issue) or cutting, negotiating, or justifying SG&A costs (Expense Problem).
When setting your expense plan, it is important to be careful. While you may internally set an optimistic revenue goal for your sales team, your expense forecast should be built upon a reasonable, slightly de-risked revenue target.
This creates powerful financial leverage: if you beat your revenue goal, your Operating Margin will be even higher than planned — it's "icing on the cake." Disciplined SG&A forecasting ensures that every dollar you spend is a calculated investment, keeping your profitability trending robustly toward (or beyond!) the 20% target.
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