Selling, general, and administrative costs (SG&A) cover everything it takes to run the business beyond making the product itself and beyond research. That includes the sales force, marketing, executive pay, office rent, legal, accounting, and IT.
Buffett and Clark use this as a moat signal: SG&A that stays below 30% of gross profit shows a lean operation. A high-quality business turns its gross margin into operating profit without burning most of it on overhead.
Watch SG&A as a share of revenue over the years. SG&A that holds steady or shrinks as a share of revenue is a good sign of operating leverage, where profit grows faster than sales.