The $50m Question: Why SG&A Optimisation Matters More Than You Think

Cardaxia Insights · SG&A Series: Part 2 of 6

The $50m Question: Why SG&A Optimisation Matters More Than You Think

One percentage point. On a $500m revenue base that is $5m to EBITDA — and $40–50m of enterprise value. It is the most under-managed lever on the mid-market executive agenda.

Jon Dobell, Founder, Cardaxia · 7 minute read

Let me start with a number that might surprise you: for a mid-market business, a single percentage point of SG&A improvement can be worth $50m in enterprise value.

Here is the arithmetic. Take a $500m revenue mid-market company with SG&A running at 30% of revenue — $150m of annual spend. Move that ratio by one percentage point, from 30% to 29%. That is $5m added to annual profit, straight to EBITDA. In a business trading at 8–10x EBITDA, that $5m recurring improvement creates $40–50m of enterprise value.

Suddenly SG&A optimisation does not sound like a back-office efficiency project. It sounds like one of the largest value levers available to the executive team — and one of the few that does not require winning a single new customer.

The hidden profit lever

Most executives I talk to can recite their revenue, their cost of goods sold, their gross margin and their manufacturing efficiency metrics without hesitation. Ask them about SG&A as a percentage of revenue and I usually get a pause, then a ballpark figure. That pause is the opportunity.

As covered in the first insight in this series, mid-market companies typically run SG&A at 20–30% or more of revenue — substantially above the large-enterprise median, which The Hackett Group put at 16.2% in North America and 13.4% in Europe in its 2026 study. And unlike cost of goods sold, which tends to scale reasonably linearly with volume, SG&A carries both fixed and variable components. That complexity is exactly why it drifts. It is also why there is so much value in it.

Why the mid-market has distinct opportunities

Large enterprises have spent decades optimising their SG&A functions. They have dedicated transformation teams, sophisticated analytics and established programmes — and even so, many still struggle to make savings stick.

Small businesses run lean by necessity, with founders directly involved in most decisions and minimal overhead.

Mid-market businesses sit in a distinct position:

• Complex enough to need sophisticated SG&A functions across multiple domains
• Large enough that inefficiency compounds into material dollar amounts
• Growing fast enough that SG&A often expands reactively rather than strategically
• Unencumbered enough to move straight to a modern, AI-enabled operating model without unwinding twenty years of legacy

That last point is underrated. Not having built the shared service centre in 2009 is, right now, an advantage.

Three ways SG&A optimisation creates value

1. Direct cost reduction

The obvious one: reducing the numerator in your SG&A-to-revenue ratio. McKinsey’s October 2025 analysis of 882 S&P Global 1200 companies found that organisations achieving a sustained transformation — defined as a reduction of more than 10% in the SG&A cost ratio, held for at least four years — improved at 3.0% a year. For everyone else, the ratio was flat over the same period.

But here is what is less obvious. The highest performers do not simply cut. They redeploy resources out of low-value activity and into high-impact work. They are not getting smaller. They are getting sharper.

2. Competitive differentiation

In mature markets, operational excellence in SG&A creates advantages that are genuinely hard to copy:

• Faster decision-making through streamlined governance
• Better customer experience through optimised sales and marketing operations
• Higher agility from flexible, right-sized support functions
• A stronger talent proposition, because people are doing work that matters

The same McKinsey analysis found that companies achieving sustained SG&A transformation delivered total shareholder returns at 1.7 times the rate of their peers over the eleven years to 2024. That is not a rounding difference. That is a different business.

3. Enterprise value creation

When private equity firms evaluate an acquisition target or review a portfolio company, SG&A efficiency reads as a leading indicator of operational maturity. Businesses with well-run SG&A functions command premium multiples because:

• EBITDA is higher relative to peers
• Margin improvement potential is easier to underwrite
• Integration risk is lower for a buyer
• Management capability is visibly stronger

For an owner building toward an exit, SG&A optimisation is not just about this year’s profit. It is about presenting the business as a premium asset rather than a project.

So why does most of it fail?

Here is the uncomfortable part. McKinsey’s 2016 study of 238 S&P Global 1200 companies found that only around a quarter of SG&A cost-reduction initiatives achieved sustained savings over four years or more. The 2025 update, across a larger population, landed in much the same place: 234 of 882 companies qualified as sustained transformers.

But the 2025 data contains a more precise — and more useful — finding. Of those 882 companies, 401 achieved a significant single-year reduction in their SG&A cost ratio. Of those 401, some 167 saw costs climb straight back up over the following four years.

Making the cut is not the hard part. Nearly half of all companies managed a material one-year reduction. Roughly four in ten of them gave it back within four years.

The failure mode is not an inability to identify savings. It is an inability to hold them — and, just as often, an inability to prove they were ever real.

Several factors drive that pattern:

• Misaligned incentives between advisers and clients in traditional engagement models — the adviser is paid on completion, the client needs the value four years later
• Insufficient attention to change management and capability building
• Point-in-time recommendations that never translate into sustained operating change
• Underestimation of the organisational commitment required
• One-size-fits-all methodology that ignores company-specific context
• No independent measurement, so nobody can say with confidence whether the benefit landed or the baseline simply moved

Mid-market businesses need transformation approaches designed for their circumstances — not enterprise playbooks with the page count reduced.

What “good” looks like

How do you know whether your SG&A is well run? Benchmarking against your sector is a reasonable starting point. McKinsey’s 2025 analysis gives the following median SG&A cost ratios by sector across the S&P Global 1200:

Sector	Median SG&A cost ratio
Financial services	39%
Life sciences	26%
Consumer goods	22%
Technology, media and communications	22%
Professional services	17%
Advanced industries	12%
Travel, logistics and infrastructure	12%
Healthcare	11%
Global energy and materials	8%
Real estate	7%

Two important caveats. First, these are large listed companies — mid-market businesses generally run higher, so treat these as directional rather than as your target. Second, the variation inside a sector is often wider than the variation between sectors. In financial services, the bottom-quartile SG&A cost ratio of 53% is more than two and a half times the top-quartile figure of 21%, driven by structural differences between investment and retail banking models.

So do not stop at the headline ratio. The real insight comes from four questions:

1. Domain-level allocation. Where is the money actually going?
2. Capability effectiveness. Are you getting value for that spend?
3. Improvement trajectory. Are you getting better over time, or drifting?
4. Strategic alignment. Does the SG&A spend actually support the business objectives?

These are the questions that drive value creation, and answering them manually is slow enough that most organisations never do. Automating that assessment is the thinking behind Impaxia, Cardaxia’s benchmarking and value-tracking platform. Knowing quickly what good looks like, and where you sit against it, is what shortens the distance to value.

The AI inflection point

The arrival of practical AI capability is changing SG&A economics. Not speculative future applications — deployable capability available now. Drawing on published benchmarks and our own experience across markets and clients, these are the ranges we work with:

• Finance & Accounting: 25–35% cost reduction
• Technology & IT: 20–40% efficiency gain
• Procurement: 25–40% optimisation potential
• Sales & Marketing: 15–30% productivity improvement

These are indicative ranges, not promises — what is achievable in your business depends on your starting point, your operating model and your appetite for change. You may have examples that beat them. The next insight in this series takes each domain in turn and looks at where the opportunity actually sits. (Coming soon)

What is not in doubt is the direction. Companies that defer SG&A transformation will find themselves at a structural disadvantage as their competitors capture these benefits and reinvest them.

Our approach

At Cardaxia we believe mid-market and growth businesses deserve better options for SG&A outcomes. Large enterprises are well covered and typically have highly skilled internal functional leaders. In the mid-market that is often not the case, which makes it hard for an owner or CEO to know what to do, or who to turn to.

Most SG&A value is pursued through transformation programmes. Very little of it is ever independently verified. That is the gap we exist to close.

Our purpose is to ensure that every dollar of capital and every hour of organisational capacity committed to a transformation delivers explicitly quantified, board-aligned value — and that the evidence of that delivery is independent, auditable and complete.

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Sources: McKinsey & Company, “The SG&A challenge: Achieve excellence and outperform your peers”, Operations Practice, October 2025 — sustained transformer data, sector medians, TSR differential, and the 2016 predecessor study of 238 S&P Global 1200 companies. The Hackett Group, 2026 North America and Europe SG&A Cost Study and Scorecard, July 2026. Domain-level AI savings ranges are Cardaxia working estimates, informed by published benchmark data and engagement experience. They are indicative and not a representation of achievable outcomes in any specific business.

Currency: all figures are Australian dollars unless otherwise noted. Sector benchmark data is drawn from large listed-company populations and is indicative only.