Imagine hearing this in a meeting:
“We reached 120% of our budget.”
At first, that sounds like a good result. But does the figure refer to sales revenue or expenses?
If it refers to sales revenue, the target may have been exceeded. If it refers to expenses, more may have been spent than planned. The same percentage can tell two very different stories.
To read a budget report correctly, start by separating three questions:
How much of the plan did we achieve?
What is the difference between the planned and actual amounts?
How large is that difference as a percentage of the budget?
Let’s work through one example.
Start with the plan and the actual result
Suppose a business sets a monthly sales revenue target of TRY 100,000. At the end of the month, actual sales revenue is TRY 80,000.
The budget is the financial plan for a defined period. In this example, the budget item we are looking at is the sales revenue target of TRY 100,000.
The actual amount is the result recorded for the same period: TRY 80,000.
We can now make three calculations.
Actual-to-budget ratio: How much of the plan did we achieve?
The expresses the actual amount as a percentage of the budgeted amount.
Formula:
Actual-to-budget ratio = (Actual amount ÷ Budgeted amount) × 100
Our example:
(80,000 ÷ 100,000) × 100 = 80%
In everyday language:
“We achieved 80% of our sales target.”
Applied to an expense item, the same calculation shows how much of the budgeted expense has been incurred. That is why this ratio should not be treated as a success score on its own.
Variance amount: What is the difference in money terms?
The variance amount is the monetary difference between the actual and budgeted amounts.
Throughout this article, we use the same calculation order for every item:
Formula:
Variance amount = Actual amount − Budgeted amount
Our example:
80,000 − 100,000 = −TRY 20,000
This means:
“Our sales revenue was TRY 20,000 below budget.”
The minus sign tells us the direction of the difference. It does not yet explain the cause.
Variance percentage: How large is the difference relative to the budget?
The variance percentage expresses the monetary difference as a percentage of the budgeted amount.
Formula:
Variance percentage = (Variance amount ÷ Budgeted amount) × 100
Our example:
(−20,000 ÷ 100,000) × 100 = −20%
This means:
“Our sales revenue was 20% below budget.”
An actual-to-budget ratio of 80% and a variance of −20% therefore describe the same result from two perspectives. The first shows the level achieved; the second shows the difference from the budget.
What if we exceed the target?
Keep the budget at TRY 100,000, but this time assume actual sales revenue is TRY 120,000.
Actual-to-budget ratio: 120%
Variance amount: +TRY 20,000
Variance percentage: +20%
The correct interpretation is:
“We achieved 120% of our sales target, exceeding it by 20%.”
A ratio of 120% does not mean the target was exceeded by 120%. It means the full target was achieved, plus an additional 20%.
A plus sign is not always good. A minus sign is not always bad.
Sales revenue of TRY 120,000 against a target of TRY 100,000 means the revenue target was exceeded.
Expenses of TRY 120,000 against a budget of TRY 100,000 mean the expense budget was exceeded.
The calculation is identical in both cases: +TRY 20,000 and +20%. But the interpretation is different.
An expense that comes in below budget should not automatically be called a saving, either.
If you received the same service at the same quality for a better price, it may be a genuine saving.
If planned maintenance did not take place, the lower expense may reflect work that has been postponed.
If delivery expenses fell because fewer orders were received, the decrease may reflect lower business activity rather than greater efficiency.
Similarly, when orders increase, higher total delivery expenses may be expected.
So do not ask only, “How much did we spend?”
Also ask, “How much work did that spending support, and what results did it produce?”
How should you present this in a report?
Our first example can be presented as simply as this:
Metric | Result |
|---|---|
Sales budget | 100,000 TL |
Actual sales revenue | 80,000 TL |
Actual-to-budget ratio: | 80% |
Budget variance | −20,000 TL / −20% |
We can explain these figures in one sentence:
“We planned TRY 100,000 in sales revenue and achieved TRY 80,000. We reached 80% of the target, finishing TRY 20,000, or 20%, below budget.”
But a useful report does not stop there.
Variance analysis examines why actual results differ from the plan.
A sales shortfall of TRY 20,000 is a finding. Lost customers, lower selling prices or deliveries postponed until the following month are possible causes that need to be investigated.
Suppose a review of the order records confirms that the difference came from a TRY 20,000 delivery moving into the following month. The report can now say:
“Sales revenue was 20% below budget. The difference came from a TRY 20,000 delivery postponed until the following month. The sales and operations leads will confirm the delivery date within two business days.”
We now have more than a percentage. We have a cause and a specific next action.
Four checks before you calculate
Compare the same period.
Do not treat the first ten days of a month as though they represent the full month’s result. For an interim assessment, compare actual results with the amount planned up to that date.
Use a consistent basis.
Keep the currency, VAT treatment and definitions of revenue and expenses consistent. Do not confuse sales revenue with cash collected.
Do not calculate a percentage against a zero budget.
Division by zero is undefined. If the budget is TRY 0 and an expense of TRY 5,000 is incurred, report “TRY 5,000 in unbudgeted expenses” and show the percentage as “not calculable.”
Do not apply this simple interpretation to negative targets.
The examples here use positive budget amounts. With negative amounts, such as a planned loss, percentages can give a misleading impression of improvement or deterioration.
Now apply it to your own report
Choose one sales revenue or expense item. Write down the budget, the actual amount and the three calculations. Then complete this statement:
“For [period], the budget was TRY [amount] and the actual result was TRY [amount]. The actual-to-budget ratio was [percentage]%, with a variance of TRY [amount] and [percentage]%. The confirmed cause of the difference was [cause]. In response, [person responsible] will complete [action] by [date].”
If you do not yet know the cause, do not present a guess as a fact. State what you will check.
Bring this statement alongside the percentages to your next budget meeting. It will make the decision and the next action clearer.
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