Percentage variance measures how much an actual result differs from an expected or budgeted value, expressed as a percentage. It's the standard metric in financial reporting, budgeting, forecasting, and operational analysis for understanding whether performance is on track, ahead, or behind plan.
This is the same as the standard percent change formula — with the budget or expected value in the role of the "old" value, and the actual result as the "new" value. A positive variance means you beat the target; negative means you missed it. (For costs, the interpretation is reversed — see below.)
The sign of a variance only tells you the direction — whether it's favourable or unfavourable depends on what's being measured.
Revenue/income: Actual > Budget → positive %
Costs/expenses: Actual < Budget → negative %
In both cases the business is better off than planned.
Revenue/income: Actual < Budget → negative %
Costs/expenses: Actual > Budget → positive %
In both cases the business is worse off than planned.
523,200 · Budget = 480,000523,200 − 480,000 = 43,20043,200 ÷ 480,000 = 0.090.09 × 100 = 9%31,500 · Budget = 25,00031,500 − 25,000 = 6,5006,500 ÷ 25,000 = 0.260.26 × 100 = 26%108,000 · Budget = 120,000108,000 − 120,000 = −12,000−12,000 ÷ 120,000 = −0.10−0.10 × 100 = −10%In practice, variance analysis covers multiple line items at once. Here's how a monthly P&L variance report looks:
| Line item | Budget | Actual | Variance £ | Variance % | Status |
|---|---|---|---|---|---|
| Revenue | £200,000 | £218,000 | +£18,000 | +9.0% | Favourable |
| Cost of goods | £80,000 | £85,500 | +£5,500 | +6.9% | Unfavourable |
| Gross profit | £120,000 | £132,500 | +£12,500 | +10.4% | Favourable |
| Marketing spend | £25,000 | £31,500 | +£6,500 | +26.0% | Unfavourable |
| Headcount | £60,000 | £54,000 | −£6,000 | −10.0% | Favourable |
| Operating profit | £35,000 | £47,000 | +£12,000 | +34.3% | Favourable |
The formula is identical, but the framing differs:
(New − Old) ÷ Old × 100
Compares two time periods. Old is the starting point. Used for trend analysis — "revenue grew 15% year-on-year."
(Actual − Budget) ÷ Budget × 100
Compares actual to a target or plan. Budget is the reference. Used for performance management — "revenue was 9% ahead of budget."
Both are applications of the same underlying formula. The distinction is conceptual: percent change is about what happened over time; percentage variance is about how reality compared to expectations.
A £500 overspend on a £1,000 budget is a 50% variance — alarming on paper, trivial in context. Always consider the absolute amount alongside the percentage. A 50% variance on a £500 line item matters far less than a 5% variance on a £500,000 line item.
A large favourable variance can indicate good performance — or a budget set too conservatively. A large unfavourable variance can indicate poor performance — or an unrealistic target. Variance analysis tells you what happened relative to plan; it doesn't tell you whether the plan was right.
If revenue is +20% and costs are also +20%, operating profit may be on budget — but both lines have significant issues that cancel out at the bottom line. Always analyse line items individually, not just the net result.
Actual vs budget figure to hand?
Enter budget as the original value, actual as the new value
Calculate the variancePercentage variance = (Actual − Budget) ÷ Budget × 100. This is the same as the percent change formula with the budget value as the baseline. A positive result means actual exceeded budget; negative means it fell short.
For revenue or income lines, a positive variance is favourable — you earned more than planned. For cost or expense lines, a positive variance is unfavourable — you spent more than budgeted. The sign tells you direction; context tells you whether that's good or bad.
The formula is identical. The difference is framing: percent change compares two time periods, while percentage variance compares an actual result to a budget or forecast. Both use (New − Old) ÷ Old × 100, with the baseline playing the role of "Old."
If your budget is in A1 and actual in B1, use: =(B1-A1)/A1*100 for percentage variance, or =B1-A1 for absolute variance. Format as percentage or number as needed.
It depends entirely on the business, industry, and line item. Many organisations use a 5–10% threshold — variances within that range are considered within tolerance; larger variances trigger investigation. Some fast-moving areas (like marketing spend) tolerate wider swings; tightly managed costs (like payroll) are expected to be within 1–2%.