The formula, and which way the sign goes
Budget variance is actual minus budget, for one line, in dollars. Variance percentage is that figure divided by the budgeted amount.
A favorable variance is one that leaves more profit than the plan: revenue above budget, or an expense below it. An unfavorable variance is the reverse. The label is about profit, not about whether the number is positive, and this is where most home-built spreadsheets go wrong, because revenue $26,600 over budget is positive and good while materials $23,600 over budget is positive and bad. Pick one convention and label the columns.
A month of variances, worked
Six lines moved on the July report for a 32-person HVAC and plumbing contractor, measured against a budget the owner built in January.
| Line | Budget | Actual | Variance | % |
|---|---|---|---|---|
| Revenue | $412,000 | $438,600 | +$26,600 | +6.5% |
| Materials | $148,300 | $171,900 | +$23,600 | +15.9% |
| Field payroll | $131,000 | $129,400 | -$1,600 | -1.2% |
| Insurance | $6,200 | $18,700 | +$12,500 | +201.6% |
| Fuel | $9,800 | $12,350 | +$2,550 | +26.0% |
| Marketing | $8,000 | $3,100 | -$4,900 | -61.3% |
The biggest percentage is insurance, and it is the least interesting line on the page: an annual policy premium was paid in July and the budget spread it across twelve months, so it reverses by itself. Payroll is within 2% of plan on a $131,000 line, which is as close as a budget gets. Fuel is up 26%, but on $9,800 that is $2,550.
Materials is the one. Revenue rose 6.5%, so some of the overrun is just more work. But materials were budgeted at 36.0% of revenue and came in at 39.2%. Three points of margin on $438,600 of sales is $14,000 a month, and that is the number to ask about. Marketing looks favorable and is not: the $4,900 under budget is the fall campaign that never got booked.
Which variances to ignore
A common rule is to investigate every variance over 10%. We would drop that. On a $600 line 10% is $60 and on a $150,000 line it is $15,000; a percentage alone points you at the wrong lines.
A better filter has three parts, and a line has to trip one. Size, meaning over a dollar amount you set for your business (for the contractor above, $5,000 and 10% together). Repetition, meaning the same direction three months running regardless of size, because a small drift that never reverses is a price change you have not noticed. And control, meaning a line where someone in the building makes the decision; rent tells you nothing you can act on and overtime does. Everything else gets a glance and no note. That keeps the monthly read to a page, which matters when the person reading it is also running the business: a March 2025 TD Bank survey with Wakefield Research of 250 small business owners found 66 percent are the sole person responsible for their finances, and 36 percent look at them monthly.
Timing, then volume, price and mix
A timing variance is a difference that will reverse on its own because the cash or the invoice landed in a different month than the budget assumed. The July insurance premium is one. So is the $61,400 progress billing a customer paid on 30 June instead of 5 July, which made June look strong and July weak while nothing about the job changed. The test is whether the line nets to zero by quarter end. If yes, the note says so in one line. If no, it is real. Owners on a cash basis see more of these, for the reasons in why net income doesn't match your bank balance.
The real ones usually split three ways. A volume variance is the part of a cost overrun explained by doing more units of work. A price variance is the part explained by paying more per unit. A mix variance is the part explained by doing a different kind of work than planned. For the contractor's materials line, revenue up 6.5% accounts for about $9,600 of the $23,600 overrun. The remaining $14,000 is price (copper cost more than the January estimate) or mix (more equipment replacements, fewer service calls), and only the job-level detail says which. The P&L cannot take you further than that.
Budget vs actual vs forecast
A budget is the plan you set once, usually before the year starts, and hold still so you can measure against it. A forecast is your current best estimate of what happens next, updated as you learn.
The budget answers "did we do what we said". The forecast answers "what happens now". The mistake we see most is rewriting the budget in month four so the variances look smaller, which turns the plan into a diary. Leave the budget alone and put the new thinking into the forecast. Abacum, a planning software vendor, reports that only 19% to 25% of companies use a rolling forecast at all, so a working 13-week cash forecast beside a fixed budget puts you ahead of most.
What QuickBooks Online will and will not do
QuickBooks Online holds a budget inside each company file and runs a Budget vs. Actuals report against it. The requests owners post in the QuickBooks Community show where it stops: "Budget vs. Actual by Class and Total" on one page, and "P&L month to month vs previous years with percentage of difference". An owner with 15 entities wrote in March 2025 that they build the consolidated view in Excel every month and want eliminations and budget vs actual in the same place. Ledge's 2025 close benchmark found 94% of finance teams still use Excel somewhere in the close. Run three companies and you have three budgets and a spreadsheet that adds them, the problem managing finances across multiple businesses goes into. The other gap is the explanation. The report gives you the cell, not why insurance tripled or materials moved.
What a good variance note reads like
Three sentences per line that tripped the filter. What moved, in dollars and percent. Why, with the transaction or cause named. What happens next: it reverses in August, or it does not and here is the decision.
For the contractor's materials line: "Materials ran $23,600 over budget (15.9%), $9,600 of it from higher revenue. The rest is price; copper line-set invoices from the supply house averaged 22% above January's estimate. It will not reverse; we either reprice the next twelve replacement quotes or accept 3 points less margin." An owner can act on that from a phone.
Navigator's Pro plan produces budget vs actual with the variance explained in words for each line that moved, per entity and consolidated across your QuickBooks Online files, with each figure opening to the entries behind it. It is on the $499 plan, not the base one; the pricing page has the split. One caution for any tool that writes the explanation: ask twice and you may get two differently worded answers, so it should point to the transaction, as why ChatGPT gives different answers to the same question explains.
Questions owners ask
How do you calculate budget variance?
Subtract the budgeted amount from the actual amount for each line: actual minus budget. Divide that dollar figure by the budget for the variance percentage. A materials line budgeted at $148,300 that came in at $171,900 has a variance of $23,600, or 15.9%. Pick one sign convention for the whole report and label it; half the confusion is about which way is bad.
What is a favorable variance?
A favorable variance is one that leaves you with more profit than the plan: revenue above budget or an expense below it. An unfavorable variance is the reverse. The label is about profit, not the sign of the number, so a spreadsheet that colors every positive number green gets the expense lines wrong. Favorable is not always good; marketing under budget may mean the campaign never ran.
How often should I compare budget to actual?
Monthly, within a couple of weeks of month end, and by quarter for the decisions. Monthly catches a cost that has started drifting while there is time to act. Quarterly is where timing variances wash out and the real ones are left standing. Weekly is too often for a budget; that is what a cash forecast is for.
Can QuickBooks Online do budget vs actual by class?
It can hold a budget subdivided by class and run a Budget vs. Actuals report filtered to a class, one company file at a time. What owners ask for in the QuickBooks Community is the class breakdown and the total on one page, and a combined view across several files. Neither comes out of the box, and the report gives the number without a reason.
Related
If the plan is fine but the cash is not, the 13-week cash flow forecast is the forward-looking companion to this report. Owners running several companies will find the consolidation side in managing finances across multiple businesses. For why an AI-written explanation needs a transaction behind it, read why ChatGPT gives different answers to the same question.
If you want the variance note written for you each month, with the entry behind every number, the free trial connects to QuickBooks Online in about fifteen minutes with no card: navigatorhq.ai.
Published . Last updated . Reviewed by a CFO on the Navigator team.