Real‑world examples of variance analysis in budgeting that actually matter

If you’re looking for examples of variance analysis examples in budgeting, sales is the most obvious place to start. It’s also where executives pay the most attention.

Take a mid‑size SaaS company budgeting $1.2 million in subscription revenue for Q1. The budget assumed:

• 1,000 customers
• $1,200 average annual contract value (ACV)

Actual results:

• 900 customers
• $1,350 ACV
• Actual revenue: $1,215,000

On the surface, revenue is $15,000 favorable to budget. Without variance analysis, you might declare victory and move on. But a sharper look breaks this into two classic examples of variance analysis in budgeting:

• Sales volume variance (unfavorable): Fewer customers than planned
• Sales price variance (favorable): Higher ACV than planned

The story behind the numbers:

• Sales volume variance shows demand was weaker than forecast, possibly because of tighter IT budgets in 2024, or stronger competition.
• Price variance shows the company successfully pushed customers into higher‑tier plans.

This example of variance analysis changes the conversation. Instead of “we hit the revenue number,” the discussion becomes:

• Do we double down on higher‑tier pricing?
• Do we need more pipeline generation to fix the volume shortfall?
• Are we over‑relying on price increases in an inflationary environment?

Cost variance examples in budgeting: materials, labor, and overhead

Some of the best examples of variance analysis examples in budgeting show up in cost of goods sold (COGS) and operating expenses. Here’s how that plays out in a manufacturing setting.

Direct material price and usage variance

A furniture manufacturer budgets:

• 10,000 chairs for the quarter
• 5 board‑feet of wood per chair at $4 per board‑foot
• Budgeted material cost: 10,000 × 5 × \(4 = \)200,000

Actual results:

• 10,000 chairs produced (volume on target)
• 5.5 board‑feet of wood per chair
• Actual price: $4.40 per board‑foot
• Actual material cost: 10,000 × 5.5 × \(4.40 = \)242,000

Total variance: $42,000 unfavorable. Variance analysis splits this into:

• Price variance (unfavorable): wood prices rose due to supply chain issues and ongoing inflation trends seen across 2023–2024
• Usage variance (unfavorable): more wood used per chair, suggesting waste, quality issues, or design problems

These are classic examples of variance analysis in budgeting that lead to specific actions:

• Renegotiate supplier contracts or lock in prices
• Redesign the chair to reduce material usage
• Tighten production controls to cut scrap

Direct labor rate and efficiency variance

Now look at direct labor for the same plant. The budget assumes:

• 0.5 labor hours per chair
• $20 per hour wage rate
• Budgeted labor cost: 10,000 × 0.5 × \(20 = \)100,000

Actual results:

• 0.6 hours per chair
• $22 per hour average wage
• Actual labor cost: 10,000 × 0.6 × \(22 = \)132,000

Total variance: $32,000 unfavorable. Again, this breaks into two examples of variance analysis in budgeting:

• Rate variance (unfavorable): higher hourly wages due to a tight labor market and 2024 wage pressure
• Efficiency variance (unfavorable): more hours per chair, possibly due to training gaps or machine downtime

Instead of simply reporting “labor costs were higher,” finance can now:

• Quantify the impact of wage inflation separately from productivity issues
• Work with HR on hiring and training
• Work with operations on process improvements or equipment maintenance

Fixed overhead spending and volume variance

Fixed overhead is another area where real examples of variance analysis can clarify what’s going on.

Assume budgeted fixed manufacturing overhead of \(300,000 for the quarter, based on 10,000 units. Actual overhead is \)315,000, and production volume is 9,000 units.

Two key variances:

• Spending variance: $15,000 higher overhead than budget
• Volume variance: overhead spread over fewer units, driving unit cost up

These examples include issues like unexpected equipment repairs, higher insurance premiums, or under‑utilized factory capacity. In a 2024 context, you might also see higher utilities or property costs hitting this line.

Operating expense variance examples: marketing, travel, and IT

Not all examples of variance analysis examples in budgeting are about production. In service and tech businesses, operating expenses are where the real action is.

Marketing spend vs. ROI variance

A B2C e‑commerce brand budgets $500,000 for digital marketing in Q2, expecting:

• 50,000 new customers
• $10 cost per acquisition (CPA)

Actual results:

• Marketing spend: $550,000
• New customers: 40,000
• Actual CPA: $13.75

This gives you two uncomfortable but useful variance analysis examples in budgeting:

• Spending variance (unfavorable): $50,000 overspend
• Effectiveness variance (unfavorable): higher CPA and fewer customers

The key insight: the problem isn’t just overspending; it’s that the extra spend underperformed. That pushes the team to:

• Reallocate budget from underperforming channels
• Tighten campaign testing and attribution
• Rebuild the forecast for Q3 based on updated CPA assumptions

Travel and remote work variance

Post‑2020, travel budgets have been volatile. A consulting firm budgets \(200,000 in Q1 travel costs, assuming a partial return to in‑person client work. Actual travel costs come in at \)120,000.

On paper, that’s an $80,000 favorable variance. But variance analysis reveals:

• Revenue from on‑site work is also below budget
• Clients are still preferring remote workshops in 2024–2025

So the favorable travel variance isn’t purely good news. It’s tied to a shift in service mix and possibly lower billable rates. This is a good example of variance analysis in budgeting where a “good” variance hides a strategic problem.

IT and SaaS subscription variance

IT budgets have been hit by steady price increases from major vendors. Suppose a company budgets \(100,000 for SaaS tools and cloud in the first half of 2025. Actual spend is \)130,000.

Drilling down, finance finds:

• Vendor price increases and new AI‑enabled features add $20,000
• Shadow IT (teams buying tools on corporate cards) adds $10,000

These examples include both predictable and avoidable variance. The response might be:

• Centralizing procurement for software
• Conducting a license audit
• Renegotiating contracts or consolidating tools

Cash flow and timing variance examples in budgeting

Sometimes, the most helpful examples of variance analysis in budgeting are about timing, not just totals. Cash flow is where timing really matters.

Revenue timing variance

A construction company budgets \(5 million of revenue for the year, spread evenly at \)1.25 million per quarter. Due to permit delays and supply chain issues, Q1 actual revenue is only \(800,000, but Q3 jumps to \)1.9 million.

Annual revenue might still hit the target, but quarterly variance analysis shows:

• Timing variance: cash collection lags, impacting liquidity
• Working capital stress: payroll and materials must be paid before revenue catches up

This is a textbook example of variance analysis in budgeting that leads to:

• Revising the revenue recognition and billing schedule
• Negotiating better payment terms with clients
• Increasing the credit line to bridge timing gaps

Capex and project variance

A logistics company budgets \(2 million in 2024 capital expenditure (capex) for warehouse automation. Due to vendor backlog, only \)800,000 is spent in 2024, with the remainder pushed into 2025.

Variance analysis shows:

• Favorable 2024 capex variance
• But delayed productivity gains and cost savings

Again, a seemingly positive variance is actually a red flag: the business case for the project is slipping, and the ROI timeline has moved.

Using variance analysis to respond to 2024–2025 trends

The best examples of variance analysis examples in budgeting are not just accounting exercises; they’re decision tools. In 2024–2025, three themes keep showing up in real examples:

• Inflation and wage pressure: Material and labor rate variances are higher and more volatile than pre‑2020. Organizations are updating standard costs and wage assumptions more frequently.
• Supply chain volatility: Usage and timing variances are driven by delayed shipments, alternate materials, and safety stock decisions.
• Digital and AI adoption: IT and software variances often reflect unplanned AI tools, new automation projects, and shifting license models.

Finance teams that treat variance analysis as a living process—not a monthly ritual—are using these examples to:

• Shorten budget cycles and move toward rolling forecasts
• Build scenario models (e.g., what happens if wage inflation is 5% instead of 2%?)
• Align variance commentary with strategic KPIs, not just GL accounts

For deeper background on budgeting and financial management practices, it’s worth reviewing guidance from sources like the U.S. Small Business Administration at sba.gov and educational materials from universities such as MIT OpenCourseWare.

How to present variance analysis examples in budgeting to leadership

Even the best examples of variance analysis in budgeting fall flat if they’re presented as a wall of numbers. Executives want:

• A clear headline: what happened and why it matters
• A short list of drivers: price, volume, mix, timing, one‑offs
• The forward view: what changes in the next budget or forecast

A practical structure for your variance narratives:

• Context: “Q2 revenue was \(1.2M vs. \)1.4M budget, a $200k unfavorable variance.”
• Drivers: “80% of the variance came from lower new customer volume; 20% from delayed enterprise deals.”
• Actions: “We’ve increased pipeline targets by 15% and shifted $50k of marketing spend to higher‑performing channels.”

When you consistently tie real examples of variance analysis to decisions and actions, people stop seeing the budget as a static document and start treating it as a steering wheel.

FAQ: examples of variance analysis in budgeting

What are some common examples of variance analysis in budgeting?

Common examples include:

• Sales volume and price variances (selling fewer units at higher or lower prices than planned)
• Direct material price and usage variances (paying more per unit of material or using more than expected)
• Direct labor rate and efficiency variances (higher wages or more hours per unit)
• Overhead spending and volume variances (fixed costs spread over more or fewer units)
• Operating expense variances in marketing, travel, and IT
• Cash flow timing variances when revenue or payments shift between periods

These examples of variance analysis examples in budgeting help explain not just what changed, but why it changed.

Can you give an example of a favorable variance that’s actually bad news?

Yes. A classic example of variance analysis that looks good but hides a problem is under‑spending on maintenance. Suppose you budget \(100,000 for equipment maintenance and only spend \)60,000. That’s a $40,000 favorable variance. But if the lower spend leads to more breakdowns and production delays in the next quarter, the apparent savings will be wiped out by lost revenue and emergency repairs.

How often should I review variance analysis in budgeting?

Most companies review variances monthly, with a deeper review quarterly. In volatile environments, many FP&A teams are moving toward monthly variance reviews tied to rolling forecasts. The goal is to catch patterns early—like repeated unfavorable labor efficiency variances or persistent revenue timing issues—so you can adjust hiring, pricing, or spending before the year is half over.

Where can I learn more about budgeting and variance analysis?

For structured learning, finance and accounting courses from universities such as Harvard Business School Online and open materials like MIT OpenCourseWare provide solid foundations. The U.S. Small Business Administration also publishes practical budgeting resources for smaller firms at sba.gov. While they may not always label content as “variance analysis,” the underlying budgeting and performance management concepts are the same.