Plan and Actual: How to Compare Calculated Profit with Real Sales

Plan and actual are compared through three causes of deviation: the number of customers, the average check, and costs. First you calculate the profit difference, and then you break it down into these three parts. That way you can see exactly why profit differs from the plan.

Let's go through this on one example: first we build a plan, then look at the actual, and then break down the difference. At the end, we'll cover how often to compare.

In plain terms. Picture planning a road trip: 400 kilometers in 5 hours. You arrived in 6 hours. To understand why, you need to check three things: speed, stops, and route. It's the same with profit: the plan defines where you meant to get to, and the actual shows where and why you deviated.

What plan and actual are

The plan is the profit you calculated in advance for a certain number of customers, average check, and costs. The actual is what really came out over the same period.

The average check is revenue divided by the number of customers. If customers take more expensive services or several services, the check is higher.

Putting together plan and actual

Picture a studio. Per the plan for the month: 240 customers, an average check of $100, specialists are paid 40% of revenue, materials of $10 per customer, overall costs of $7,000. Per the actual: 210 customers, an average check of $105, the same 40% and $10 for materials, overall costs of $7,400.

Profit came out $1,270 below the plan. Now we need to understand why.

Breaking the difference into three causes

Cause one: the number of customers. There were 30 fewer customers. From each customer, the plan leaves $100 × 0.6 − $10 = $50 after the specialist and materials.

Effect of count = (Customers actual − Customers plan) × Left from a customer per plan

−30 × $50 = −$1,500.

Cause two: the average check. The check grew by $5, and that produced extra revenue. But the specialist gets 40% of it, so only 60% is left for you.

Effect of check = Customers actual × Change in check × (1 − Specialist's share)

210 × $5 × 0.6 = $630.

Cause three: overall costs. They grew by $400, so the effect on profit is −$400.

The sum of the three parts equals the profit difference: −1,500 + 630 − 400 = −$1,270. If the sum doesn't add up, there's a mistake in the calculation.

What to do with the conclusion

The biggest deviation came from customers: minus $1,500. A higher check partly offset it, and the rise in costs added a further minus.

From there, each cause leads to its own question. Why are there fewer customers: season, advertising, schedule, perhaps a price increase? Why did the check grow: are people taking more services or did you raise prices? What got pricier among overall costs? The answers to these questions are the basis for decisions.

Advice. A growing check can have a flip side. If the check grew after a price increase and there are fewer customers, it looks like a reaction to the new price. In that case, it's worth comparing the customer loss with the limit from the price increase calculation.

How often to compare

Once a month after the period closes. That way deviations are visible in time and the causes are still fresh. It's convenient to compare the same set of indicators: then months can be set side by side and the trend is visible.

How to calculate this from your own data

The plan is visible in the «Forecast» section of BizCalc: at the chosen utilization, profit and cost are shown, and the «+» and «−» buttons change utilization. The average margin and the plan's average check are shown in the «Analytics: Calculation» section.

Real sales are kept in the «Service Sales» section, and the totals for a period are visible in «Analytics: Financial Analytics.» A ready comparison of revenue, profit, and the number of services sold against the forecast is in «Analytics: Calculation,» in the «Sales vs Forecast» block. The difference can be broken down into causes with the formulas from the article.

What's worth remembering

• The difference has three causes. The number of customers, the average check, and overall costs.

• The causes are calculated separately. Then you can see which one made the main contribution.

• The sum of the parts equals the difference. That's a way to check that the calculation is right.

• A higher check isn't always good. It can be a reaction to a new price along with losing customers.

• It's convenient to compare once a month. Then deviations are visible in time.

Frequently asked questions

What are plan and actual?

The plan is profit calculated in advance. The actual is the profit that really came out over the same period. They're compared to understand the causes of a deviation.

How do you break down a profit deviation?

Into three parts: the effect of the number of customers, the effect of the average check, and the effect of costs. Each is calculated with its own formula, and the sum gives the total difference.

What is the average check?

Revenue divided by the number of customers. In the article's example, per the plan it's $24,000 ÷ 240 = $100, per the actual $22,050 ÷ 210 = $105.

How often should you compare plan and actual?

Once a month after the period closes. That way deviations are visible in time and the causes are still fresh.

What should you do if the actual is worse than the plan?

Find the cause with the biggest effect among the three: customers, check, or costs. Then find out why it happened and decide what to change.

Why doesn't the sum of the effects match the difference?

Most likely there's an error in the calculation, or there's one more cause, for example a change in materials per service. It's worth checking the input figures first.