Enter the business cost ($) and the total revenue ($) into the Cost Ratio Calculator. The calculator will evaluate and display the Cost Ratio. 

Cost Ratio Formula

The following formula is used to calculate the Cost Ratio. 

CSTR = C / R * 100
  • Where CSTR is the Cost Ratio (%)
  • C is the business cost ($) 
  • R is the total revenue ($) 

To calculate the cost ratio, divide the business cost by the total revenue.

How to Calculate Cost Ratio?

The following example problems outline how to calculate Cost Ratio.

Example Problem #1:

  1. First, determine the business cost ($).
    • The business cost ($) is given as: 300.
  2. Next, determine the total revenue ($).
    • The total revenue ($) is provided as: 800.
  3. Finally, calculate the Cost Ratio using the equation above: 

CSTR = C / R * 100

The values given above are inserted into the equation below and the solution is calculated:

CSTR = 300 / 800 * 100 = 37.5 (%)


FAQ

What is the significance of calculating the Cost Ratio for a business?
The Cost Ratio helps businesses understand the proportion of their costs relative to their total revenue. It is a crucial metric for assessing the efficiency of a business’s operations, helping to identify areas where cost reduction could improve profitability.

Can the Cost Ratio be used to compare the performance of different companies?
Yes, the Cost Ratio can be used as a comparative metric to evaluate the financial health and operational efficiency of different companies within the same industry. However, it’s important to consider other financial ratios and contextual factors for a comprehensive analysis.

How can a business improve its Cost Ratio?
A business can improve its Cost Ratio by either reducing its costs or increasing its total revenue. Cost reduction can be achieved through more efficient operations, negotiating better terms with suppliers, or cutting unnecessary expenses. Increasing revenue might involve expanding the customer base, enhancing product or service offerings, or implementing more effective marketing strategies.