Cost-to-Income Ratio
Total operating costs as a percentage of total income, a key measure of operational efficiency
What is Cost-to-Income Ratio?
Cost-to-income ratio compares operating costs with income. It shows how much it costs a business to earn each unit of income.
It is widely used in banking and financial services as a measure of efficiency, where a lower ratio means a leaner operation.
How this KPI is measured
- Function
- Finance
- Sub-function
- Cost Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Total operating costs / Total income) × 100
How to calculate it
Divide total operating costs by total income, and multiply by 100.
For example, if operating costs are 600,000,000 and total income is 1,000,000,000, the ratio is 60%.
Compare with your own history and with similar firms, and consider whether cost cuts are affecting the ability to earn income.
Where it is used
Judging efficiency
See how lean operations are.
Benchmarking
Compare with peers.
Setting cost targets
Aim for improvement.
How to improve it
Tips and common mistakes
- A falling ratio from falling income is not good news.
- Compare with similar business models.
- Include one-off items separately.
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