Formulas and Functions in Excel: Explanations, and Differences

Data Analysis

Dec 11, 2025

Formulas and Functions in Excel: Explanations, and Differences

When we work in Excel—whether it’s for data analysis, creating reports, or just handling everyday tasks—you’ll probably end up using formulas and functions in Excel constantly. But here’s the thing: a lot of people use these terms like they mean the exact same thing, even though they’re actually different. Understanding the difference can honestly save you hours of frustration, help you avoid annoying errors, and make you way better at building useful spreadsheets.

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In this article, I’m going to walk you through formulas and functions in a simple, easy-to-follow way with practical examples, real-world situations, and a handy comparison table you can reference anytime.

What Are Excel Formulas?

A formula in Excel is basically any expression you create yourself to perform calculations or operations on your data.

Key Characteristics of Formulas

You create them manually from scratch
They can include numbers, cell references, operators (+, –, *, /), and even functions
They’re super flexible—you can build any logic you want
Example: =A1 + A2 * 2

Example Explained

Let’s say you want to calculate the total price of something, including tax:

Price is stored in cell A1
Tax rate is stored in cell A2

You can write:

=SUM(A1:A10)

The function does all the heavy lifting.

Also Read: Data Sources and Collection Methods for Effective Data Analysis

Similarities Between Formulas and Functions

Even though formulas and functions are different, they share a lot in common:

What They Have in Common

Both start with an equal sign (=)
Both are used to calculate values
Both can use cell references
Both update automatically when data changes
Both can be combined together

Example of Combination

=SUM(A1:A5) + B1 * 10

This mixes:

A function → SUM(A1:A5)
A formula → B1 * 10

This is the real power of Excel — combining logic and built-in tools.

Differences Between Formulas and Functions

Here’s a clear comparison:

Comparison Table

Feature	Formula	Function
Definition	User-created expression	Pre-defined operation
Built by	You	Excel
Complexity	Can be simple or complex	Simplifies complex tasks
Example	`=A1*2+5`	`=SUM(A1:A10)`
Flexibility	Fully customizable	Limited to available functions
Structure	No fixed pattern	Must follow function syntax

Real-World Use Cases

Let me walk you through situations where formulas and functions shine.

Use Case 1: Calculating Sales Commission

Scenario:
You manage sales data and must calculate commission based on the sales amount.

Sales amount: B2
Commission rate: C2

=B2 * C2

You manually define how to calculate the commission. This is purely a formula-based task.

Use Case 2: Calculating Total Monthly Revenue

You have daily revenue from A1 to A30.

Function:

=SUM(A1:A30)

The SUM function quickly does what would take long formulas if written manually.

Use Case 3: Finding the Highest Selling Product

List of product sales: D1:D20
You want the highest value.

Function used:

=MAX(D1:D20)

This is a built-in function that simplifies complex logic.

Use Case 4: Conditional Bonus Calculation

Bonus rule:
Employees who score above 90 get a ₹5000 bonus; others get 0.

Function:

=IF(B2 > 90, 5000, 0)

Here, Excel’s logical function helps you automate decision-making.

When Should You Use Formulas vs. Functions?

You’ll often need both, but here’s a simple guide:

Use a Formula When:

You need full control over the logic
The calculation is custom or unique
You want step-by-step operations

Use a Function When:

Excel already provides a tool for your task
You need quick results
The process would be too long using manual formulas

Advanced Tip: Nesting Functions Inside Formulas

Excel lets you combine multiple functions within a formula, known as nesting.

Example: Calculate Average Only If Numbers Are Above 50

=AVERAGEIF(A1:A10, ">50")

Or combine IF + AND:

=IF(AND(A1>50, B1>50), "Pass", "Fail")

This is where formulas and functions truly become powerful.

Also Read: Data Preprocessing in Analysis: Encoding, Scaling, Transformation

Conclusion

Formulas and functions are honestly the core of everything you do in Excel. Understanding their differences helps you build cleaner, smarter, and way more efficient spreadsheets that actually work the way you need them to.

Formulas give you complete control to create exactly what you want from scratch, while functions offer speed and convenience by using tools that Excel has already built for you. When you know when to use each one—and especially how to mix them together—you can analyze data faster, reduce frustrating errors, and honestly work like someone who really knows what they’re doing.

Don’t stress if this feels a bit overwhelming at first. Start with simple formulas like addition and subtraction, then move to basic functions like SUM and AVERAGE. Practice with real data from your work or projects, and gradually work your way up to more complex stuff. Before you know it, this will all feel totally natural, and you’ll wonder how you ever managed to get by without really understanding the difference between formulas and functions.

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