Marketing is a game of numbers. All marketers want to turn a profit at the lowest possible expense. There are several ways to do this. One common tactic is to reduce expenditure while maximizing outputs. If you’re into online marketing, another good tactic is to choose your bids carefully, especially if you’re using Google Ads. The more savings you earn, the better.
Sometimes, however, the answer to more savings lies in an area that often gets overlooked. In this case, it’s your way of budgeting. Think about it. How do you budget for the year? Most firms usually employ the traditional method, where the previous year’s budget is carried over or used to create the next year’s budget. In a way, the conventional method makes sense. If it isn’t broke, don’t fix it, as some would say.
Using the traditional method can also mean having blind spots in your budgets. You run the risk of carrying over items in your budget that can no longer be justified or grandfathered. Simply put, you might not be operating at maximum capacity simply because your budgeting method is clunky and inefficient.
What is Zero Based Budgeting?
Under the principle of zero based budgeting (ZBB), you start from scratch – literally. Instead of using your previous budget as your basis, under ZBB, you’re required to justify every expense you include in your budget annually. This forces you to be keen on reviewing the item added in your budget and gives you a chance to address those that might be improved.
How Does It Work?
Zero based budgeting works by starting from a ‘zero base’ (hence the name), instead of using previous budgets as your basis. Each department and item must be justified and scrutinized to qualify as part of the budget. This can result in a drastically different budget from the previous year; it can be higher or lower. The goal of zero based budgeting is to make sure that each budgeting item is justified, and that the organization is operating at optimum capacity.
ZBB has been reported to be successful — as much as 10% to 25% increase in savings has been noted by companies who adopted the practice. This is a lot, especially when you consider the amount of money it takes to maintain a marketing organization.
Will it be the best?
As with almost everything in marketing, your mileage may vary. The success of adopting a ZBB campaign may differ from one organization to another. If you want to make the switch, it’s best to examine if such a decision will be right for your company. Do you see opportunities for optimization and savings concerning your budget? If the answer is yes, then ZBB might be the solution to your woes.
But if you feel that your business is already at maximum optimization, budget-wise, and your assumptions are backed by solid facts, there isn’t much to gain from making the switch. It may even be harmful. ZBB takes time and effort, and unless the results are worth it, you should consider the risks you’re taking. ZBB will also cost more to operate and implement than traditional budgeting schemes, which is another principle to consider when you’re thinking about making the switch.
Zero based budgeting is a good option to explore for your company if you’re interested in optimizing and improving your budgeting. However, it also comes with its cons, which should be weighed heavily and considered with your team before you make the switch. For those who take the leap, ZBB has been proven effective, with massive savings and more efficient operations.