FT writer Jonathan Guthrie has compared Zero Based Budgeting to the brutal policies of French revolutionaries and the Khmer Rouge: “There may be blood on the carpet, if only of the metaphorical kind.” (FT)
Bloody though it may be, zero based budgeting is transforming how companies allocate their marketing investment. But what exactly is it, and why are so many businesses adopting this approach? In a world where every dollar counts, zero based budgeting flips the traditional process on its head by requiring each department to justify every expense from scratch, no matter what was spent in the past. It’s not just about cutting costs—it’s about making sure every investment serves a clear, strategic purpose.
But, to quote Guthrie, “Resetting the dials to nought is one way of signaling radicalism.” Let’s dive into how this “radical” budgeting method works and why it might be the game-changer your marketing team needs.
Zero Based Budgeting: Defined
So, what is zero based budgeting? Zero based budgeting is a method where each department starts from a “zero base” every budgeting period. Instead of rolling over previous expenses, all expenses must be justified, making it a more intentional and precise budgeting approach. In traditional budgeting, past spending is typically adjusted slightly for inflation or growth. Zero based budgeting ignores past budgets, requiring a fresh evaluation of all costs.
The first step of the process is identifying organizational goals, listing all activities required to meet those goals, and then attaching a cost to each activity. Every expenditure is then reviewed and approved before being included in the budget. By forcing departments to justify every expense, zero based budgeting eliminates outdated spending patterns and makes sure that only essential expenditures are included.
How Does Zero Based Budgeting Work in Consulting?
Consulting firms play a significant role in zero based budgeting work. They specialize in helping companies rethink every cost by focusing on priorities and current needs, not previous budgets. To find unnecessary spending areas, they carefully analyze each department, from operations to marketing, scrutinizing any costs that don’t contribute directly to business goals.
Implementing zero based budgeting requires a cultural shift, which can be difficult for teams accustomed to traditional budgeting. Consultants are helpful in this scenario because they can navigate these challenges by introducing new processes and building internal support for a zero based mindset.
What Are the Benefits of Zero Based Budgeting?
Zero based budgeting has several notable features:
- Forced Review: By starting from zero, organizations focus spending on activities that directly contribute to their goals.
- Aligns Spending with Company Goals: Unlike traditional budgeting, zero based budgeting aligns expenses with current business objectives.
- More Accountability for Budget Holders: With zero based budgeting, department heads must justify their costs from scratch, leading to greater accountability.
- Promotes Cost Control: By evaluating every expense line-by-line, zero based budgeting helps identify areas of waste and unnecessary spending.
Can You Provide Examples of Zero Based Budgeting?
ZBB is used by Walgreens Boots Alliance Inc., Philip Morris International Inc. and many other companies have discussed their use of zero based budgeting in the past decade. There’s also evidence that its popularity grew as a result of drastic pandemic-era cost-cutting: A WSJ-cited April 2020 survey by Gartner of over 300 global finance executives, showed 26% planned to “zero based” budgets.
Three examples highlight characteristics of zero based budgeting and the variety of outcomes it can produce: The “Fight or Flight” with Guess, The Bloody, and the Marathon. Read more in our blog piece, 3 Zero Based Budgeting Examples that Define Success and Failure.
So Who Should Use Zero Based Budgeting?
With complex budgets and an endless amount of departments, zero based budgeting is perhaps best suited for large corporations and government entities. While often seen as a tool for bigger companies, however, startups and small businesses can also use zero based budgeting to their advantage to optimize limited resources. The approach forces them to maximize efficiency from day one.
Industries like retail, manufacturing, and nonprofits have been known specifically to use zero based budgeting in the past to cut costs and prioritize spending. In retail, zero based budgeting helps reinvest savings into key areas like innovation and supply chain improvements. Manufacturers use it to streamline operations and fund critical investments. Nonprofits rely on zero based budgeting to maximize their resources, ensuring funds are directed toward mission-driven initiatives. By consistently applying this strategy, companies in these sectors stay competitive and agile.
What Are the Drawbacks of Zero Based Budgeting?
Aside from the drawback of being a time-consuming process, since zero based budgeting focuses on immediate costs, you run a risk that critical investments, like research and development, could be deprioritized, potentially limiting future growth opportunities. Furthermore, without the assistance of skilled consultants, zero based budgeting can be a tough, demanding process.
The table below is a summary of pros and cons of Zero Based Budgeting adapted from a starting point attributed to Paul Davies, managing partner of Asia Pacific for Roth Observatory International.
| Pros | Cons |
| Forces evaluation of needs and benefits rather than historical trends. | More time consuming and financially complex vs. incremental budgeting |
| Encourages cost-efficiency and operational improvements to align cost centers with organizational goals | Justifying every line item can be challenging for departments with intangible outputs, or with downstream, indirect benefits |
| Detects inflated costs | Likely to require training in accounting due to increased complexity. |
| Increases staff motivation and cultural values of initiative and responsibility in decision making | Decreases staff motivation for “cost center businesses unattributable to immediate revenue |
| Enhances communication, collaboration and coordination within organization | Vastly increased time spent on budgeting communications, not invariably positive |
| Highlights opportunities for outsourcing and “buy it or build it” evaluation. | Quantifiability bias favors short-term investment |
Is Zero Based Budgeting Sustainable in the Long-Term?
Zero based budgeting can be sustainable, but it requires careful maintenance. Since this method involves reviewing and justifying every expense from scratch, businesses must consistently invest their time and resources to ensure it stays effective without becoming overwhelming. Streamlining the process is crucial for long-term use. To ensure financial discipline over time, companies should establish clear guidelines and automate parts of the budgeting process. This can be achieved using budgeting software or by hiring consultants to maintain efficiency and reduce the manual effort involved in regular reviews.
While zero based budgeting excels at cutting unnecessary costs, businesses must remember to balance this approach with future growth planning. Focusing too heavily on immediate savings might limit long-term investment opportunities. Therefore, it’s important to weigh both cost control and growth potential when using this method.
Zero based budgeting is a cost-oriented budgeting methodology. As David Aaker, Vice-Chairman of Prophet, a global consultancy, Professor Emeritus, UC Berkeley, Author of Aaker on Branding & Brand Relevance: Making Competitors Irrelevant said: “a cost-first strategy eventually runs out of costs to cut and, in the meantime, damages brands instead of keeping them energized and relevant.”
The Agency Role of ZBB in Paid Media Services
Davies is quoted to have said that [Paid Media] “Agencies generally don’t seem to grasp the concept of an iterative budget process,” per Marketing Interactive.
While Davies claims agencies don’t grasp iterative budgeting, and this is often true when their role is farther down the chain of command, Criterion Global positions itself firmly as a CMO’s advocate directly within the budgeting process with its Budget BlueprintSM process and framework.
From this vantage point, our work in media planning and buying can then thrive on flexibility – quickly adapting and optimizing campaigns, often faster than in-house teams, to prove their effectiveness against macro organizational goals (vs. vanity metrics). Rather than being a hindrance, agencies’ outside perspective sharpens strategy, bringing fresh ideas and challenging complacency. A good agency knows how to align with evolving budgets while delivering results—proving that collaboration, not control, is key to success.
In conclusion, zero based budgeting offers a strategic approach to managing marketing expenses by ensuring every dollar spent is directly tied to business goals. While it provides a clear path to cutting unnecessary costs and promoting accountability, it requires a significant cultural shift and ongoing effort to be sustainable. When implemented effectively, zero based budgeting can help companies streamline spending, stay competitive, and maximize resources. However, businesses should balance cost-saving measures with long-term growth planning to ensure they aren’t sacrificing future opportunities for short-term gains.