Zero-based budgeting has been around for decades. It’s not perfect, as I’ll show later, but it is a significant step up from convention. The fact that Kraft Heinz, Mondelez, P&G and, more recently, Unilever use it to plan marketing expenditure, means you should at least understand what it is. And then consider if it will improve how you fund your own marketing, communications and PR activity.
Before I describe the zero approach, let’s remind ourselves how budgets are usually agreed. In most organisations, budget-setting for marketing is an obscure, unscientific, and often arbitrary process. Decisions are made around questions like:
- What did we spend last year?
- How much can we afford?
- What’s left over after ‘essential’ expenditure has been agreed?
- How about five percent of forecast sales revenue?
- What can I get signed off by finance or marketing leadership?
If all this feels a bit illogical and flaky, that’s because it is.
What’s more, it’s embarrassingly amateur. Marketing Week columnist Mark Ritson recognises this and, in typical form, doesn’t hold back. He believes “ninety percent of marketing budgets are works of stupidity.”
I’ve seen a few that fit this description. When managers have no proper training, what else should we expect?
The zero-based approach starts with nothing. There are no assumptions and no budget, hence the name. Instead of haggling with finance over what you can spend (top-down) and then allocating that money across a spread of tactical activities, you start with the strategic business goals (bottom-up). You then look at what marketing needs to do to help meet them.
There is an important assumption at this point. This is that you’ve already done proper segmentation, targeting and positioning. In other words, you know where you’re going to play, who you’re going after and what will persuade them to choose you over the alternatives.
By starting with the business goals, you’re signaling that marketing is the strategically-important function that it should be; that the ends dictate the means, not vice-versa. It brings discipline and focus to budget-setting. And it makes a lot more sense than working backwards from some arbitrary, finance-created sales forecast.
Now the fun starts. Because with a zero-based budgeting approach you can stake your professional career and reputation by going after exceptional results. Exceptional results are what we all want, right? Thought so. To get them, you have to be confident in your understanding of the market and how much you can capture.
This may have nothing to do with what you’ve achieved historically. You may have to ‘kill’ products and services that distract you from your goal. Remember, strategy is sacrifice.
It may take all your persuasive skills to convince the sales team that a tight commercial focus is good. There will be arguments and possibly tantrums.
On top of all this, you have to persuade your CFO that you’ve done the rigorous work to underpin everything. Only then will she give you the budget to make it happen.
Remember that strong brands result from a cumulative, multiple-year investment process. Don’t over-weight your budget to achieve short-term goals and neglect long-term brand-building: the generally accepted ratio in B2B is 50:50. Easy or what?
If zero-based budgeting sounds like a lot of work and time, and perhaps a little bit scary, that’s because it is. But it is also exhilarating. Get it right and your career will be rocket-fuelled.
Alas, we tend to operate in a risk-averse world. Few of us are ready to face the possibility of being wrong. Safer to do what you’ve always done, or copy competitors.
Which, I think, is one reason why CMO tenure is falling and marketing has such a low reputation in business. Marketing only has itself to blame if they’re known internally as the ‘colouring-in’ department.