Ashley Friedlein has recognised the importance of focus for marketers in 2017.

His trends essay for the year predicts the rationalisation of brand portfolios, supplier relationships and media partners. Focus, Ashley determines, can also be found with zero-based budgeting.

He writes that this is a way to "revisit a brand's purpose, promise, positioning and audience. Again, to ensure clarity of focus."

So, what is zero-based budgeting?

Zero-based budgeting; a definition

The base of the marketing budget is zero. That means that each year, the CMO is not given any money (aside from certain operating costs) unless they can justify why they need it.

Where many organisations simply allocate the same marketing budget each year (as an arbitrary percentage of projected sales volume), with anything extra having to be justified, those using a zero-based budget go back to the drawing board entirely.

The marketer creates their plan for the year based on business objectives, they then calculate what budget this entails and what return the business will see. Senior managers review this work and either grant the budget requested or query the plan.

Mark Ritson last year wrote an article about zero-based budgeting, in light of Unilever's adoption of the technique and subsequent scare-mongering from certain corners of agency land. As Mark points out, zero-based budgeting is simply accountability for marketing - anything else is folly.

While it's true that zero-based budgeting can involve the re-evaluation of funding by removing expenses and predicting how this would affect performance, it can just as easily involve the addition of functionality; fairly obviously, given the idea is a zero base. Everything is on the table.

The advantages of zero-based budgeting

As Mark Ritson puts it, 'what happens is that senior managers bet their resources on the better marketers with the better plans and the better opportunities and reduce investment in the crappy marketers with crappy plans.'

Some other things to consider...

Questioning the status quo

Zero-based budgeting creates debate within the marketing team and among senior management. This regular review of activity stops inefficient tactics from flying under the radar and can also bring wider business objectives into question.

Avoiding waste

The zero-based approach prevents the marketing team from spending their money simply to justify the same allocation next year.

Prioritisation / focus

Planning activity and budget requires the marketing team to define its role. This is the focus Ashley was talking about.

The disadvantages of zero-based budgeting

Time and resource heavy 

Fairly obviously, a more strategic approach requires some effort (from marketing team and senior managers), as does anything worth doing in life. Some companies combat this by doing zero-based budgeting every few years.

Estimating costs can be difficult

Some things are difficult to budget for if their results are difficult to measure. Not every activity has an ROI and demonstrating value may be tricky.

Now read:

Ben Davis

Published 23 January, 2017 by Ben Davis @ Econsultancy

Ben Davis is Deputy Editor at Econsultancy. He lives in Manchester, England. You can contact him at ben.davis@econsultancy.com, follow at @herrhuld or connect via LinkedIn.

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Pete Austin

Pete Austin, CINO at Fresh Relevance

There seems an obvious problem with zero-based budgeting for marketing - that it's measuring the wrong thing. It allocates resources based on how good marketers are at self-promotion. Not how good they are at marketing products.

If the marketers are really good at marketing themselves and their plans, they will be able to get a large budget, if not they will get a small budget. But there's no reason why skills at self-promotion will necessarily correlate with the different skills needed to market products, especially B2C products, and therefore we still don't know how effective the plans will be.

More conventional budgeting, which assumes that results continue pretty much as before - except that varying the budget for each channel increases or decreases outcomes roughly in proportion - goes not suffer from this problem.

A similar difficulty occurs with recruiting (buying) good salespeople.

5 months ago

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Grahame Palmer, Marketing Director at All Things Ecommerce Ltd

Dumb idea... and that a big global like Unilever likes it is no basis on which to engage in it. Funny that Unilever are going down this road - afterall it was Leverhulme who said (a long time ago) - "I know that 50% of my advertising works - I just don't know what 50%."

This idea has the danger of trickling down into other areas. Why single out marketing? Why not do the same with R&D, Sales Planning, Infrastructure Investment, HR... In fact... just start each year with zeros all over the place and thumb-suck everything.

Stupid idea....

5 months ago

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Gerard, Director at Caressa

Graham, zero based budgeting is not a new idea and is used across all areas not just marketing. Although time consuming when first adopted it is not too onerous thereafter, and the time spent generally worthwhile in forcing managers to think about what they are doing. That applies to intangible areas as much as tangible ones. The budget process, whichever method you use, is of course, unless you are clairvoyant, an exercise in educated thumb-sucking.

5 months ago

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Matt Lovell, Head of Customer Insight at Jack Wills

I'm not sure I agree Pete / Grahame.

One of the biggest problems with most companies is if you actually got someone independent (and with no ulterior motive) to look at what they are doing, they would instantly spot various things that are being done because they've always been done that way despite driving little value to the business.

What this provides is an opportunity to question this. Yes it could prove time consuming but if everything is being judged on data, it's not a question of self promotion as ultimately unless they have the data to back up their funding request, it probably isn't worth investing in.

There is definitely a question around less clearly defined channels (Social is the one that always springs to mind) but anyone working on these channels should already be being challenged to provide meaningful correlations and evidencing the impact of any spend so as long as this is being done, they shouldn't have too much of an issue...

5 months ago

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Mike Zeederberg, Mananging Director / Trainer at Econsultancy Guest Access TRAININGSmall Business Multi-user

One thing that ZBB doesn't account for is longer term projects, especially around digital infrastructure, With every activity or action required to justify it's existence in the short term, longer term investments in CRM programmes, data capture or insight building can be short changed in favour of ROI efficient activities like SEM. And if you have an effective ROI and KPI measurement strategy in place, where you're constantly monitoring and managing marketing activity against business objectives, it's not time consuming at all - you should already have the facts at your fingertips.

5 months ago

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Grahame Palmer, Marketing Director at All Things Ecommerce Ltd

+Gerard: "forcing managers to think about what they are doing"... So we get results by forcing people do do things? Large sticks, no carrots? A good manager won't need forcing... she/he ought to have the ability to do the job they have been appointed to do. A known budget - usually based on past performance, short and long-term objectives and forecasts, factoring in all influencers (media trends, consumer trends, socio-political, ecomonics...) - sets defined parameters allowing the planners and spenders to get an holstic view of where and how to steer the organisation going forward. Old or new... the idea (typically the sort of things that originates in the USA) is stupid.

5 months ago

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Grahame Palmer, Marketing Director at All Things Ecommerce Ltd

The REAL issue is more about "COMPACENCY" than budgeting. In the ever-faster-moving world of marketing, I agree... there's no room for complacency any more. (We've always done it this way, so we'll carry on...) But to correlate traditionalism (aka "complacency") with budget planning is flawed.

5 months ago

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