Incremental Budgeting: Stop Rewarding Last Year’s Spend

Incremental budgeting is a marketing budget approach where next year’s allocation is built by adjusting this year’s spend up or down, usually by a fixed percentage, rather than rebuilding from first principles. It is fast, politically comfortable, and almost always wrong.

The problem is not the adjustment. The problem is the baseline. When you start from existing spend, you inherit every assumption, inefficiency, and historical compromise baked into the original number. You are not budgeting. You are compounding.

Why Incremental Budgeting Is the Default , and Why That Is a Problem

Every organisation I have worked in or with has defaulted to incremental budgeting at some point. It is not laziness, exactly. It is inertia dressed up as process. You have a number that was approved before. It did not cause a catastrophe. Finance understands it. So you take it, add inflation, maybe argue for a 10% increase in one channel, and call it a budget.

The appeal is obvious. It is fast. It requires minimal justification because the baseline is treated as pre-approved. And in large organisations, it is the path of least resistance through a process that everyone finds exhausting. Budget season in an agency or a corporate marketing team is not a strategic exercise. It is mostly a negotiation, and incremental budgeting gives both sides a number to negotiate around.

But the cost of that convenience is significant. When I was running an agency and we grew the team from around 20 people to close to 100 over a few years, one of the things I noticed consistently in client budgets was that certain line items had been in place for so long that nobody could explain them anymore. Not the client marketing director. Not the agency team. They had survived multiple budget cycles purely through inertia. Nobody had asked whether they were working because nobody had set them up to be measured properly in the first place.

That is the structural weakness of incremental budgeting. It does not require you to prove that spending is working. It only requires that it was approved before.

What Incremental Budgeting Actually Rewards

Incremental budgeting rewards survival, not performance. A channel that spent £200,000 last year and delivered mediocre results will typically receive £210,000 next year because the baseline exists and the argument for removing it is harder than the argument for keeping it. A new channel with strong early signals might receive £20,000 because it has no history and therefore no baseline to increment from.

This creates a structural bias against experimentation. If your budget model rewards incumbency, you will always under-invest in new approaches relative to established ones, regardless of relative performance. That is not a strategy. It is a bureaucratic accident masquerading as one.

I saw the flip side of this early in my career when I was working in digital at a time when paid search was still relatively new. The budgets being allocated to it were tiny compared to what was going to traditional media, not because the ROI was worse but because there was no historical baseline for it. Every pound had to be justified from scratch while legacy spend rolled forward automatically. It took demonstrable, undeniable revenue to shift the balance, and even then it was slower than it should have been.

Understanding how to track and attribute the performance of those channels properly is what eventually made the argument. If you are working on the measurement side of this, the Marketing Analytics hub covers the frameworks and tools that make budget conversations evidence-based rather than political.

The Percentage Adjustment Is Not Analysis

The mechanism of incremental budgeting, the percentage uplift or reduction, feels analytical because it involves a number. It is not analysis. It is a guess applied to a baseline that may itself be a guess.

When a marketing director says “we are increasing digital by 15% this year,” that statement contains no information about whether the existing digital spend is efficient, whether 15% is the right increment, or whether digital is the right place to grow at all. It is a directional signal dressed up as a decision.

The percentage also tends to homogenise channels that have very different return profiles. A 10% increase applied uniformly across paid search, display, and content is not a strategy. Paid search at a mature, well-optimised account may have limited room for incremental return. Content at an early stage may have enormous upside. Display may be producing almost nothing measurable. Treating them identically because the model is incremental is how you end up with a portfolio that looks balanced on paper and performs unevenly in practice.

Tracking the right metrics at the channel level is what separates a meaningful increment from a meaningless one. Semrush’s breakdown of content marketing metrics is a useful reference for understanding what to measure before you decide how much to spend.

Zero-Based Budgeting as the Corrective , and Its Limits

The obvious alternative is zero-based budgeting, where every line item is justified from scratch each cycle. In theory, this eliminates the incumbency bias and forces budget owners to prove value rather than assume it. In practice, it is expensive, slow, and politically bruising enough that most organisations abandon it or apply it selectively rather than systematically.

Zero-based budgeting also has its own failure mode. When every line item requires a business case, the teams with the best PowerPoint skills win, not necessarily the teams with the best results. I have sat in enough budget presentations to know that the ability to construct a compelling narrative around a number is not the same as having a compelling number. Zero-based processes can become a theatre of justification rather than a genuine assessment of value.

The more useful framing is objective-led budgeting. Rather than starting from last year’s spend or from zero, you start from the business objective and work backwards. What does achieving that objective require? What channels and tactics have demonstrated the ability to contribute to it? What is the evidence base for those contributions? The budget follows the logic, not the other way around.

This requires better measurement infrastructure than most organisations have. You cannot build a credible objective-led budget if you do not know what your channels are actually delivering. That is where the investment in analytics pays for itself, not in dashboards, but in the ability to have a different kind of budget conversation.

How Measurement Quality Changes the Incremental Budgeting Conversation

Incremental budgeting is not inherently broken. It is broken in the absence of honest measurement. If you have a clear view of what each channel is delivering, incremental adjustments based on that performance data are a reasonable shortcut. The problem is that most organisations do not have that view, and they apply incremental logic anyway.

The minimum requirement for incremental budgeting to be defensible is that you can answer three questions for each line item. What did this spend produce? What would have happened without it? And what is the marginal return on additional investment? Without those three answers, you are not making a budget decision. You are making a guess with a spreadsheet attached.

Most organisations can answer the first question with reasonable confidence. They struggle with the second, which requires some form of attribution or incrementality testing. The third is hardest of all and is where most budget processes simply give up and default to the percentage adjustment.

Getting your conversion tracking right is a prerequisite for any of this. If your GA4 setup is counting the same conversion multiple times or missing events entirely, the data feeding your budget decisions is already compromised. Moz has a clear walkthrough on avoiding duplicate conversions in GA4 that is worth reviewing before you trust the numbers in your budget model.

Marginal return analysis is where the real budget intelligence lives. A channel spending £50,000 per month at a 4:1 return may not produce a 4:1 return on the next £10,000. Paid search in particular has a saturation curve, where the most efficient keywords are captured first and incremental spend reaches progressively less efficient inventory. Applying a flat percentage increase without understanding where you sit on that curve is how you erode efficiency while growing the budget.

The Political Reality of Budget Cycles

Any honest article about marketing budgeting has to acknowledge that budget cycles are not purely analytical processes. They are political ones. Budgets reflect organisational power as much as they reflect performance data, and incremental budgeting is partly a political equilibrium. It gives everyone a defensible number without requiring anyone to make a hard call about what is not working.

I have been on both sides of this. As an agency CEO, I was sometimes in the uncomfortable position of knowing that a client’s budget allocation was inefficient but not having the standing to say so directly without risking the relationship. As someone managing agency P&Ls, I was aware that the budget conversation was as much about commercial relationships as it was about marketing effectiveness.

The way through this is not to pretend the politics do not exist. It is to make the evidence clear enough that the political cost of ignoring it becomes higher than the political cost of acting on it. That requires having data that is credible, presented in terms that the business cares about, and connected to outcomes that matter to the people making the decision. Building KPI reports that speak to business outcomes rather than marketing metrics is part of how you shift that dynamic.

It also requires patience. Budget cycles move slowly. The measurement work you do this year is the argument you make next year. If you want to break out of incremental budgeting, you need to start building the evidence base before you need it, not during the budget negotiation itself.

When Incremental Budgeting Is Reasonable

It would be dishonest to argue that incremental budgeting is always wrong. For stable, well-measured programmes where performance has been consistent and the market environment has not changed significantly, incrementing from a validated baseline is a reasonable approach. It is efficient, it is defensible, and it does not require rebuilding the analytical case from scratch every year.

The conditions for incremental budgeting to be reasonable are specific though. The baseline must have been validated, not just inherited. The measurement must be reliable enough to detect meaningful changes in performance. And the increment must be informed by marginal return analysis rather than applied as a flat percentage across all channels.

Email marketing is one area where incremental budgeting often makes sense, because the cost structure is relatively predictable, the measurement is cleaner than most channels, and the performance relationship between list size, send frequency, and revenue is reasonably well understood. HubSpot’s guide to email marketing reporting covers the metrics that make that baseline credible. Mailchimp’s overview of marketing metrics is also useful for understanding what a validated baseline actually looks like in practice.

The broader point is that incremental budgeting is a tool, not a strategy. Used on a validated, well-measured programme, it is fine. Used as a substitute for strategic thinking about where money should go, it is how organisations end up spending more every year and understanding less about what they are buying.

Building a Budget Model That Improves Over Time

The goal is not to eliminate incremental budgeting. It is to make the baseline worth incrementing from. That requires a measurement infrastructure that connects spend to outcomes at a granular enough level to inform marginal decisions, not just aggregate ones.

In practical terms, this means setting up your analytics to track the right things before you need the data. Using GA4 data to inform content strategy is one example of how measurement infrastructure built for one purpose generates insights that are useful across the business, including budget decisions. The same principle applies to paid channels, email, and anything else where you are making an incremental spend decision.

It also means being honest about what you do not know. One of the things I have always found useful when reviewing budgets is to separate the spend that has a credible evidence base from the spend that is running on assumption. Most budgets contain more of the second category than the people managing them realise. Making that visible is not comfortable, but it is the only way to have a budget conversation that is actually about performance rather than precedent.

The distinction between marketing analytics and web analytics matters here. HubSpot’s piece on why marketing analytics differs from web analytics is a good reference for understanding what data you actually need to make budget decisions versus what data is simply available.

Budget models improve when the people running them are willing to be wrong. The organisations that do this well treat the annual budget not as a fixed allocation but as a series of hypotheses about where spend will produce return, with the measurement infrastructure to test those hypotheses and adjust. That is a very different mindset from incrementing last year’s number and hoping the market cooperates.

If you are working through the broader measurement and analytics questions that sit behind budget decisions, the full range of frameworks and tools is covered in the Marketing Analytics and GA4 hub. The budget conversation and the measurement conversation are the same conversation, just held in different rooms.

About the Author

Keith Lacy is a marketing strategist and former agency CEO with 20+ years of experience across agency leadership, performance marketing, and commercial strategy. He writes The Marketing Juice to cut through the noise and share what works.

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