Zero-Based Budgeting: What It Costs You to Start From Zero

Zero-based budgeting is a method where every budget line is built from scratch each cycle rather than adjusted from the previous year’s spend. There is no automatic carryover, no assumed baseline, and no inherited commitments. Every pound or dollar has to be justified against current business priorities before it is allocated.

That sounds rigorous and it is. But rigour has a price, and whether that price is worth paying depends on the size of your organisation, the maturity of your marketing function, and how much appetite your finance team has for genuine scrutiny rather than just the appearance of it.

I have sat in more budget reviews than I care to count, on both sides of the table. Running agencies, I watched clients defend spend that had not been questioned in three years. Running agency P&Ls myself, I did the same thing internally. The honest truth is that most marketing budgets are not built from first principles. They are last year’s budget with a percentage applied, dressed up as planning.

What Does Zero-Based Budgeting Actually Mean in Practice?

The term gets used loosely, so it is worth being precise. In a true zero-based budgeting process, every cost centre begins at zero. Budget holders submit detailed justifications for each area of spend, ranked by priority and tied to specific business outcomes. Finance and leadership then allocate resources based on those submissions rather than on historical precedent.

This is different from a cost-cutting exercise, although it often gets confused with one. ZBB is a planning methodology. The output might be a larger budget than last year if the justifications are strong enough. In practice, though, it tends to produce reductions, because a lot of ongoing spend cannot survive honest scrutiny.

In marketing specifically, the process typically involves breaking spend into activity categories: paid media, content production, technology, agency fees, events, research, and so on. Each category is examined on its own merits. What does this deliver? What would happen if we spent less? What would happen if we spent nothing? Those are uncomfortable questions when you are defending a retainer you have held for four years.

If you want to understand how ZBB fits within the broader discipline of managing marketing resources and processes, the Marketing Operations hub covers the wider territory, including how budget decisions connect to team structure, measurement, and commercial accountability.

The Advantages: Where Zero-Based Budgeting Earns Its Place

The strongest argument for ZBB is also the simplest one. It forces the conversation that most organisations avoid.

When I was building out the performance marketing function at iProspect, one of the things that struck me was how much client-side budget had been allocated to channels that were no longer delivering at the same rate they once had. Paid search had matured. CPCs had risen. The returns that justified the original investment were being quietly eroded, but no one had formally reviewed the allocation because the channel was still producing something. ZBB would have surfaced that problem years earlier.

It eliminates budget drift. Incremental budgeting rewards incumbency. Channels, agencies, and tools that were useful three years ago continue to receive funding simply because they are already in the plan. ZBB removes that structural advantage and forces every line to compete on current merit.

It aligns spend with current strategy. Business priorities shift. A company that was focused on acquisition two years ago might now be prioritising retention. Incremental budgeting often fails to reflect those shifts because the underlying structure never changes. ZBB resets the allocation to match where the business actually is, not where it was.

It surfaces inefficiency that has become invisible. Costs that have been in the budget for long enough stop being questioned. A SaaS subscription that no one uses. An agency retainer that has outlived its original purpose. A trade show that generates goodwill but no pipeline. ZBB makes these visible again by requiring justification rather than assuming continuity.

It creates a shared understanding of what marketing is actually for. When budget holders have to articulate what each area of spend is intended to achieve, it tends to reveal misalignment between marketing and the wider business. That misalignment is worth finding. Forrester has written about how organisational structure reflects strategic priorities, and the same logic applies to budgets. Where you put the money tells you what you actually believe, as opposed to what you say you believe.

It builds commercial credibility for the marketing function. Finance directors who have watched marketing teams defend spend with vague references to brand awareness tend to be sceptical. A marketing leader who can walk into a ZBB review with clear objectives, honest baselines, and prioritised trade-offs is a different kind of interlocutor. That credibility matters when you need to make the case for investment.

The Disadvantages: What Zero-Based Budgeting Costs You

The process is genuinely expensive. Not in direct cost, but in time and attention, which are the same thing at senior level.

A proper ZBB exercise for a mid-sized marketing function can take weeks. Every budget holder needs to build a case from scratch. Finance needs to review and challenge those cases. Leadership needs to make allocation decisions across competing priorities. Then the whole thing needs to be communicated back down. If you are running a lean team, that is a significant proportion of your available management bandwidth spent on internal administration rather than on the market.

It can penalise long-term investment. This is the most serious structural problem with ZBB when it is applied to marketing. Brand building does not produce returns on a 12-month cycle. Awareness campaigns, content programmes, and market education all have payback periods that extend well beyond the budget year. When every line has to justify itself against current-year objectives, long-term investment is systematically disadvantaged. The activities that are easiest to justify in a ZBB process are the ones with the shortest feedback loops: paid search, direct response, conversion rate work. The activities that are hardest to justify are often the ones that create the conditions for those short-term channels to work.

I have seen this play out directly. When I was judging at the Effie Awards, the entries that impressed most were almost always the ones where a brand had made a sustained commitment to a positioning over multiple years. The results were disproportionate. But those programmes would have struggled in a strict ZBB environment because the year-one numbers rarely tell the full story.

It can produce the appearance of rigour without the substance. ZBB only works if the people reviewing the justifications are genuinely willing to make hard decisions. In many organisations, the process becomes a compliance exercise. Budget holders learn to write better justifications. Finance teams approve them. Nothing changes. The process consumed weeks and produced the same budget with different paperwork. That is a real risk, and it is worth being honest about before committing to the methodology.

It can destabilise agency and supplier relationships. If you run an agency or work with one, you will know that the best work comes from relationships that have depth and continuity. When a client signals that nothing is guaranteed year to year, the best people on their account tend to get moved to more stable clients. ZBB applied too aggressively to agency spend can erode the very thing that makes external partnerships valuable.

It requires data that many organisations do not have. To justify spend from zero, you need to know what that spend is currently delivering. If your measurement infrastructure is weak, if attribution is unclear, or if your reporting tells you what happened without explaining why, then ZBB becomes a process of informed guesswork rather than genuine analysis. Forrester’s work on B2B marketing budgets consistently highlights the gap between what organisations think they are measuring and what they are actually measuring. That gap matters enormously in a ZBB context.

When Does Zero-Based Budgeting Make Sense for Marketing?

The honest answer is: not every year, and not for every organisation.

ZBB makes most sense as a periodic reset rather than an annual ritual. If your marketing budget has not been fundamentally reviewed in three or four years, a ZBB exercise will almost certainly surface things worth changing. If you did one last year and your business priorities have not shifted significantly, the cost of doing it again probably outweighs the benefit.

It also makes sense at inflection points: a new CMO taking over, a significant shift in business strategy, a period of financial pressure that requires genuine prioritisation rather than across-the-board cuts. These are moments when the structural challenge of ZBB is worth the disruption it causes.

Larger organisations tend to benefit more than smaller ones, simply because they have more accumulated spend that has never been properly examined. A 10-person marketing team probably knows what everything is for. A 100-person function almost certainly does not.

Early in my career, I asked for budget to rebuild a website and was told no. Rather than accepting that, I taught myself to code and built it anyway. The point is not the story itself but what it illustrates: the best budget decisions are not always the ones that come out of formal processes. Sometimes the most commercially useful thing is someone who knows what they need and finds a way to get it done. ZBB creates a framework for that kind of clarity, but the framework is only as good as the people using it.

How to Run a Zero-Based Budget Process That Actually Works

If you are going to do this properly, a few things need to be in place before you start.

Start with clear business objectives, not budget categories. The question is not “how much should we spend on paid social?” It is “what does the business need to achieve this year, and what role can marketing play in that?” Budget allocation follows from that, not the other way around. This sounds obvious but most budget processes work backwards from last year’s categories rather than forwards from this year’s priorities.

Build honest baselines. For ZBB to work, you need to know what current spend is actually delivering, not what it is supposed to deliver. That means pulling real performance data, not the version that went into the end-of-year report. If a channel has been declining for 18 months, that needs to be on the table. A structured approach to your marketing process helps here, because it creates the documentation and measurement habits that make ZBB viable rather than theoretical.

Rank activities by priority, not by department. The natural tendency in ZBB is for each team to defend its own budget. That produces a negotiation rather than a prioritisation. The more useful exercise is to rank all proposed activities across the function against shared business objectives, so that trade-offs are explicit rather than buried in departmental submissions.

Protect long-term investment explicitly. If you are running brand-building activity or content programmes with multi-year payback periods, those need to be evaluated on a different basis from direct response spend. Build that distinction into the process from the start, or ZBB will systematically defund the activities that create long-term competitive advantage. Mailchimp’s overview of the marketing process is a useful reference for thinking about how different types of marketing activity connect to different time horizons.

Make the process proportionate. Not every line item deserves the same level of scrutiny. A £500 monthly tool subscription and a £500,000 agency retainer should not go through the same justification process. Focus the analytical effort where the money is, and apply a lighter touch to smaller items.

The Measurement Problem Underneath All of This

There is a deeper issue that ZBB tends to expose rather than create. Most marketing functions do not have the measurement infrastructure to answer the questions that ZBB asks.

When I was managing large-scale paid search campaigns, the attribution question was already complicated. A customer who saw a display ad, clicked a retargeting banner three days later, and then converted via branded search: which budget line gets the credit? The honest answer is that all of them contributed and none of them can claim full ownership. But ZBB requires you to justify each line separately, which creates pressure to overstate the case for whatever you are defending.

This is not an argument against ZBB. It is an argument for building better measurement before you run the process, so that the justifications are grounded in something real. If your data tells you what happened but not why, or if your attribution model is giving you a distorted view of which channels are working, then ZBB will optimise for the wrong things. The process amplifies the quality of your measurement, for better or worse.

There are also compliance and data governance considerations that feed into budget planning, particularly around technology spend. GDPR and related regulations have made certain categories of martech investment non-negotiable from a compliance standpoint, which complicates the “justify everything from zero” premise when some costs are effectively mandatory.

The broader discipline of marketing operations, including how you structure measurement, manage technology, and connect marketing activity to commercial outcomes, is the context in which ZBB either works or fails. If you are thinking about this as part of a wider operational review, the Marketing Operations hub covers the full range of considerations, from process design to performance frameworks.

A Balanced View

Zero-based budgeting is a useful discipline that most marketing functions would benefit from applying periodically. It is not a management philosophy to live by every year.

The advantages are real: it removes inherited inefficiency, aligns spend with current priorities, and creates the kind of commercial accountability that earns marketing a seat at the table. The disadvantages are equally real: it is time-consuming, it can systematically defund long-term investment, and it only produces good outcomes if the organisation has the data and the decision-making maturity to use it properly.

The organisations that get the most from ZBB are the ones that treat it as a periodic challenge to their assumptions rather than an annual compliance exercise. They use it to ask hard questions about whether the structure of their marketing spend still reflects the structure of their business strategy. When the answer is yes, the process confirms what they already know. When the answer is no, it gives them the mandate to change things.

Either way, the conversation is worth having. Most marketing budgets contain at least one significant commitment that would not survive honest scrutiny. ZBB is the mechanism for finding out which one it is.

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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