Zero-Based Budgeting: What It Fixes and What It Breaks

Zero-based budgeting means building your budget from zero each period rather than rolling forward last year’s numbers with a percentage adjustment. Every line of spend has to be justified from scratch. Done well, it forces rigour and surfaces waste. Done badly, it consumes enormous management time and kills the kind of long-term investment that marketing depends on.

Whether it belongs in your planning process depends on what problem you are actually trying to solve.

What Zero-Based Budgeting Actually Means in Practice

The mechanics are straightforward. Instead of starting with last year’s budget as the baseline, you start with zero. Every team or department has to submit a justification for each area of spend, explaining what the money does, what the expected return is, and what happens if the spend is removed. Budget is then allocated based on those justifications rather than on historical precedent.

In theory, this means money flows to the highest-value activities. In practice, it means a significant amount of management time goes into building and reviewing justifications, and the quality of those justifications depends heavily on how well your measurement infrastructure is set up.

I ran agencies for most of my career and watched this dynamic play out repeatedly on the client side. The organisations that got genuine value from ZBB were the ones that already had strong data on what their spend was doing. The ones that struggled were running the exercise without the measurement foundation to support it, which meant budget decisions defaulted to whoever argued most persuasively in the room, not whoever had the strongest evidence.

If your marketing operations infrastructure is not already in reasonable shape, ZBB will expose that gap in an uncomfortable way. There is a broader set of considerations around how planning, measurement and resource allocation fit together, and the Marketing Operations hub covers that territory in more depth.

The Genuine Advantages of Zero-Based Budgeting

Start with what ZBB actually does well, because the advantages are real and worth taking seriously.

It breaks the compounding of bad decisions. Most marketing budgets carry historical baggage. A channel that worked five years ago gets a budget line that nobody questions because it has always been there. A retained supplier relationship that made sense in a different competitive environment keeps getting renewed because the renewal process is easier than the conversation about whether it should continue. ZBB forces those conversations. When you have to justify every line from zero, the unjustifiable lines become visible.

When I was growing an agency from around twenty people to close to a hundred, one of the disciplines we applied internally was a version of this thinking. Every six months we looked at where time and resource were going and asked whether each area of investment was still earning its place. It was not a formal ZBB process, but the underlying logic was the same: past allocation is not a good enough reason for future allocation.

It creates genuine accountability. When budget holders know they will have to justify every pound or dollar from scratch, they think differently about what they are spending and why. This is particularly valuable in large organisations where budget accountability has become diffuse. Teams that have been operating on autopilot have to articulate the commercial case for what they do, which is a healthy discipline regardless of what the budget outcome turns out to be.

It surfaces trade-offs that incremental budgeting obscures. When you are only arguing about the marginal increase or decrease to an existing budget, you never have the conversation about whether the base spend is correctly allocated. ZBB forces the whole picture onto the table. That can be uncomfortable, but discomfort is sometimes the point.

It can improve cross-functional alignment. The justification process, when it works well, requires marketing to articulate its contribution to business outcomes in language that finance and commercial leadership can engage with. That is a conversation worth having regardless of the budgeting method, and ZBB creates a structural reason to have it.

The Serious Disadvantages That Often Get Underplayed

The problems with ZBB are real and in some contexts they outweigh the benefits significantly. The marketing function is particularly exposed to the downsides, for reasons that are worth examining carefully.

It is expensive to run properly. Building zero-based justifications for every area of spend is time-consuming. For a large marketing function, this can mean weeks of senior management time that could be spent on execution. Forrester’s research on marketing budget pressures consistently shows that marketing teams are already stretched thin on planning and operations capacity. Adding a full ZBB cycle on top of existing workloads without additional resource is a decision to do it badly.

It systematically disadvantages brand investment. This is the most important structural problem with ZBB in a marketing context. Brand investment works over long time horizons. The return on a brand campaign run this year may not show up clearly in the numbers for two or three years. In a ZBB process where every line has to justify itself in the current period, brand spend is almost always the most vulnerable. It is harder to defend than performance spend with clear attribution, so it tends to get cut. The result, over several ZBB cycles, is a marketing mix that skews heavily toward short-term demand capture at the expense of long-term brand equity.

I judged the Effie Awards for a period, which gave me a detailed look at what effective marketing actually looks like across categories. The campaigns that drove the most durable commercial results were almost never the ones optimised for short-term measurability. They were the ones where organisations had maintained brand investment through periods when the short-term numbers did not obviously support it. ZBB, applied without careful design, makes those decisions structurally harder to take.

It rewards those who argue well, not those who spend well. Budget in a ZBB process goes to whoever builds the most compelling justification. If your measurement infrastructure is weak, or if the people making budget decisions do not have deep marketing expertise, the process will systematically reward confident presentation over genuine commercial insight. I have seen this happen. A performance marketing team with clean attribution data will always look better in a ZBB review than a brand team whose contribution is real but harder to isolate. That is a measurement problem masquerading as a budgeting problem.

It can destroy institutional knowledge. Some spending decisions carry context that is not easily captured in a justification document. A retained agency relationship might look expensive on paper but represent years of accumulated knowledge about your brand, your customers, and what has and has not worked. That context has value that a ZBB process will not automatically surface. When those relationships get cut because they could not be justified in a single-period cost-benefit frame, the knowledge goes with them.

Annual repetition creates fatigue without proportional return. The first time an organisation runs a proper ZBB process, it typically surfaces genuine inefficiencies. By the third consecutive year, most of the easy wins have already been taken and the process is consuming significant time to produce marginal additional value. ZBB is most effective as a periodic reset, not a permanent operating model.

Why Marketing Is a Difficult Case for Zero-Based Budgeting

Most of the literature on ZBB comes from a manufacturing or procurement context, where inputs and outputs are more directly linkable. Marketing does not work that way, and applying a framework designed for one context to another without adjustment creates predictable problems.

The core issue is attribution. Marketing teams operate across channels with very different measurement characteristics. Paid search has relatively clean attribution. Organic content, PR, brand advertising and event sponsorship do not. In a ZBB process, the channels with clean attribution will consistently outperform the channels without it, regardless of their actual commercial contribution. Over time, this produces a marketing mix that is optimised for measurability rather than effectiveness.

There is also a timing problem. Marketing investment often precedes commercial return by a significant margin. A content strategy that takes twelve months to build organic search authority will look like a cost centre for most of that period. A brand campaign that shifts purchase intent will not show up in revenue data for a quarter or two. ZBB, with its annual justification cycle, creates pressure to cut exactly the investments that take time to compound.

Early in my career, when I was building out what would become a significant SEO capability within an agency, the investment case was genuinely difficult to make in the short term. The economics of SEO are back-loaded: the costs are front-loaded and the returns build slowly. If we had been operating under a strict ZBB regime in those early years, the programme would almost certainly have been cut before it delivered. It went on to become one of the highest-margin service lines in the business. That kind of investment requires the patience that ZBB, by design, makes harder to justify.

How to Use Zero-Based Thinking Without the Full ZBB Process

The most practical approach for most marketing organisations is to apply zero-based logic selectively rather than running a full ZBB process across the entire budget every year. This captures the discipline without the overhead and the structural bias against long-term investment.

A few principles that tend to work in practice:

Apply ZBB to operational and technology spend first. Martech stacks, agency retainers, data subscriptions, tools and platforms are good candidates for periodic zero-based review. These are areas where spend tends to accumulate over time and where the justification for each line can be assessed with reasonable objectivity. Running a zero-based review of your technology stack every two or three years is a sensible discipline. Running it on your brand media budget every year is not.

Separate the review of media mix from the review of total spend. How much you spend on marketing is a different question from how you allocate that spend across channels. ZBB logic applied to channel allocation, asking whether each channel is earning its place in the mix, is more tractable than asking whether the overall marketing budget is justified from zero. The latter requires assumptions about what marketing contributes to the business that are genuinely difficult to isolate.

Build the measurement infrastructure before running the process. If you cannot measure the contribution of your major spend areas with reasonable confidence, a ZBB process will produce budget decisions based on advocacy rather than evidence. The investment in measurement comes first. A well-structured marketing process includes clear definitions of what each investment is expected to deliver and how that will be tracked. Without that, ZBB is a governance exercise rather than a commercial one.

Protect long-cycle investments explicitly. If you decide to run a ZBB process, build in explicit protection for investments that operate on multi-year time horizons. Brand investment, organic content, and market development activities should be assessed against a different standard than direct response spend. This requires a more sophisticated justification framework, but it prevents the systematic defunding of long-term value creation.

The broader question of how planning and resource allocation fit into a well-run marketing function is one that comes up consistently across the content on the Marketing Operations hub. Getting the budgeting process right is one piece of a larger operational picture.

The Organisational Context That Determines Whether ZBB Works

ZBB is not inherently good or bad. Whether it adds value depends heavily on the organisational context in which it is applied.

It tends to work better in large organisations with significant budgets, where the administrative cost of running the process is small relative to the potential savings from surfacing inefficiency. It tends to work worse in smaller organisations where management bandwidth is limited and the budget is already tight enough that there is not much waste to surface.

It works better when marketing leadership has the commercial credibility to defend investment decisions in cross-functional budget reviews. When marketing is seen as a cost centre rather than a commercial function, ZBB reviews tend to produce cuts rather than reallocation, because the default assumption is that less spend is better. How marketing teams are structured and positioned within the organisation affects how those conversations go.

It also works better when the finance team running the process understands the specific characteristics of marketing investment. A finance director who treats brand spend the same way they treat office supplies will produce a ZBB outcome that destroys long-term value while appearing to improve short-term efficiency. That is a governance problem, but it is one that ZBB creates the conditions for.

One thing I observed repeatedly in agency leadership was the difference between clients who had strong marketing leadership at the table during budget reviews and those who did not. The ones with strong representation could defend their investment decisions with commercial rigour. The ones without it tended to see their budgets cut in ways that looked financially prudent but were commercially damaging. ZBB amplifies that dynamic significantly.

The Verdict: A Tool, Not a Philosophy

Zero-based budgeting is a useful tool for specific problems in specific contexts. It is not a management philosophy and it should not be treated as one. Applied periodically to the right categories of spend, with a measurement foundation that can support genuine evidence-based decisions, it can surface real inefficiency and improve accountability. Applied annually across an entire marketing budget without those conditions in place, it tends to produce a shorter-term, more measurable, less effective marketing mix.

The organisations that use it well treat it as one input into a broader planning process, not as a replacement for strategic thinking about where marketing investment should go and why. The ones that use it badly treat it as a cost-reduction mechanism with a rigorous-sounding name.

If you are considering introducing ZBB into your planning cycle, the questions worth asking first are: Do we have the measurement infrastructure to support evidence-based justifications? Do we have the organisational credibility to defend long-cycle investments in a cross-functional review? And is the problem we are trying to solve actually a budgeting problem, or is it a measurement problem, a governance problem, or a strategic clarity problem that ZBB will not fix?

Those are the right starting points. The budgeting method comes after.

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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