Zero-based budgeting | digitionary

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Zero-based budgeting is a long-standing financial planning approach that relies on examining and justifying every euro or dollar allocated to spending, instead of simply rolling over budgets automatically. This approach can also be applied to marketing budgets, where the idea is to reassess resource allocation annually based on available performance and ROI metrics. The increasing digitalization of marketing encourages this approach, as it creates a constantly evolving environment where budget rollovers are not always relevant. Furthermore, it aligns with the ROI measurement capabilities and practices associated with digital channels.

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Zero-based budgeting

Zero-based budgeting is a financial management approach that differs from traditional methods by not relying on previous budgets. Instead, each area is evaluated individually during budget planning, starting from scratch for each budget item. Expenditures or investments are only authorized after a thorough analysis of their potential return. This approach, known as "zero-based budgeting," aims to avoid the inflationary effect of conventional methods that simply adjust previous budgets based on fluctuations. In the field of marketing, zero-based budgeting (ZBB) can play a crucial role in controlling or reducing expenses related to advertising, market research, innovation, agency fees, and more.

Although this method was initially developed in the United States, it has been criticized for its complexity and financial consequences. Indeed, in early 2019, the food company Kraft Heinz sparked controversy due to its disastrous financial results, which were attributed to its extensive use of zero-based budgeting. This practice weakened the company's financial position after several years of implementation, highlighting the challenges and risks associated with this approach.

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