Market with a zero-based budget

October 22, 2014 -  By
Photo: ©istock.com/3dsguru

Photo: ©istock.com/3dsguru

A question landscape professionals frequently ask me is, “What percentage of revenue should I allocate toward my marketing budget?” To gain their undivided attention, I quickly respond with “zero”—as in zero-based budgeting.

Think of zero-based budgeting as a blank-sheet-of-paper approach to budgeting, and one that forces all those involved in the process to think strategically while analyzing and justifying every marketing expense. Many companies in the industry are lackadaisical in their budgeting approach to marketing and use outdated and ineffective methods that generally apply a 5- to 10-percent increase over the previous year’s budget. For example, if a company had a $10,000 line item for marketing in 2014, they’d increase it to $10,500 for 2015, believing the cost of business will probably increase that amount. While this method is fast and easy, it’s wrong for many reasons.

The first thing wrong with this approach is it assumes all the previous year’s budgeted dollars are necessary again this year. Just because you spent money on something last year doesn’t mean you need to spend it again this year. What if you built your first website last year or made significant renovations to your website? If so, you probably won’t need to allocate those dollars again this year. Another significant problem with the annual-incremental-increase method is it doesn’t challenge you to streamline your budgeting process or enhance your performance; rather, it discourages you from doing so.

Zero-based budgeting makes you analyze and justify each expense, forcing you to align your expenditures with the strategic goals of the company. It confronts conventional thinking and challenges old assumptions.

Where to begin

Step one in creating a zero-based marketing budget is to make sure those responsible for marketing understand the company’s key strategic goals. Only then can they begin to identify, analyze and select marketing tools and media that will help them achieve those goals. Once this step is taken, justification of those expenditures becomes easy and evident.

Since zero-based budgeting confronts conventional thinking, another problem with applying a rogue percentage increase to your marketing budget (year after year) is the so-called ease of creating it that often causes staff to overlook market conditions, innovation and new methods (many of which are low-to-no cost), such as social media. Because many people in our industry don’t completely understand the inner workings, costs or benefits of social media, they write it off as a fad, throw a few short-term dollars at it without any strategy or hope it goes away. Social media is a low-cost tool, which, once added as a budgeted line item, is fast and easy to execute, measurable and effective. Yet many marketers still use expensive and environmentally invasive collateral and materials to market their services. Sales force automation is another useful tool that, when designed and used properly, is worth its weight in gold and can be analyzed, aligned with company goals and justified cost wise.

If you’re quick to add a percentage to your annual budget and overlook your market conditions, you might be in for a big surprise. For example, if competition has increased significantly in your area, you might need a bigger bump in your networking (traditional and social) and digital marketing to increase your brand awareness and value proposition. And yet, many in the industry still avoid public relations, which is generally less expensive and reaches farther than traditional direct mail and advertising tools. Or, if you’ve recently expanded into a new location or added a new service line to your portfolio, you’ll incur new costs that didn’t exist the previous year.

For zero-based marketing budgeting to work well, a marketing team needs to conduct reviews regularly (quarterly at a minimum), examining the costs, return on investment and impact the marketing has had on the company’s strategic goals. Zero-based budgeting will have each expense outlined with the justification and projected impact on the company goal.

For example, if the goal is to enter a new market, say the cemetery and funeral industry, a zero-based budget line will look something like this: A $750 cemetery funeral association fee. Justification and impact: “It will allow our sales team and account managers to meet about 800 funeral directors and cemetery owners so we can introduce our company and explain our services and value proposition. With an average landscape maintenance spend of $25,000 annually in our area, we should be able to increase our top-line revenue by $100,000 and gain market share of 5 percent in the first year.”

Without a zero-based budget, most companies market ineffectively and overspend, which is a double-edged sword.

Guido, chairwoman and founder of Guido & Associates, helps green industry companies increase their profits and develop their people. Reach her at jmguido@sbcglobal.net.

About the Author:

Guido is a Green Industry consultant with Guido & Associates. Contact her at jmguido@sbcglobal.net

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