What is zero based budgeting and how can it help increase your ROI?

5 min read

Have you ever dreamed about implementing zero-based budgeting for your next marketing strategy, but without the correct advertising infrastructure, you haven’t known where to start? Don’t worry; we get it. Which is why we’re unpicking what you may have written off as an unreachable dream and explaining how you could make it a reality. 

To make sure we’re all on the same page: What exactly is zero-based budgeting?

Zero-based budgeting is a method used by organisations and businesses which scrutinises every expense. Rather than taking over the budget from the last financial period and keeping it generally the same, instead, at the beginning of every financial period, the budget starts from a ‘zero base,’ which means that no expenses or balances from the previous period are carried over.

This way of budgeting allows you to challenge legacy expenditure, question why you’ve done the things you did, and ask if activities and expenses really need to be replicated? And if so, can you justify them?

How does zero-based budgeting work?

With a zero-based budgeting approach, you input your justified expenses and financial requirements into the budget, disregarding whether the budget was higher or lower before this start date. When the business moves onto the next accounting period, the budget returns to its zero base.

Here at Akero, we’ve had great success working with clients who use zero-based budgeting and have adopted a 80/20 approach when working and justifying line items to finance teams: 80% of the budget goes to channels that are known to work, and 20% is allocated to activity where you can test and learn across different and new channels to get the right data. Starting from that zero base allows you freedom of learning, instead of living with the confinements of “we’ve always done it this way”. 

Through Akero EA, we know what the conversion rates of certain campaigns and activities are, and we know how much an enrolled student costs - as always, it is so important to track true ROI. From there, clients can come to us with their student enrolment targets and budget, and together, we work out where to make changes and how to grow. This approach has proven popular as curriculums shift towards online learning, providing scalability through tracking the current cost of acquisition and creating an optimum model that will yield the best ROI. 

The stand out benefit of implementing zero-based budgeting? You’ll be speaking the language of your Chief Finance Officer. In reality, marketing phrases like “build your brand presence”, “increase your market share” and “position yourself as a thought leader” only impress those in the marketing department. With a zero-based budget, you’re arming yourself with the ability to demonstrate the profitability of your marketing efforts with demonstrable return. You’re justifying “brand building” or content marketing in a language your Finance Director will hear. 

But before you jump in...

A couple of things to consider when implementing zero-based budgeting:

1. It takes time to build the infrastructure

You need the correct advertising infrastructure in place to know your cost per application, cost per enrolment, the ability to track every student from click through to enrolment and have a total view of all your marketing efforts. Then you can accurately forecast.

Changing your budgeting method requires organisation-level change and open-mindedness. Be prepared to have the hard discussions of what is justifiable and what is no longer; challenge the perceptions. 

2. Think long-term

As you will have to justify and argue for every item on your budget, you will also have to, naturally, forecast the return on investment. But remember, when working within an education cycle, you’ll need to focus on (and present to your Finance Director) your delayed return on investment.

For example, you would like X amount of money to invest in digital advertising, in order to bring in X amount of enrolled students. But work you are doing in November may not come into fruition until the following September. So working on monthly budgets and quick-turnaround results may not be the most effective way to implement this type of budgeting. Think long term, and as long as you plan, communicate and justify your ROI and timescales, there’s a real opportunity in using the zero-based budgeting method. 

At the end of the day, zero-based budgeting comes down to maximising your budget so that you are no longer funneling money into legacy departmental or tactical rubble that has no weight on strategic growth or objectives. Instead, this approach affords you and your team a clean slate to try new things, rid the processes that weren’t doing what they needed to and further understand your true return on investment. In turn, bettering your cost per enrolment, and who doesn’t want more of that?

If you would like to find out more about zero-based budgeting, how Akero has supported the 80/20 methodology in the past or how to further understand your CPA or ROI, get in touch today.