Stop Copying Last Year's Budget (It's Killing Your Margins)
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Stop Copying Last Year's Budget (It's Killing Your Margins)
Most businesses are lighting money on fire.
Not because they're making bad investments. Not because they're overpaying for talent. Not even because they're buying things they don't need.
They're wasting money because of four simple words:
"That's what we budgeted."
It's the laziest thing you can say in business.
But it happens in companies of every size. They take last year's budget, add 5-10% for growth, and call it planning.
Then they wonder why their margins keep shrinking.
The Disease of Business as Usual
GE faced this exact problem in the 1970s.
They were the definition of a bloated corporation. Every department automatically got last year's budget plus increases. Nobody questioned existing expenses. Cost creep was killing them.
Then they discovered something that changed everything.
Zero-based budgeting.
Instead of carrying over last year's numbers, they started fresh. Every expense had to be justified. Every cost had to prove its worth.
The result? They cut billions in waste without sacrificing growth.
This wasn't just a one-time cost-cutting exercise. It changed how they made decisions permanently.
The Hidden Cost of "Business as Usual"
Most businesses run on autopilot.
Software subscriptions nobody uses anymore? Renewed automatically.
Office space that's half empty? "We might need it next year."
Projects that don't drive results? "It's already in the budget."
This isn't just inefficient. It's dangerous.
Because while you're carrying dead weight, your competitors are getting leaner. More agile. More efficient.
Look at what happened to Kraft Heinz after their merger in 2015. When they started zero-based budgeting, they found something shocking.
They were spending millions on overlapping business functions.
Different departments were using different software for the same tasks. They had duplicate vendor contracts. Multiple teams doing similar work.
Traditional budgeting would have missed all of this.
Beyond Simple Cost-Cutting
Here's where most people get it wrong.
They think zero-based budgeting is just extreme cost-cutting. Just slashing expenses blindly. Just saying no to everything.
It's exactly the opposite.
Zero-based budgeting is about intentional spending. About making every dollar work harder. About putting resources where they create the most value.
When Coca-Cola implemented this approach, they didn't just cut costs. They reallocated spending to their highest-performing initiatives.
The goal isn't spending less. It's spending smarter.
Companies that use zero-based budgeting as a mere cost-cutting tool eventually fail. They cut muscle along with fat.
But companies that use it as a way to fuel growth thrive.
How Zero-Based Budgeting Actually Works
Forget everything you know about budgeting.
Traditional budgeting asks: "How much more do we need than last year?"
Zero-based budgeting asks: "If we started fresh, would we spend this money at all?"
Every expense starts at zero. Not last year's number. Not industry benchmarks. Zero.
Want to spend money? Prove why it matters. Show the return it generates. Demonstrate why it deserves resources.
This changes everything about how businesses operate:
Money flows to value, not tradition
Resources get allocated based on results, not history
Unnecessary expenses become obvious
Innovation gets rewarded, not just maintained
When Unilever adopted this approach, they freed up €1 billion to invest in growth.
Breaking Down the Process
Most companies overcomplicate zero-based budgeting.
They think it means building every budget from scratch. Questioning every paperclip purchase. Spending months analyzing tiny expenses.
That's not how it works.
Look at how Walmart implemented it when competing with Amazon. They didn't scrutinize every small purchase. They focused on key spending categories:
Supplier contracts
Marketing effectiveness
Technology investments
Store operations
Corporate overhead
They saved $2.7 billion while simultaneously investing in e-commerce.
The process breaks down into five core steps that work for any business.
Step 1: Zero Out Everything
This is where most companies get scared.
Starting from zero doesn't mean zeroing out your business. It means questioning assumptions. Breaking free from "that's how we've always done it."
Start with the big questions:
What actually drives revenue?
What keeps the business running?
What improves our competitive position?
What truly delivers value to customers?
Amazon does this religiously. Even profitable projects get scrutinized. Even successful programs must prove their worth again.
Step 2: Build Decision Units
Here's where it gets practical.
Instead of looking at departments, break spending into decision units. These are logical groups of expenses that serve a specific purpose.
Think function, not structure.
Take marketing:
Content production
Paid advertising
Marketing tools
Agency relationships
Team resources
Each unit must justify its existence independently.
Step 3: Rank Everything
This is where zero-based budgeting gets powerful.
Every decision unit gets ranked by:
Impact on revenue
Strategic importance
Operational necessity
Cost versus benefit
No sacred cows allowed.
Everything must earn its place.
Step 4: Set Multiple Spending Levels
Now comes the critical part most companies miss.
For each decision unit, define multiple possible spending levels:
Minimum viable (bare bones)
Optimized (best ROI)
Strategic investment (growth focused)
Force managers to show what they could achieve at each level.
This prevents binary thinking.
Step 5: Build Up From Zero
Now comes the rebuilding.
Starting with your highest-ranked units, allocate resources based on proven need. Not last year's numbers. Not industry standards. Proven need.
Build the company you need today, not the one you built yesterday.
Common Pitfalls to Avoid
Most zero-based budgeting attempts fail for predictable reasons.
Getting Lost in Details Spending weeks analyzing office supplies while ignoring major supplier contracts.
Political Protection Allowing pet projects of senior leaders to escape scrutiny.
One-Time Event Treating it as a one-off cost-cutting exercise instead of an ongoing process.
Cutting Without Reinvesting Reducing spending without reallocating to growth.
Making It Work in Your Business
You don't need a massive corporation to use zero-based budgeting.
Start with one area:
Marketing spend
Technology stack
Vendor relationships
Operating expenses
Pick what matters most to your margins.
The Impact Beyond Numbers
Zero-based budgeting isn't just about cutting costs.
It changes how people think about spending. How they view resources. How they make decisions.
It builds a culture of intentionality.
When every expense must be justified:
Teams get creative about solving problems
Resources flow to what works
Innovation comes from necessity
Waste becomes visible
Because, zero-based budgeting isn't theoretical. The results are real.
And when you do this properly.
When you don’t just cut or, on the other side of the spectrum, over-spend.
When you zero out, you reallocate, you invest.
You stop doing things "because that's what we budgeted," you start doing things because they matter.
You become stronger, you grow more thoughtfully, and that’s how your business thrives.
– Scott