When clients come to us, one question we often hear is: “Should we use Zero-Based Budgeting or Incremental Budgeting?”
It’s a fair question—and an important one. The way you plan your budget doesn’t just control how you spend—it directly influences how your business grows, adapts, and stays resilient. In this blog, we’ll walk you through the core differences between Zero-Based Budgeting (ZBB) and Incremental Budgeting, highlighting the pros, cons, and where each approach fits best.
Let’s dive in.
What is Zero-Based Budgeting (ZBB)?
Zero-Based Budgeting is exactly what it sounds like—you start from zero. Every single line item in the budget must be justified from scratch, regardless of what was spent in previous years. There are no assumptions, no automatic rollovers. Every expense needs a reason.
Example:
Last year, your marketing department had a $50,000 budget. This year, instead of simply assuming you’ll need the same amount (or more), you start from zero and justify each campaign. Only the most strategic, high-impact initiatives get funded.
Pros of Zero-Based Budgeting:
- Eliminates waste: No automatic approvals or legacy costs.
- Focuses on current priorities: Spend where it matters now.
- Encourages innovation: Teams must think creatively to justify expenses.
Cons of Zero-Based Budgeting:
- Time-consuming: Requires detailed analysis and frequent reviews.
- Resource-heavy: Teams may need training and support to execute it well.
- Interdepartmental tension: Departments may compete more fiercely for limited funds.
What is Incremental Budgeting?
Incremental Budgeting takes a more traditional approach. You begin with last year’s numbers and make small adjustments—usually based on inflation, expected growth, or changes in the market. It’s a steady, straightforward method that values consistency.
Example:
Last year, you spent $50,000 on marketing. This year, you expect costs to rise, so you increase it by 5%, budgeting $52,500. No deep dive needed—just a logical, incremental step.
Pros of Incremental Budgeting:
- Simple to implement: Easy to understand and roll out across departments.
- Time-saving: No need to justify every expense.
- Minimizes internal friction: Baselines are generally accepted.
Cons of Incremental Budgeting:
- Can hide inefficiencies: Legacy costs may go unchallenged.
- Discourages innovation: No incentive to rethink or revamp.
- Lacks accountability: Without scrutiny, some expenses may no longer serve business goals.
Zero vs Incremental Budget: Which Should You Choose?
Both budgeting methods have value, but they serve different purposes depending on your business context.
Choose Zero-Based Budgeting when:
- You’re in a cost-cutting phase or need tight financial control.
- You’re going through a strategic transformation.
- You want to make sure every dollar is aligned with current business priorities.
- The environment is uncertain, and agility is critical.
ZBB shines when you’re restructuring, entering new markets, or navigating economic uncertainty. It forces clarity, cuts waste, and ensures your budget reflects your strategic goals today—not what made sense last year.
Choose Incremental Budgeting when:
- Your business is stable, and last year’s performance is a good baseline.
- You need a quick, low-effort budgeting cycle.
- You’re operating in a predictable environment with minimal change.
- You want to avoid budgetary conflicts between departments.
Incremental budgeting is ideal for mature organizations where major strategic shifts are rare and financial planning focuses on stability and consistency.
The Bottom Line
There’s no one-size-fits-all answer in the debate of Zero vs Incremental Budget. Each method has strengths, limitations, and ideal use cases. What matters most is understanding your business’s story—where you are today and where you want to go.
Need agility, control, and alignment with strategic goals? Go Zero-Based.
Want efficiency, simplicity, and a fast budget cycle? Stick with Incremental.
Or better yet—combine elements of both. Some businesses use a hybrid approach: applying ZBB to high-impact or high-spend areas while maintaining incremental planning for low-variance departments.
In the end, budgeting isn’t just about numbers. It’s about strategy, discipline, and storytelling. Choose the budgeting style that reflects your company’s goals and values, and let your budget tell the right story.
Supriya Gupta
Principal Consultant - Financial Transformation
