When it comes to budgeting, what’s old is new again. Zero-based budgeting (ZBB) has always been considered a powerful way to promote spending discipline, but it has a mixed reputation. Detractors point to the incredible strain it puts on finance to justify every dollar, every year, from scratch. Most organizations opt for the easier option of using last year’s spend as a baseline. Simpler, sure—but also far less strategic.
Today, ZBB is making a comeback. Modern FP&A software tools are helping finance teams build budgets from the ground up without the heavy lifting, turning what used to be a monumental, once-a-year task into a continuous and dynamic process.
SaaS companies in particular are embracing ZBB—not just to control costs, but as a strategic enabler of growth. Because every dollar has to be justified, organizations can be sure that their resources are aligned with their larger goals, rather than being directed by the inertia of prior years.
If you’re new to the concept of ZBB, let’s review what we’re talking about and how we got here.
What is zero-based budgeting?
Traditional budgeting typically builds on last year’s numbers, with minor tweaks—some departments receive a little more, some a bit less. Major resource reallocation is rare, even when strategic priorities change significantly. This incremental approach creates friction when a more dynamic shift in resources is needed.
In contrast, zero-based budgeting treats last year’s spend as if it never happened. Every dollar must be justified based on the company’s current priorities and goals. Nothing is assumed—if the organization’s focus has shifted or a new opportunity opens up, entire departments might see substantial changes in their funding. This process forces department heads to critically evaluate every line item to ensure it’s in service of their broader objectives.
ZBB also addresses a common issue with traditional budgeting: the “use-it-or-lose-it” mentality. Managers often feel pressured to exhaust their entire budget by year-end to prevent cuts in the next cycle, whether they have productive uses for it or not. Because each budget starts from zero, ZBB eliminates this incentive. Rather than worrying about justifying their future budget, managers are encouraged to allocate resources purely based on current strategic goals.
The legacy of zero-based budgeting
ZBB initially gained traction in the 1970s as a cost-cutting tool, famously used in public finance by U.S. President Jimmy Carter during his tenure as Governor of Georgia. At the time, it was viewed as a bold, even radical, method to help governments control spiraling costs.
Its discipline and rigor quickly caught the attention of businesses. Large, sprawling multinationals, plagued by bloated budgets, began to adopt ZBB to trim the fat. For these businesses, the method offered a way to refocus on core objectives by cutting unnecessary expenses. Notable early adopters included Texas Instruments and Xerox, who were able to increase profits by as much as 60% after implementing ZBB.
However, as it became synonymous with cost-cutting, ZBB developed a reputation as a heavy-handed, one-time exercise. Companies feared they would stifle innovation and undermine long-term growth if they focused too much on cost reductions.
In recent years, however, ZBB has undergone a revival, particularly in industries facing margin pressures: consumer goods, manufacturing, and, increasingly, SaaS companies. The modern iteration of ZBB is shedding its old image as a last resort for desperate cost-cutting. Instead, companies big and small are recognizing that it can help them strategically reallocate resources toward promising growth areas.
How technology streamlines the ZBB process
Every leader wants capital to flow to high-value opportunities. So why hasn’t ZBB been adopted far and wide? It comes with some real challenges.
Historically, implementing ZBB was a manual, time-consuming endeavor. Data collection was one of the biggest bottlenecks. Before finance could even start building a budget, they had to pore through endless spreadsheets and reconcile data across various departments. The sheer volume of data required, along with the need to justify every single line item, made ZBB overwhelming for many organizations—especially those with complex or sprawling operations.
Fortunately, those roadblocks are now being cleared thanks to new technology, making ZBB far more accessible. While traditionally a fit for lower-growth firms focused on cost discipline, ZBB can also support high-growth companies seeking to rein in spending without sacrificing momentum. By revealing unproductive investments, ZBB enables companies to redirect resources to projects with the strongest risk-adjusted returns and strategic value.
Automation
The revival of ZBB can largely be credited to cloud-based platforms that automate much of the tedious work. Modern software has transformed how finance teams handle data aggregation and reporting, doing away with the need to manually hunt down and consolidate information. These tools can automatically aggregate data from your ERP, CRM, and other financial systems into a single, integrated platform.
When data is collected automatically, finance teams have more bandwidth to drill deeper into the specifics, ensuring that every dollar serves the company’s broader objectives.
Moreover, because data collection is done in real-time, ZBB no longer has to be a once-a-year exercise. Instead, it can be a continuous, evolving process, allowing organizations to pivot quickly as market conditions change without losing sight of their long-term goals.
To see Aleph's data aggregation and automation in action, book a demo to discover a whole new world of possibilities.
Benchmarking
Another factor that held back ZBB in the past was the lack of a clear starting point. While reallocating funds to high-impact areas made sense in theory, finance leaders often wondered: what’s reasonable? What’s best practice for one investment versus another?
Modern benchmarking gives CFOs and finance teams a needed sanity check for their budgets. Today, standalone companies have access to a wealth of external benchmarks—industry reports, real-time data feeds, public trends—that make ZBB more achievable than ever. Rather than being confined to historical spend data, benchmarking allows companies to see how they stack up against their peers.
For organizations with multiple business units or diverse client groups, benchmarking is even more powerful. Aleph’s advanced benchmarking capabilities empower parent organizations—like private equity funds and fractional CFOs—to compare performance and spending patterns across their affiliated entities. This visibility enables precise resource allocation, ensuring that capital flows to where it’s needed most across the portfolio.
Reframing ZBB as a strategic lever
ZBB owes much of its resurgence to technology that makes it easier to implement, but that’s only half the story. More fundamentally, ZBB gives companies a way to ensure that nothing stands in the way of funding their most strategic, high-impact initiatives.
Think back to 2020. With near-zero interest rates, capital was cheap, and investors were more interested in moonshot projects than financial discipline. If you had a transformative idea that seemed remotely feasible, funding was available. Profitability could wait.
But as interest rates climbed and the economic climate changed, investors changed their tune. The zero interest rate policy (ZIRP) world is a distant memory—profitability is back at the top of the priority list, and spending discipline is all-important. Investors expect companies to demonstrate a clear path to profitability—if not now, then soon.
At the same time, the pace of change, especially in tech, has accelerated dramatically. The annual budgeting cycle just can’t keep up anymore. Waiting a year to make significant budget adjustments feels like a relic of the past, especially when nimble companies can outmaneuver their slower-moving competitors by responding to real-time data.
ZBB addresses both these challenges head-on. It frees up resources from low-impact areas, channeling them directly into the initiatives that matter most. And with modern tools, ZBB doesn’t need to be a one-time, annual overhaul. It can be an ongoing, responsive process, empowering businesses to pivot quickly as market conditions change without sacrificing profitability.
Flexibility meets focus with modern ZBB
Zero-based budgeting has come a long way from its cost-cutting roots. While it still helps companies inject financial discipline into their operations, it’s also a way for them to focus resources on their most promising growth areas and adapt quickly to changing market dynamics.
Aleph is the perfect tool for implementing ZBB effectively and painlessly. It combines the familiarity of spreadsheets with cutting-edge features, such as real-time data integrations, automations, and benchmarking.
Book a free demo today and see how modern ZBB can make your budgets more agile and responsive.
