FA-301e · Module 1

Percentage vs. Zero-Based Budgeting

3 min read

Percentage-of-revenue budgeting allocates a fixed percentage of revenue to each function: marketing gets 15%, sales gets 25%, R&D gets 20%. It is simple, scalable, and guaranteed to perpetuate last year's allocation — which may or may not have been optimal. Zero-based budgeting starts from zero and requires every dollar to be justified by its expected return. It is rigorous, time-consuming, and the only method that prevents budget inertia from compounding suboptimal allocation year after year.

Do This

  • Use percentage-of-revenue as a starting benchmark, not a final allocation
  • Apply zero-based discipline to at least one function each year on a rotating basis
  • Require ROI justification for every budget line above $50K — not just new requests, existing ones too
  • Compare your functional percentages to industry benchmarks to identify structural over/under-investment

Avoid This

  • Allocate "last year plus 10%" to every function — that compounds inefficiency annually
  • Apply zero-based budgeting to all functions every year — the process cost exceeds the savings
  • Fund everything the same way regardless of stage — a $5M company and a $50M company have different optimal allocations
SaaS Budget Allocation — Median by Stage:
──────────────────────────────────────────────────────
Function        $5M ARR    $20M ARR   $50M+ ARR
──────────────────────────────────────────────────────
Sales            28-35%     25-30%     22-28%
Marketing        15-22%     12-18%     10-15%
R&D              25-35%     20-28%     18-22%
G&A              12-18%     10-14%      8-12%
CS/Support        8-12%      8-12%      8-10%
──────────────────────────────────────────────────────

Early stage: over-index on R&D and sales.
Growth stage: optimize marketing efficiency.
Scale stage: leverage operating leverage in G&A.

Your allocation should differ from benchmarks
for specific, documented reasons.