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Budget Allocation: A Step-by-Step Guide

Most of us are fairly familiar with putting together a monthly budget for personal expenses.

We put aside X for rent, Y for bills and groceries, and Z for entertainment. But when approaching budget allocation for your startup, things look a whole lot different.

To start with, you’ve got more than a few extra zeroes on the end of each line item, and you’ve got various departments to consider:

• How much should you spend on marketing?
• What about human resources?
• How do you determine what your labor cost is going to be before you’ve hired a full team?

Some of these questions are ultimately answered in time (you’ll have to be content with your most well-calculated guestimates for now), but many of them are solved with a bit of good old-fashioned budget allocation.

In this article, we’ll give you a rundown on what budget allocation is, how it works for startups, and guide you through a four-step process for determining how to spread your budget across various departments to get the most bang for your buck.

Table of Contents

What is Budget Allocation?

Budget allocation is a pretty simple concept:

It refers to the amount of spending allocated to each expenditure line, which in layman’s terms basically means the amount of money you spend on each thing your company spends money on.

In a budget allocation, you don’t go right down to the nitty-gritty. Generally, it’s kept to the department level.

So, for example, you’re not going to list out how much you intend to spend on paper clips this year. Rather, you’ll allocate a certain percentage of your budget to the admin department.

They’ll take care of the paper clip budget.

Budget allocation is a process that happens at organizations of all sizes, not just startups.

Take a look at this old European Space Agency’s budget allocation , for example.

The budget allocation tells employees (generally department heads) the maximum amount of money they can spend during the fiscal period, without having to seek approval from someone above them.

How to Allocate Budget Across Departments

Budget allocation as a concept is fairly straightforward, sure. But how do you actually go about it?

Let’s explore.

1. Determine Your Total Spending Requirements

Budgetary decisions should be based as much as possible on actual facts and figures , be it previous spending or informed estimates.

This is easier for companies that have already been in the game for a couple of years, as they have a much clearer understanding of the various costs they’ll incur.

For startups, there’s a lot of estimation and forecasting involved.

Note that this doesn’t mean throwing your hands up in the air and shouting “Who knows!? 20% to each department and let’s be done with it!”

Rather, you’ll need to sit down and detail the various costs you plan to incur.

A financial planning platform like Finmark will help you significantly here (not so subtle plug).

There are three kinds of costs you need to calculate:

Startup costs

Fixed costs, variable costs.

Startup costs are the expenses you incur before launch. Depending on where you are in the startup journey, you may have already moved past this stage.

If you’re just getting going, though, then you’ll have to calculate necessary startup costs such as:

• Security deposits

Fixed costs, also known as overheads, are expenses you incur at the same rate, each month, regardless of how your company performs.

The classic example of a fixed cost is your rent. It doesn’t matter if your company sells two million dollars or two dollars in product that month, your rent remains the same.

Fixed costs are the easiest to calculate because of this factor.

Other examples of fixed costs include:

• Utilities (some, others are variable)
• Website hosting
• Financial repayment obligations

Variable costs are those expenses that fluctuate each month, typically in response to sales and revenue performance.

The most obvious example of a variable expense is the cost of raw materials. If you’re producing a physical product, then the more you produce, the more raw materials you’ll need to purchase, so your variable costs increase for that period.

Other examples include:

• Advertising and marketing spend
• Sales commission
• Some utilities
• Business income taxes
• Freelance services

Because variable costs are more difficult to forecast accurately, it’s best to build in some buffer to this aspect of your budget. For example, round up a $473 estimate to $500 to give you some leeway for unexpected increases.

Building in a buffer

Now that you’ve got an idea of your total required spend, it’s a good idea to build in a small buffer (perhaps 5-10%) to give your team leaders a bit of extra room in the event that costs increase.

Expenses rarely go down (don’t we know it?), and it’s much more common to underestimate than to overestimate, so for the sake of agility in spending, build a small safety net into your budget allocation.

2. Identify Funding Methods

So far, we’ve calculated the expenses we expect to accrue, but we need to ensure this aligns with the funding we have available.

There are two main sources of funding for startups .

The first is to receive an investment from a venture capitalist or angel investor . If you’re yet to get funded, check out our guide on the whole process: How to Get Seed Funding – A Step by Step Guide for Founders .

The second source of funding to fuel your budget is your company revenue model .

Part of the budget allocation process is to provide a breakdown of where the funds are coming from.

For example, your funding source might look something like this:

• 70% from seed investment
• 20% from existing revenue
• 10% from expected growth from a new revenue stream

Assuming you can match your funding amounts with the expected costs, then you’re good to move forward.

If not, you may need to reassess your expenses to identify areas to cut back, or seek further funding.

3. Allocate Budget by Department

Now, you’ll use the total costs you’ve calculated to allocate your overall budget by department.

The makeup of your budget allocation will ultimately differ by the industry you’re in, the size and stage of your company, and the departments you currently have operating.

That said, most startups can be easily divided into 6 core departments:

• Engineering
• Customer Success/Support
• Operations/Administration

You’ve already got a breakdown of the various startup, fixed, and variable costs you expect to accrue (whether you’ve used a helpful tool like Finmark or gone old-school with a spreadsheet), so the next step is to go through each expense and assign it to a given department, like this:

Now you’ve got figures for:

• Your total budget for the year
• Budget allocation based on department

Budget allocations are often displayed as both spend by department and percentage of total budget by department, so you can use the following calculation to determine percentages:

[department spend] / [total budget] * 100 = [department spend as a percentage of total budget]

For example, if your total budget is $2,000,000, and your marketing budget is $450,000, then your calculation would be:

$450,000 / $2,000,000 * 100 = 22.5%

Then, if you like, you can display your budget allocation visually, like this:

( This is Finmark by the way )

4. Design a System For Monitoring Spend

The actual allocation of your annual budget is only the first half of the process.

Now, you’re going to execute on the allocated spend, and you’re going to need a way to track your actual expenses against your budget and to be able to report on what’s available to spend at any point.

Using a financial modeling platform like Finmark , founders can easily forecast cash burn rate , and build projections for runway , budgetary spend, and revenue growth.

Tracking metrics such as these allows you to be agile with budgetary adjustments, to identify areas to reallocate budget, and to catch runaway costs before they become unmanageable.

Speaking of making adjustments to your budget allocation…

Budget Reallocation: Making Adjustments

Throughout the year, it’s likely that you’ll come to find that certain cost estimates were over or underestimated.

As a startup founder, you need to be agile with spending, which means being prepared to reallocate budget as needs arise.

We’d recommend a quarterly cadence for reassessing and adjusting budget allocation.

There are a few situations that may cause you to reallocate your company’s budget:

• One department is spending more than expected
• One department is spending less than expected
• Your company as a whole is spending more or less than anticipated

In the event of an under or overestimate in a particular department, you’ll need to make the decision either to filter more budget to that department (at the expense of another), or cut department spending going forward ( depending on your budget model ).

These calculations should be based on your actual expenses, but you should also bear in mind that particular expenses may not be accrued throughout the entirety of the year.

For example, let’s say you’ve identified at the end of the first quarter that your marketing department is 2% over budget, and the sales department is 2% under.

Seems like a nice easy reallocation.

But upon looking further, you might identify that your plan for sales growth includes onboarding three new reps in the third quarter, which will increase your commission expense, meaning reallocating that sales budget wouldn’t be a wise idea after all.

Allocate Your Budget More Efficiently

Allocating a budget is often a task that sends new startup founders into a spiral, wondering how to calculate expenses and where to siphon their money.

As you can see, though, it’s not such a terrifying process, especially if you’ve got a capable financial modeling platform on your side.

Book a demo with the Finmark team today , and let us show you how we can supercharge your budget allocation process!

This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.

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Historically financial modeling has been hard, complicated, and inaccurate. But financials are the lifeblood of any company. They’re too important to be ignored or outsourced. They should be a core part of every founder’s job. This doesn’t have to be scary. And you don’t have to do it alone. The Finmark Blog is here to educate founders on key financial metrics, startup best practices, and everything else to give you the confidence to drive your business forward.

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The value of a budget allocation plan for businesses

Budgeting is one of the most crucial aspects of any business. However, many companies don't budget "smartly" since they don't have a budget allocation plan. It could be the difference between success and failure in your business. 

What is a Budget Allocation Plan?

A budget allocation plan is a blueprint of how much you can spend on a program, event, person, or product within an organization. Essentially, it is the amount allocated to expenditures, telling staff how much funding is available, and having them to stick to the allocations.

Usually, businesses create a budget by taking into account expenditures, resources, and expenses from each department from the previous year. Identifying the needs, program expenses, and available resources of the company in the coming months can help to allocate monetary resources better. This can boost employees' confidence and productivity.

Overall, the goal of the plan is to account for the monetary resources of a company, thus ensuring money is spent as planned. In other words, the plan keeps the company in check by allowing management members to understand when they are spending too much. 

However,  with only 54% of small businesses having a budget many companies are vulnerable to overspending. So how can a business make a plan that works? 

How to make a plan for budget allocations

A good question to ask yourself is, what is a good budget allocation plan? A good plan entails the allocation of resources. It is a realistic, transparent, and professional approach to an organization's finances. 

The first thing that management and sales teams should do is understand and outline all the expenditures, allocation limits, revenue, and standard budget categories of the last few months or years. By looking at the amount spent on direct costs and indirect costs, the company can account for, limit, or adjust its expenses, thus conserving its resources. 

Some companies keep subscriptions on for many years without using them. Looking back at these costs can help determine overall expenses, determine direct costs, and the assigned expenditure for these services. 

Furthermore, analyzing past spending can help companies form a performance trend to predict expenses and expenditures in the future. After all, if we write an unrealistic budget, no department, employee, or staff member will truly follow it since it just isn't realistic. 

Allocating Budgets across Departments 

You already understand the importance of a budget. But it is crucial that your employees know that the maximum amount of money they can obtain for a fiscal year stays within the allocation plan. Therefore, consider allocating across departments by; 

Determine spending requirements

No allocation plan is as good as facts and figures, so you want to make spending estimates based on historical data. Have each team discuss and provide details. Furthermore, you may find it helpful to consider all business costs, especially fixed costs and variable costs. 

Of course, you may be past the startup stage, but if your allocation plan will be effective, it is essential to include this cost. Fixed costs, on the other hand, are consistent expenses that occur weekly, monthly, or yearly.

For example, salaries, health insurance, travel and subsistence item, etc. The variable costs fluctuate and may be dependent on sales and revenue. For example, your sales team may have to attend a conference, so paying for round trip airfare, and accommodation will increase your personnel expenses for that period.

Since it may be challenging to set a fixed price for variable costs, it is best if you considered buffering this part of your allocation plan (to the nearest hundred or thousand) - to accommodate increments and unforeseen expenses. 

Generating a reliable revenue

It is imperative for companies to have reliable revenue so that they can have a reliable budget. It is also reasonable to have an expenditure line with the maximum amount payable. If a company has an inconsistent revenue source, it is tough to devise a competent way of calculating its budget or predicting overall performance. 

A better way to secure a reliable revenue plan is through long-term contracts and partnerships that yield monthly revenue.

If an organization has yet to have a reliable revenue, it is crucial that the company knows where to make cuts in case of an economic downturn to ensure that the company will not be in the negative. However, if that is not feasible, it is crucial to find new ways to generate reliable funding sources so that they can still continue to survive in the long term. 

Executing your allocation plan 

The first few months after developing an allocation plan should focus on execution. Note that it may be slightly challenging to get used to the changes that come with cutting costs. 

Ultimately, the first few months of execution determine the success of your plan. However, if the company can not follow up with the plan or there has been no change, it may mean that the plan needs changes. An unsuccessful plan may not be a negative. Instead, it should be an opportunity to improve your company.

Monitor the allocation plan

Monitoring the allocation plan is great for accountability, especially with economic inflation. It is essential for the company to look back at the budget allocations every few months. 

Furthermore, recording your spending, expenses, budget allocations, and purchase orders will further promote accountability in the company. This will help employees determine allocated funds per department, what they have spent, and how expensive it is.

It will create a sense of responsibility and accountability and promote an ideal management culture in several organizations. 

Adjusting your allocation plan 

Your plan may not be perfect. Chances are, it won't be. It is not unusual to make some corrections that include fund transfers from one category of the plan to another. This is especially ideal for a category with surplus funds. Adjusting the budget keeps your results in view and prevents the adverse effects of an economic downturn. 

Allocation costs

There are usually two classifications of allocation costs: direct and indirect costs. 

Direct costs

Direct expenses that are directly related to a product or service. These typically include raw materials, personnel, allowance, vehicle costs, holiday pay, services rendered, and more.

These costs are usually very easily traced since they fluctuate with production levels, such as inventory. If a company is doing well, the direct costs are usually higher than before. 

Indirect costs

Indirect costs are not so easily traced. They're "overhead expenses" which cannot be easily traced back to a project or product. A few examples of indirect costs are utilities, premise rent, equipment, security, operation and maintenance, and more.

Indirect costs usually fluctuate quite a lot monthly since they don't tie into how the company is doing. 

Business Budgeting Methods 

Organizations use different methods in determining the best budget for their resources. However, four are common: incremental budgets, zero-based budgets, value proposition budgets, and activity-based budgets. 

Incremental budget

An increment budget reviews last year's budget to determine the current year's performance. It is last year's figure plus or minus the allocated percentage. This method is ideal for any business. A factor to consider in this program is funding and the change in primary cost.     

Zero-based budget

This method assumes that all departments have zero budgets. Each department in the organization must justify its expenses. Money management is good because it avoids non-essential costs and spending. It is an excellent example of when you want to shake things up in your business. 

Value proposition: this falls between incremental and zero-based budget to produce a sweet balance and profitability. It analyzes different expenditures and seeks to; 

• Understand why a department spends a certain amount of money. 
• Justify expenses 
• Determine the value expenditures provided to various departments within the organization.  

Activity-based:

The activity-based budget is prepared based on targets, especially for a newer organization interested in budget allocation and funds maintenance. The activity-based approach promotes performance and is a better way for the organization to allocate its funds. If you don't spend more time analyzing the program, it could prove detrimental to your developing enterprise.  

Overall, a budget allocation plan is crucial for any business. It is a good habit to track and control the costs related to your business and improve the financial health of a company while eliminating wasteful or toxic spending habits.

Your business will enjoy growth when you have a good picture of your finances. Remember that all spending information is relevant in the process. If you need to keep your records safe and accessible, you may consider opting for software.

• Integrations

What Is Budget Allocation and How to Allocate Budget Correctly

If you want to pave a path toward sustainable growth, you need to embrace agility and proactivity — and one way to do that is by improving budget allocation processes. Learn how more effective budget allocation creates a path for agile, strategic spend management decisions.

George Fullerton

Strategy & Operations

The 12 Most Important Operational Metrics & KPIs to Track in SaaS

How to choose the best pricing model for your saas business, what is spend forecasting and how can it benefit your business, never miss new content.

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Your budgeting process  requires strong collaboration from department heads and executive leadership. Yet if you’re only going to each department once, asking them what they need, and simply saying, “Here you go” once you get executive approval, then you haven’t done enough testing around your top-line goal metrics.

If you want to pave a path toward sustainable growth, you need to embrace agility and proactivity — and one way to do that is through budget allocation. Running a budget variance analysis  and rolling forecast  helps you set baselines and growth goals, but these processes can still take weeks to gather and manipulate data from multiple departments and source systems.

Here, we explore how quarterly budget allocation creates a path for more agile, strategic planning and spend.

Table of Contents

What Are Budget Allocations?

Budget allocations refer to the amount of money each department receives from the general fund to execute their strategic plans. Budget allocation breaks department spend down into an approved maximum amount each department can spend per resource, whether it’s on software, contractor or freelance assistance, or ad spend for a marketing campaign.

The Importance of Allocating Budgets

Budgeting, at its core, is an optimization and constraint problem. You need to optimize operational efficiency yet understand your constraints to ensure ample runway and team support as you track the company’s growth trajectory.

You dictate the company roadmap based on expected return on investment (ROI), which has to tie out at the department level. The R&D department is integral for Seed and Series A companies, yet once the product is ready to launch, you want to allocate budget to your sales and marketing teams. Once the budget goes toward sales and marketing, and you begin acquiring customers, you now have new constraints that impact your budget: your customer acquisition cost  (CAC), CAC payback period , and your annual recurring revenue  (ARR).

Budget allocation fuels overall efficiency, in that department leaders don’t need to ask for approval to expense individual tools, assign projects to freelancers, or add seats for software. By allocating budget to general categories, each department can cherry-pick when and how to apply the budget. Of course, departments need to ensure they use their budget. While saving money is generally seen as positive, departments may not receive the same budget allotment in the next cycle — which may be detrimental to department-level goals and planning.

If departments experience strain, such as requiring more seats on a specific tool or running into production issues, you run into employee retention issues that stem from operational efficiency and satisfaction. To hire more employees costs more, which digs into your runway. By keeping an eye on your goals and constraints, you can then proactively figure out where you’ll get the highest ROI.

How to Optimize Budget Allocations in 6 Steps

Knowing your startup costs (for each employee and desk space), fixed costs, and variable costs and how they impact your total budget is one thing — but to optimize budget management and allocation requires ample cross-collaboration to keep goals top of mind and realistic.

Your budget allocation strategy will depend on your industry, your growth stage, and overall macroeconomic environment. But here’s how you can optimize your budget allocation with more strategic and agile decision-making from everyone involved regardless of stage.

1. Set Company Goals and Priorities

While knowing your total budget is technically the first step, the real strategic insights begin with a simple question: What are your North Star metrics?

Naming your company goals and priorities is the key to driving how you think about and create departmental budgets across the company.

In ideal market conditions, many executive leaders say that their top priority is to grow at all costs. Yet during a market downturn, priorities shift toward keeping a closer eye on burn and preserving runway. Depending on how those priorities shake out, there’s two ways to approach budgeting:

• Growth goals: A focus on growth goals requires high confidence in achieving them. Your growth goal is the starting point, then you work backwards to allocate your budget to achieve that goal. A focus on top-line revenue growth leads to creating a sales and marketing budget around cost per lead and win rates/conversions. The question becomes “How much do I have to spend in order to get this growth goal?” which then spits out your sales and marketing budget.
• Capital efficiency :  A more conservative approach begins by asking, “How much can I spend in order to only burn X number of dollars a month, or to make sure I have runway for 24 months into the future?” You can also focus on a certain set of unit economics, meaning you’d build your budget to hit a particular CAC number or set a payback period within a particular period of time.

Regardless of your approach, tying your budget back to goals (i.e. strategic budgeting ) and target metrics is critical. If you believe growth goals are most important, for example, then your ROI on spending additional sales and marketing dollars could be higher than hiring a different engineer where you may have a longer-term payoff.

2. Set Your Constraints

Your goals establish whether you’re approaching budget allocations from a bottom-line or top-line growth  perspective. Utilizing both allows you to gain a sense of customer retention (with your top line) alongside expenses (bottom line), which helps you strike the right balance or priorities. Applying constraints to your goals allows you to set realistic expectations.

Company-wide, you want to keep an eye on runway and burn multiple. Yet when diving deeper into department budgets, you’ll need to focus on different metrics. For example, CAC payback period impacts your sales and marketing budget.

Your CAC payback period sets a precedent for how long potential customers stay in the sales funnel. Incorporating sales funnel metrics into this equation provides invaluable insights — and setting constraints around your payback period requires sales and marketing to scrutinize and optimize these metrics within the funnel.

3. Check Your Goals Around Budget Allocation Benchmarks

Your company’s growth stage impacts where your goals and constraints stay relevant and applicable to ensure strategic growth. OpenView runs a SaaS Benchmarks Survey that explores budgetary benchmarks in correlation with your growth stage. Here’s their chart from 2021:

OpenView SaaS Benchmarks Survey 2021 Results, courtesy of Curtis Townshend , Senior Director of Growth at OpenView.

The top row indicates the stage of the business per million dollar revenue. The numbers in bold represent a median, with percentages assigned for how much each company would allocate per category. For example, a company with $1-2.5 million in revenue would allocate 30% of their budget to sales and marketing and 40% in R&D, while aiming for 75% in gross margins.

While the above table does not mention a ratio for general and administrative costs , the standard spend for SaaS companies is about 10-12% of your total budget.

After you establish your goals and constraints to ensure financial efficiency , you can approach your budget and measure against these benchmarks.

4. Establish Your Headcount Plans

Headcount accounts for 70% of overall company spend in SaaS, and each department has different ROI.

Sales and marketing headcount should directly produce returns — but to drive the sales and marketing machine, you need to continuously spend. You need to ensure you have a strong control and understanding of your product-market fit to keep the engine running. If the company is not at the point of understanding the output of each dollar spent across the sales funnel, the budget should focus on product or internal system process data.

Work closely with human resources partners to decide how much to set aside for workforce growth in every department. Decide how many full-time hires you’ll need in the next budget year, where it might be appropriate to hire out to contractors, and where your stakeholders need the most help.

5. Conduct Scenario Planning with Mosaic

Optimizing budget allocation helps you optimize ROI of operational initiatives by forcing you to constantly check where you think you’ll get the most out of your dollars and how that spend relates to company-level goals.

Mosaic’s financial modeling and scenario planning tool integrates with your source systems to offer scenario analysis that elevates the strategy behind your budget allocation. Scenario analysis examples  include looking at how cutting a fixed cost (like office space) impacts your runway, or how your product release plan may hinge on engineer headcount or come down to asking, “ How much should you spend on ads  to promote the product — and when?”

Being able to quickly see how adjustments to specific budgets affects your downstream metrics is extremely helpful. Mosaic syncs in real time so you can easily integrate your historical and actual data into your scenarios. If you want to see how increasing spend by $500,000 impacts your sales and marketing budget, you can simply apply the change in one model to see how it affects your CAC, CAC payback, burn multiple, and other key metrics.

You don’t need to build entirely new models or scenarios — instead, you can tweak your budget assumptions in different scenarios and see the immediate downstream effects on the metrics that you want to employ as your constraints.

Keep in mind that your strongest models align on two or three metrics: Too many inputs leads to an overlap in ideology, which causes clutter and slows you down.

6. Make Cross-Department Collaboration a One-Stop Shop

The budgeting process is notorious for multiple Excel sheets and communication across multiple emails or Zoom meetings. Mosaic allows you to create department-level dashboards that align leaders and give them one place to stay updated on budget allocation and spend.

Department leaders can look at a graph or table in Mosaic’s variance analysis software to see where their budget currently is and where it was spent. Mosaic can immediately generate a budget analysis that allows them to make strategic decisions on what they want to do with their remaining budget or where they need to cut back to hit their budget for the month or quarter.

Mosaic also allows reports to be easily accessible for department leaders. Since Mosaic offers real-time updates, finance teams can help establish one report that automatically updates so department leaders can make plans with actual numbers. This leads to not just saving time between going back and forth to establish numbers, but more proactive decision-making that keeps leader engagement high into understanding the “why” behind their budgeting line items.

Focus more on telling the story behind your numbers with this Financial Waterfall Template Bundle.

When to review budget allocations — and why you’re not doing it enough.

A “one and done” annual budget process doesn’t work for high-growth companies. A more adaptable or flexible budget approach is essential, especially for those experiencing rapid changes. Keeping it to even twice a year causes everyone to miss out on key drivers for overall success. Proactive budget development should happen at least on a quarterly schedule, where you can change resource allocation based on historical data from the previous year to last quarter.

While establishing a quarterly financial plan review is good in practice, you also need to allow for some flexibility. Here are some other reasons to perform financial audits on budget allocation:

• Macroeconomic events. Anything from a market downturn or industry collapse signals immediate action. Budget allocation should transition into a monthly schedule to stay as ahead as possible.
• Not hitting topline goals. You may need to redistribute your budget to ensure you get as high of an ROI as possible. You may need to allocate more budget toward supporting sales and marketing than hiring another engineer, for example.
• Runway cost. If you predict that you’ll burn $5 million, but realize that headcount needs to increase in the second half of the year, you need to factor that cost in. You also need to keep track of your burn and when it occurs: If it increases from $2 to $3 million in one month due to headcount, you carry this cost throughout the rest of the year. You can then take budget away to make up the costs — it’s much harder to try and get the budget back once people start spending it.
• Capital efficiency metrics are off. Analyzing capital efficiency  metrics like burn multiple  on a regular basis can help you proactively address inefficiencies in the business. Drill down into your expenses and see how you can reevaluate spend.

Embrace a Smarter Way to Allocate Budgets with Mosaic

Mosaic offers preloaded, out-of-the-box metrics, templates, and dashboards that allow you to cut the budget allocation and planning process from two weeks to two days. Mosaic offers a SaaS acquisition metrics dashboard that considers CAC and CAC payback alongside other important metrics, like your SaaS magic number , to gain granular insights that craft your company’s growth narrative. You can also customize financial reports to include other key metrics, such as your burn multiple and runway, to help establish and keep your benchmarks in mind.

With Mosaic, budget planning can be a quicker, more collaborative, strategic process that keeps your company moving along toward its goals. Request a personalized demo today .

Budget allocation FAQs

Why is budget allocation important.

Understanding your budget allocations and appropriations can help your company maximize ROI. Knowing where your money goes ahead of time reduces discretionary spending and leaves a strategic roadmap for spending and expenditures . And, since this is done ahead of time, departments can run more efficiently on their allocated budget.

What is an example of a budget allocation?

An example of budget allocation is a predetermined percentage of company funding that goes to research and development, or sales and marketing. This can be done monthly, per quarter, or per fiscal year . The percentage of the allocated budget is based on importance, productivity, company profits, and other considerations. If the department needs more funding, they can submit a budget request , but ultimately, the budget allocation should be taken care of beforehand.

What is the best way to allocate your budget?

There’s no one-size-fits-all answer here. To optimize your budget allocation you need to proactively and periodically review how you’re allocating resources and reassess your priorities. What are your goals? What are your budget constraints? What ROI are you getting on your current allocations? These are all questions you need to ask in collaboration with different teams and departments to ensure your budgets are allocated properly at all times.

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13 effective tips to allocate budget across departments

Sabrinthia Donnelly

To build a sustainable and profitable business, you need to know how to allocate budget across multiple departments.

As you can imagine, this can be a tricky process to get right. Everyone wants a bigger piece of the pie, and you can’t always please everyone. Instead, you must find a way to balance competing priorities with overarching business objectives – all while forecasting future needs.

So, how can you do that effectively?

This article highlights 13 tips for successful budget allocation across departments and covers: 

• What we mean by ‘budget allocations'
• Why companies need to budget
• How to allocate budgets
• Roles responsible for budget management

13 tips to allocate budget across multiple departments

• How to allocate marketing budgets
• What types of budget allocation can be changed

How to create a budget allocation model

What are ‘budget allocations’.

Budget allocation is the process of designating specific amounts of money to each department within a company.

How much money each group receives depends on:

• Company priorities
• Revenue projections
• Departmental needs

These allocated budgets set spending limits for each department's operational costs, including:

• 🖥️ Software
• 💬 Marketing campaigns
• 🛠️ Equipment
• 📈 Projects tied to their goals

Done right, budget allocation provides clarity on available funds and is used to monitor spending.

Why do we need budget allocation?

The purpose of budget allocation is to guide spending and distribute financial resources.

It won’t come as a surprise to learn that most businesses have limited budgets. As much as you’d like to give every department the freedom to spend as much as they want, that's just not realistic. Budgets force departments to prioritize their needs and allocate resources efficiently. Without budgets, costs would likely spiral out of control and lead to overspending.

Some more reasons why budget allocation is so important include:

• Financial control
• Optimal resource use
• Risk mitigation
• Strategic alignment
• Operational efficiency

But what does ‘successful budget allocation’ look like?

How do companies allocate budgets?

Many companies start with an analysis of historical spending and revenue patterns . They’ll collect financial and operational data from all departments and use key performance indicators to help guide decisions.

Company-wide objectives and initiatives are confirmed by leadership to help construct budgets that align with those goals.

Collaboration is very important and you may find that you’ll work closely with department heads and other stakeholders to better understand their monetary requirements, operational challenges, and strategic importance.

From there, you may employ a certain budgeting methodology such as:

Each offers a unique approach to budgeting. The next step is to draft a preliminary budget , which will be reviewed by senior management. You may need to revise the budget plan before it's implemented.

Larger, more complex companies often take a bottoms-up approach – gathering proposed budgets from departments first. Small companies may use a top-down allocated amount to each group.

It’s worth noting that budget distribution can occur as a single annual allocation or be staged across the year.

Who is responsible for budget management?

Typically, budget management involves multiple roles and stakeholders within an organization, such as:

• CFO - The Chief Financial Officer is ultimately responsible for high-level budget strategy, financial planning, and oversight of the overall budget. This holds true across multiple industries with McKinsey reporting that 72% of CFOs say they're the most involved executives in allocating financial resources.
• Finance Department - The finance team manages day-to-day budget tracking, reporting, analysis, and controls. They also develop budget allocation models and processes.
• Department Heads - Leaders of business units are involved in budget requests, planning, and managing budgets for their departments.
• Controller - The controller plays a key role in budget control and variance analysis and often enforces compliance with budgets.
• Budget Analysts - Analysts assist with budget forecasts, data analysis, and preparation of budgets.
• Project Managers - Project leads maintain budgets for specific projects and initiatives.
• Executives - The CEO, COO, and other executives weigh in on high-level budget direction aligned to business strategy.

While the CFO may be the ultimate budget owner, effective budget management requires collaboration across these different roles to develop, track, control, and optimize budget performance.

Here are 13 tips for effectively allocating budget across multiple departments.

1. Involve department heads in the budgeting process

Have them provide input on their resource needs and strategic priorities. This buy-in helps to create shared ownership.

2. Employ a standardized approach

Implement a standardized budgeting process throughout the company to maintain consistency and fair allocation while considering each department’s unique needs.

3. Analyze historical spending

Search spending history to help identify trends and seasonal fluctuations. Use this data to forecast future budget needs.

4. Set organization-wide goals and communicate strategic priorities

Departmental budgets should align with these overarching objectives. This alignment not only ensures financial coherence but also enhances operational synergy.

5. Tie budgets to realistic forecasts

Allocate the budget in the context of revenue projections, not last year's numbers. By aligning budgets with realistic forecasts, you’ll ensure a more adaptive and forward-looking financial strategy positioned to navigate through evolving market conditions and emerging challenges.

6. Reserve a percentage of the total budget for discretionary spending

This buffers against unforeseen expenses arising mid-year. Reserving some of the budget for a rainy day could prove to be vital for mitigating risks and safeguarding against financial strain.

7. Prioritize ROI-driven activities

Allocate more significant budget portions to departments or projects that exhibit higher Return on Investment (ROI), ensuring funds are applied in areas that create value.

8. Require departments to justify requests exceeding historical allocations

Scrutinize large variances before approving. This helps ensure that any significant deviations from past spending are thoroughly vetted and aligned with strategic objectives.

9. Stage budget distributions

Granting each department funds quarterly or monthly versus upfront. This improves oversight. Plus, allocating budgets in installments rather than lump sums allows closer monitoring of spending patterns and burn rates.

10. Establish policies on budget transfers between departments

Policies that allow flexibility while maintaining control enable resources to be shifted to higher-priority needs when necessary.

11. Compare the allocated budget to actual spending and hold department heads accountable

Regular check-ins on budget versus actuals reveal if departments are lagging or outpacing their plan. It’s also important to hear from department heads so that actuals vary from the budget by higher than expected, they can explain, and you can analyze root causes together.

12. Leverage technology

Implement budget management software and analytical tools to streamline the allocation process. If done right, technology can help ensure accurate tracking, and provide actionable insights that inform future allocations.

13. Review budgets regularly

Continually track budget usage against set benchmarks and revisit allocations if company priorities shift mid-year. Revising budgets is one of the biggest priorities of modern-day CFOs according to PwC , who say CFOs prefer to work closely with colleagues across the C-suite to adjust budgets and revisit pricing models.

How to allocate marketing budgets across channels

When it comes to allocating marketing budgets across channels, you might find the marketing team asking for your input and advice. Since it’s a common occurrence for many of our finance community members, we thought we’d address it here.

The most effective approach is to start by auditing historical performance data for each marketing channel and assessing engagement, conversions, and attributable revenue or pipeline. Look at both returns on ad spend and overall contribution to goals.

Based on the audit findings, prioritize the budget for the initiatives delivering the strongest results and ROI. Avoid spreading the budget too thin across marginal channels. Consolidate dollars into high-traction initiatives. 

Balance short-term lead generation priorities with longer-term brand-building channels. Seek overall alignment to revenue goals while maintaining ROI accountability. Continuously evaluate new channel opportunities by funding initial tests out of existing budgets.

The key is taking a data-driven approach to fund the right mix of channels optimized for customer acquisition and financial return. And don’t forget to adjust allocations based on results.

Digital marketing budget allocation

For digital marketing budget allocation specifically, focus spending on platforms with the lowest CPA and highest conversion rates per your analytics. 

Then, continue optimizing digital budget allocation based on campaign performance and emerging trends.

B2B marketing budget allocation

When it comes to B2B marketing budget allocation, prioritize high-touch channels like events and sales enablement . 

Ensure a sufficient budget for product marketing and research. Invest in thought leadership content and account-based tactics.

What budget allocation can be changed?

While certain fixed costs like rent and payroll are less flexible, most discretionary spending budgets can be adjusted as business conditions and priorities evolve. 

Areas, where budget allocation is typically more fluid, include:

• Marketing - Budget can shift across channels and campaigns based on performance.
• Technology - Upgrades can be accelerated or deferred; new tools funded.
• Travel - Conferences and other travel can be relatively easy to adapt to needs.
• Training/Development - Programs can expand or contract as capabilities shift.
• Contractors/Services - External spending can be reduced or surged as needed.
• Inventory - Purchases and production can align with demand forecasts.
• Capital Expenditures - Major equipment purchases can be postponed or funded faster.

A budget allocation model provides a structured framework for distributing financial resources across an organization's departments, divisions, projects, and other entities.

Key components of a budget allocation model include:

• Revenue forecasts: Projected sales and income provide the spending boundary.
• Historical data: Prior budgets and actuals inform future allocations.
• Performance metrics: KPIs help determine departmental budget sizes.
• Management input: Leaders provide top-down strategy and bottom-up requests.
• Allocation method: A proportional, incremental, zero-based, or activity-based approach.
• Policies: Guidelines for transfers, overages, contingencies, and processes.

Revisit and adjust the model regularly based on results and changing internal and external factors. Evolve the model of each cycle.

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4 Steps of the Business Budget Allocation Process

Hanh Truong

To properly plan and manage finances , organizations need to monitor their budget allocations. This practice will help management identify their current level of resources and how much they can spend on a department, project, or inventory. With full visibility into allocation limits, businesses can ensure that expenditures do not exceed revenue and profitability is maintained.

What is Budget Allocation?

Budget allocation is when an organization allocates the maximum amount of funding they are willing to spend on an activity or program. Essentially, it is a limit that employees cannot exceed when charging expenses. Organizations will create a budget with consideration of the expenditures from the previous year. Managers will also estimate how much revenue they expect to have in the upcoming year so they can identify the level of resources they will have available. This helps them to take into account all the needs of the organization and how they can best allocate their money. The goal of budget allocation is to ensure that a company's resources are efficiently and effectively used. It also helps management make informed decisions to protect the business's bottom line.

4 Steps of Business Budget Allocation

Successfully budgeting can help organizations guarantee that they have the funds necessary to meet obligations, as well as enough resources to deal with emergency situations. Businesses can improve their budget allocation by following 4 key steps.

1. Identify Spending Requirements

Management teams should outline all of the expenditures and financial obligations they plan to cover with their budget. These areas of spending usually include staff salary, inventory, and supplies.

2. Determine Methods of Funding

To ensure that expenditures are paid, businesses must determine how they generate or locate revenue. For existing companies, this can be through sales, while new brands will typically depend on investments. The revenue is then split and assigned to various budget items. In the case that the organization does not have enough resources available, executives will have to return to the first step and make cuts in the amount of money they want to spend on a budget item or remove the item in its entirety. If a budget item is necessary and vital to an organization's business plan, management should find new ways to produce more revenue.

3. Execute the Budget

At this stage, the budget has been thoroughly planned and businesses can start spending the funds they allocated for the different items in the budget. Oftentimes, circumstances may arise that require managers to make changes to their budgets. Businesses that experience this should conduct a thorough review of their resources to make sure they have enough funds to meet all needs.

4. Monitor and Maintain Budget Allocations

Finance teams should regularly monitor budget allocations to make sure that the business is following established spending plans . It is helpful to create a spending record to allow managers to assess all purchase orders and bills, and compare them to budget allocations. Recording spending will also promote accountability by enabling executives to check whether procurement activities were done correctly. Additionally, it can help the organization with future budget planning and can highlight any saving opportunities.

Direct and Indirect Costs in Budget Development

When developing a budget, management needs to classify their different expenditures into standard budget categories. These two classifications are-

Direct Costs

• Personnel - These are costs related to employee salary, holiday pay, and health insurance.
• Allowance for Travel and Subsistence - This refers to round-trip airfare, lodging, meals, and transportation expenses.
• Vehicle - Typically, vehicle costs, such as renting and maintenance, will be included in the travel and subsistence item. If employees or managers drive their cars for business purposes, they can claim a certain amount per mile.
• Consumables and Supplies - This includes money reserved for supplies and activities to complete a project. Some of the most common consumables are software, stationary, and batteries.

Indirect Costs

• Utilities - Expenses for electricity, gas, and water are the main costs of operating and maintaining buildings and warehouses.
• Premises Rent - Businesses will typically have to pay their monthly or yearly rent to continue working in their office or to operate their brick and mortar locations.
• Depreciation of Equipment - When equipment and machinery wear out and become obsolete, they lose value.
• Security Expenses - Some offices and warehouses will employ security guard personnel or systems to ensure the safety of inventory and employees.

By thoroughly understanding the various expenses an organization must cover, management teams can develop effective budget allocation and ensure smart spending decisions.

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What Is a Budgetary Allocation?

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How to show percentage of income and expenses ytd in quickbooks pro, program management practice & techniques.

• What Is a Budgeted Income Statement?
• What Is the Difference Between Audited Financial Statements & a Budget?

Budgetary allocations are integral components to an annual financial plan, or budget, of all organizations. They indicate the level of resources an organization is committing to a department or program. Without allocation limits, expenditures can exceed revenues and result in financial shortfalls. Anyone working with budgets should understand how they are used and the limitations they provide.

A budgetary allocation is the amount of cash, or budget, you allocate to each item of expenditure in your financial plan.

What is a Budget Allocation?

A budget is a financial plan used to estimate revenues and expenditures for a specific period of time. It is a management and planning tool, not just an accounting document. It assists in the allocation of resources.

A budget allocation is the amount of funding designated to each expenditure line. It designates the maximum amount of funding an organization is willing to spend on a given item or program, and it is a limit that is not to be exceeded by the employee authorized to charge expenses to a particular budget line.

Developing Budgetary Allocations

Budgets are usually developed for 12-month periods. When developing a budget, revenues are usually estimated first to determine the level of resources that will be available in the upcoming budget year. Based on the estimated resources, expenditure limits, also called budgetary allocations, are assigned to each budget category. When developing budgetary allocations, all needs of the organization are taken into account and decisions are made where best to allocate available money.

Budget Category Allocations

Budgets are usually divided into departments and program units. This allows for easier identification of the resources allocated to specific programs and functions. Each category can be made of several budget allocations, referred to as line items, for the specific needs necessary to support the program or overall department operation.

Adjusting Budgetary Allocations

Budgetary allocations might not always be sufficiently estimated. This can happen when adequate funding for predictable or reoccurring expenses are not included in the budget. This might require the budget to be modified after adoption to account for the shortfall. Typical corrections will include transferring funds from other allocation categories or from the organization's surplus, sometimes referred to as savings.

Just as budgetary allocation estimates can be insufficient, revenues can be underestimated. This can happen if a downturn in the economy occurs after a budget is adopted, thus harming revenue streams. Insufficient revenues might require the need to reduce budgetary allocations in order for expenditures not to exceed revenues at the end of the budget year.

Monitoring Budgetary Allocations

Budgetary allocations should be routinely monitored to ensure the amounts budgeted are sufficient to meet expenditures. It is important to have a tracking system in place for all purchase orders and bills. The purchase orders and bills should be matched regularly against the budgetary allocation to ensure sufficient funds exist for the remainder of the budget year.

• Investopedia: What is a Budget?
• Corporate Finance Institute: Top Down Budgeting

Mark L. Ryckman has more than 20 years of senior management and leadership experience. He provides a wide variety of consulting services through MLR Management, LLC. Ryckman holds a Bachelor of Arts in public management and a Master of Public Administration, both from the University of Maine.

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How to correctly estimate and allocate funds for the project with budget planning

Budgeting: what is budget planning in project management, functions of budget planning - what are the objectives of budget planning, when should the budget planning take place, how does budget planning work in project management, what are the different types of budget planning, why is top-down budget planning usually preferred, what should you pay particular attention to when planning your budget.

In order to be able to assess the necessary financial resources for your project well and to allocate them efficiently, you need professional budget planning. For every project - regardless of its size and complexity - there is only a limited amount of funds available. In order to use these resources skillfully, you need a thoroughly thought-out and well-organized budget planning.

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In project management   , budget planning, also known as budgeting, includes all processes that lead to:

of a project budget are required.

The approval may be granted by:

• the client ,
• the Steering Committee or
• the funding agencies

There are several functions of budgeting. The objectives change in the course of the project.

Before the project starts

By showing the estimated budget you can show the client before the project starts:

• present clear objectives,
• define the necessary steps,
• coordinate the individual sub-projects

and convince him to provide you with the necessary funding.

After the project start

In the course of the project the budget planning helps you to

• present clear goals,
• Measuring progress
• performance assessment and
• Employee motivation

This makes budget planning an important tool in both project and resource management. You can use the advantages of budgeting in the planning phase as well as in project reporting and controlling , i.e. during the entire project duration.

You should do the budget planning before you start the project, because with a clear budget you can negotiate with the donors to get the necessary funds.

There are two principles by which you can do budgeting:

The first effort estimation

Two questions in particular are important for estimating effort:

• How much time will you need to bring the project to fruition?
• How many employees do you need?

The answers to these two questions will provide you with the basic framework for the effort assessment on which you can build.

The additional safety margin

At the beginning of the project many factors are still unclear. It is therefore a good idea to build a buffer - a safety margin - into your budget planning to absorb these uncertainties. To better convince investors, you can also indicate the expected minimum and maximum budget value. If these two values differ considerably, it may be a sign that your project should be defined in more detail.

From now on, every project will be a successful project!

A distinction must be made between two types of budgeting:

The Top Down Budgeting

With this form of budget planning, the project manager receives clear guidelines from management. The management sets the goals and releases the money. In budget planning in a company, for example, it would be the management board that commissions development to improve a particular product. The budget in the company is determined in advance for this purpose.

The Bottom Up Budgeting

In this form the budget requirement is first determined in the departments involved and then passed on to the next higher level. At the management level, the total budget requirement is then calculated and approved.

Even though the bottom-up method involves the employees better and thus motivates them more, budgeting top-down is preferred in practice. The reason for this is that with top-down planning, the budgeting process can be carried out faster, more efficiently and therefore more cost-effectively.

It is advisable to follow the following basic rules when planning your budget:

Note the return on Investment

With every project you should make sure that your budget remains realistic, because you also need your return on investment. It is therefore important not to set your own profit margin too low when planning your budget.

Tapping different sources of finance

It is always an advantage not to be dependent on just one investor. It is therefore advisable to find out about the current subsidy possibilities. These can be organized not only by the state, but also by the private sector, for example by a foundation. If these grants are approved, you can assure each investor that they do not bear the entire project risk alone. This improves your negotiating position considerably.

Involving the employees

If it is possible for you, involve your team in the budget planning. The employees - as experts in their field - can contribute important information with their knowledge and experience, which will make an effort estimation more reliable and accurate. If you are involved in a large project and cannot do the budget planning yourself, you must of course delegate. However, we strongly advise against leaving budget planning to the accounting department alone. Both the administration and - above all - the teams responsible for carrying out the project should definitely be involved in the budgeting process.

Use the correct safety margin

No matter how carefully you plan your budget, you can never foresee everything. That is why a safety margin is important when planning your budget. However, you should not set your expenditure too high. This discourages potential clients. A safety margin of 5% can be acceptable for risk items. A better and more common method is to set a mark-up for management fees at 10% of the total budget. This is a legitimate and appropriate item in any budget table.

Plan with delays

When budgeting, you should also bear in mind that you should be very careful when taking over time and effort estimates from the departments. Experience shows that employees are very optimistic about their workload. Therefore it is good for you to add a time safety margin of 20% in such cases.

Monitor the budget regularly (budgeting controlling)

A project budget is always only a preliminary estimate of the project costs . The actual need only arises in the course of the project itself. That is why regular controlling of the budgeting is of great importance.

In budget planning controlling, the comparison of actual and planned expenditures is crucial. This enables you to estimate in good time where you need to take action to provide additional resources

Keep the communication with your team

You cannot make the project a success on your own. You need your staff. That's why constant contact with your team is very important when planning your budget. Communication makes it possible for you,

• build valuable team relationships,
• to act across departments,
• to harmonize working procedures,
• to motivate the employees and
• to create creative solutions.

Correct, accurate budgeting is crucial when it comes to convincing investors or monitoring project progress. After all, the budget is about what every project urgently needs - the money for you, your ideas and your staff.

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Budgeting 101: How to Budget Money

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If I have take-home pay of, say, $3,000 a month, how can I pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with much less stress. Here’s how to set up and then manage your budget.

How to budget money

Calculate your monthly income, pick a budgeting method and monitor your progress.

Try the 50/30/20 rule as a simple budgeting framework.

Allow up to 50% of your income for needs.

Leave 30% of your income for wants.

Commit 20% of your income to savings and debt repayment.

Track and manage your budget through regular check-ins.

Understand the budgeting process

Figure out your after-tax income: If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.

Choose a budgeting plan: Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.

Track your progress: Record your spending or use online budgeting and savings tools .

Automate your savings: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you're held accountable for choices that blow the budget.

Practice budget management: Your income, expenses and priorities will change over time, so actively manage your budget by revisiting it regularly, perhaps once a quarter. If you're struggling to stick with your plan, try these budgeting tips .

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles : 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to track your spending on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free online spreadsheets and templates can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a budgeting system that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20

budget principles

: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to

track your spending

on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free

online spreadsheets and templates

can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a

budgeting system

that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Try a simple budgeting plan

We recommend the popular 50/30/20 budget to maximize your money . In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

The 50/30/20 budget

Find out how this budgeting approach applies to your money.

Your 50/30/20 numbers:

Necessities

Savings and debt repayment

Do you know your “want” categories?

Track your monthly spending trends to break down your needs and wants.

Allow up to 50% of your income for needs

Your needs — about 50% of your after-tax income — should include:

Basic utilities.

Transportation.

Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment category.

Child care or other expenses you need so you can work.

If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you'll have to adjust your spending.

Even if your necessities fall under the 50% cap, revisiting these fixed expenses occasionally is smart. You may find a better cell phone plan , an opportunity to refinance your mortgage or an opportunity for less expensive car insurance . That leaves you more to work with elsewhere.

Leave 30% of your income for wants

Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment.

It’s not always easy to decide. Are restorative spa visits (including tips for a massage ) a want or a need? How about organic groceries? Decisions vary from person to person.

If you're eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn't be so austere that you can never buy anything just for fun.

Every budget needs wiggle room — maybe you forgot about an expense or one was bigger than you anticipated — and some money to spend as you wish. If there's no money for fun, you'll be less likely to stick with your budget.

Commit 20% of your income to savings and debt repayment

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt. Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

Many experts recommend you try to build up several months of bare-bones living expenses. We suggest you start with an emergency fund of at least $500 — enough to cover small emergencies and repairs — and build from there.

You can’t get out of debt without a way to avoid more debt every time something unexpected happens. And you’ll sleep better knowing you have a financial cushion.

Get the easy money first. For most people, that means tax-advantaged accounts such as a 401(k). If your employer offers a match, contribute at least enough to grab the maximum. It's free money.

Why do we make capturing an employer match a higher priority than debts? Because you won’t get another chance this big at free money, tax breaks and compound interest. Ultimately, you have a better shot at building wealth by getting in the habit of regular long-term savings.

You don’t get a second chance at capturing the power of compound interest . Every $1,000 you don’t put away when you’re in your 20s could be $20,000 less you have at retirement .

Once you’ve snagged a match on a 401(k), if available, go after the toxic debt in your life: high-interest credit card debt, personal and payday loans, title loans and rent-to-own payments. All carry interest rates so high that you end up repaying two or three times what you borrowed.

If either of the following situations applies to you, investigate options for debt relief , which can include bankruptcy or debt management plans :

You can't repay your unsecured debt — credit cards, medical bills, personal loans — within five years, even with drastic spending cuts.

Your total unsecured debt equals half or more of your gross income.

Once you’ve knocked off any toxic debt, the next task is to get yourself on track for retirement. Aim to save 15% of your gross income; that includes your company match, if there is one.

If you’re young, consider funding a Roth individual retirement account after you capture the company match. Once you hit the contribution limit on the IRA, return to your 401(k) and maximize your contribution there.

Regular contributions can help you build up three to six months' worth of essential living expenses — not your full budget, just the must-pay basics. You shouldn’t expect steady progress because emergencies happen, and that's when you should pull money from this fund. Just focus on replacing what you use and building higher over time.

These are payments beyond the minimum required to pay off your remaining debt .

If you’ve already paid off your most toxic debt, what’s left is probably lower-rate, often tax-deductible debt (such as your mortgage). Tackle these when the more-basic goals listed above are covered.

Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

Congratulations! You’re in a great position — a really great position — if you’ve built an emergency fund, paid off toxic debt and are socking away 15% toward a retirement nest egg. You’ve built a habit of saving that gives you immense financial flexibility. Don’t give up now.

Consider saving for irregular expenses that aren’t emergencies, such as a new roof or your next car. Those expenses will come no matter what, and it’s better to save for them than borrow.

WATCH TO LEARN MORE ABOUT BUDGETING

» LEARN: Tips for Canadians on how to budget

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Example sentences budget allocation

The process allows the management to monitor their expenses and review whether they operate within their budget allocation .

Research group leaders (principal and associate investigators) meet annually to decide on budget allocation .

Witnessing the impact, the education sector received a 17% increase in budget allocation for the programme.

A competitor's media strategy reveals budget allocation , segmentation and targeting strategy, and selectivity and focus.

Additionally, budget allocation via management in research departments will be independent of investment departments.

Definition of 'allocation' allocation

Definition of 'budget' budget

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Marketing Budget Allocation

Marketing Budget Allocation Best Practices

A common struggle for marketers is the art of budget allocation – what to spend your money on for your marketing strategy to work. In this blog, we review marketing budget allocation, what’s typically included in a marketing budget, and allocation best practices to keep in mind.

There are a lot of factors that can affect the level of success of a marketing plan. To have a great marketing plan, you need to spend your marketing budget on campaigns and platforms that will bring you a good return on investment.

That’s where marketing budget allocation comes into play. Marketers that strategically spend budgets can execute your plan and bring the ROI you expect to see. In this blog, we highlight marketing budget allocation best practices to help guide you on how to spend your budget to see a great marketing return on investment (MROI).

Article Contents

What is marketing budget allocation, the importance of budget allocation in organizations.

• What’s Included in a Marketing Budget?

How to Allocate Marketing Budget

In closing: marketing budget allocation.

The definition of marketing budget allocation is the amount of budget an organization allocates to each item of expenditure in a marketing plan. Essentially, it is a limit of money that employees cannot exceed when charging expenses in a specified amount of time.

For marketers, budget allocation is the maximum amount to spend on a marketing plan. Marketers need to optimize marketing spend on efforts needed to reach their audience online and offline to see leads, sales, form fills, and other KPIs calculated into an ROI.

There’s no question that budget allocation is a critical part of a marketing plan. Marketing budget allocation is a needed skill for businesses and typically combines input from many C-level CEOs, CFOs, and CMOs. It also affects marketing, sales, and accounting teams and departments.

What's Included in a Marketing Budget?

As previously mentioned, marketing budget allocation includes everything needed for marketers to reach their target audience and increase their ROI. This means all expenses, including advertising budgets, employee salaries, and the tools and software needed to aid marketers in this endeavor.

Several categories are included in a marketing budget. Here is a breakdown of what’s included when allocating spend for your marketing budget:

• Software/Tools
• In-House Marketing Employee’s Salaries
• Vendors & Consultants
• Advertising (Digital & Print)
• Public Relations
• Events/Trade-show cost
• Training & Conferences
• Additional Revenue Generation Tactics

Not only should these categories of expenses be included in your budget, but many of these are used to help marketers reach their goals.

So how can marketers allocate their budget to spend on things that will give you the best return?

Here are the steps to follow on how to allocate your marketing budget to get the best ROI on your marketing plan:

• Set marketing goals
• Determine budgets

Outline your marketing plan

• Allocate budget toward channels, platforms, and campaigns
• Track the progress
• Measure return on investment

Set your marketing goals

Regarding your marketing strategy vs. marketing goals, it’s a great idea to establish your goals first, then set a strategy, including budget allocation, to reach those goals. This will help you determine what budget you need to achieve your desired goals

What do your company stakeholders wish to accomplish? What does a marketer need to do to show the true business value of their marketing efforts?

Determine the marketing plan length, and set SMART goals (specific, measurable, achievable, relevant, and time-based).

Determine your budget

Once you determine your goals, you need to determine your budget for a marketing plan. Budgets cover a specified period, whether monthly, quarterly, or yearly.

Knowing how much you should spend on marketing can help determine the budget of a marketing plan. Budgets can be set based on past data but should consider the goals you’re looking to achieve.

Planning and budgeting are very closely related. Creating a marketing plan will determine how you get there to achieve your goals. Use data to determine your marketing plan.

The plan should outline campaigns and expenses to allocate your marketing budget. You can use Planful’s online marketing plan builder to streamline the process.

Today, marketing plans break down into many channels or facets of digital marketing:

• Advertising/SEM
• Email marketing
• Social media
• Public relations

More importantly, how will you use these campaigns to reach your goals?

Allocate marketing budgets 

What do you need to spend to reach your goals for certain campaigns? More importantly, what else do you need to get you there? This is where marketing budget allocation best practices come into play.

Deciding how much to spend for different channels, platforms, and campaigns will get you the results needed to hit your goals. Employees, software, trainings, freelancers, and consultants hired should be factored into your campaign-specific tracking.

Track your progress

Are you hitting your goals? You can use a marketing budget tracker to see how your marketing plan is progressing. Tracking your progress and measuring that against your goals will help you determine the plan’s level of success.

For certain marketing channels and platforms, you’ll likely use data from specific platforms. For example, Facebook advertising has data on clicks, conversions, and spend.

In addition to your ad spend, including the costs that come with manpower, tools, and other costs needed. You can track your success on a weekly, monthly, quarterly, or even yearly basis – whatever is appropriate for the length of time your marketing plan is.

Planful’s marketing operations dashboard is a great way to track progress and measure marketing performance.

We break down some best practices to help you spend your marketing budget seeing a great MROI.

5 Best Practices for Marketing Budget Allocation That Will Set You Up For Success

Now that you know how to navigate the bourgeois allocation process, we want to fully prepare you for what to expect. Here are some of our best practices for allocating marketing budgets.

Now that you know how to navigate the bourgeois allocation process, we want to fully prepare you for what to expect. Here are some of our best practices for allocating marketing budgets. 

Best Practice #1: Allocate your budget based on where your audience is

Invest in platforms and channels to reach your ideal target audience. This seems simple, but it’s true for any successful marketing plan.

Knowing your audience inside and out will help you choose marketing channels to reach your audience. Persona research and the buyer’s journey will help you best understand how to allocate your marketing budget to reach your target audience.

Best Practice #2: Diversify Your Strategy

Omni-channel campaigns are extremely important in marketing. Yes, you should invest in campaigns and strategies that bring success, but you should not put all of your eggs in one basket.

For example, if you spend too heavily on one campaign or channel, and suddenly, something happens to negatively affect that, it can greatly hurt your performance. Instead, invest in multiple integrated campaigns to see which ones work and which do not.

Best Practice #3: Sync with Sales Team

Marketing budget allocation isn’t just for marketing teams. Sales teams should be included in a digital marketing plan to help you reach your goals. When marketing and sales collaborate on budget allocation, they can create a plan that puts both teams in the best position to succeed and reach their goals.

Best Practice #4: Leverage Data

When approaching marketing budget allocations, data should be used throughout the process. When you create your marketing plan and allocate budgets, data will provide the insights to decide what to spend on and how to formulate the plan. Not only can data help with marketing planning, but it can be used to track your progress.

Over time, you may find that some campaigns and strategies are more successful than others. For those campaigns that are not effective, don’t be afraid to call it a loss and end the campaign.

Changing your plan and reallocating your marketing budget to be more successful across all channels and campaigns can help you reach your goals more quickly.

Best Practice #5: Practice Bottom-Of-The Funnel Marketing

Take a bottom-up approach to your marketing, and invest more in marketing that targets the bottom of the conversion funnel. Invest in lead generation (for example, SEO, or Google Ads) to maximize bottom-of-funnel marketing. Investing in those close to converting online minimizes your risk and increases your potential marketing ROI.

Allocating your marketing budget for the right things can be tricky, but with historical data and established goals, you can create a marketing plan to spend money that will bring the best ROI.

Best Practices Summary

To summarize our list of best practices for marketing budget allocation:

• Allocate your marketing budget based on your audience
• Diversify your strategy
• Sync with your sales team
• Leverage data
• Practice bottom-of-the-funnel marketing

While these tips aim to help you, marketing budget allocation is something that you will learn with experience creating marketing plans. As you move forward with future marketing plans, we hope these tips provide some good insight into marketing budget allocation best practices.

Planful for Budget Allocation

Learn more about Planful’s markerting planning software  and how it helps you allocate budgets and manage marketing goals, plans, and campaigns.

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