Top-Down vs. Bottom-Up Budgeting: Which Should You Use?

Anyone running a business agrees that budgeting is crucial to success and building a solid financial foundation. Creating a budget also establishes more efficiency in your business, identifies potential profit gaps, and develops a long-term growth plan. 

Beyond a standard budget for your business, you also need to choose the right model for your marketing efforts. Unfortunately, a broken budget methodology is a pain point most CMOs face at some point in their careers. But instead of trying to make the same method work year after year, aligning your budget with your marketing goals for the year and deliberately choosing between a top-down vs. bottom-up budgeting strategy helps maximize your resources and marketing efforts. Determining which budget works best for your company largely depends on whether or not you need a robust upper funnel or lower funnel in your marketing journey. 

Here’s what to know about top-down budgeting vs. bottom-up and how to make the best choice for your business and marketing success. 

Top-Down vs. Bottom-Up Budgeting

Choosing the best budget for your business or marketing campaign largely depends on your vertical and the existing demand for your products and services. 

What is Top-Down Budgeting? 

A top-down budget concentrates your financial resources at the upper part of your marketing funnel over any other area. In most cases, senior management determines a budget for the entire marketing department and organization. 

Once the budget is set, each department allocates the amount needed to accomplish its KPIs and daily operations. Next, an individual department makes adjustments to ensure its financial needs are met. But regardless of the required assets, the overall budget is set. 

Top-down budgeting could also mean you’re allocating a firm budget to an entire marketing campaign. For example, you may have a firm budget for a campaign, and your marketing team assigns portions of that budget toward paid media, LinkedIn ads, Google Ads, content marketing, and other assets.

What is Bottom-Up Budgeting? 

Bottom-up marketing budgeting is the opposite of top-down budgeting and prioritizes putting money into the bottom of your funnel efforts. Instead of looking at the big picture or an entire campaign, bottom-up budgeting puts the responsibility on individual departments or teams to determine their budgets and provide more detail on how those finances are spent. 

After a department creates its bottom-up budget, management reviews the figures and may make suggestions before approving them. For example, management and the CMO may suggest allocating more resources toward LinkedIn advertising and A/B testing.

When There’s High Existing Demand…

Which budget you choose often depends on how much demand there is for a brand, product, or service. If you are marketing something with high demand, consider some of the benefits and drawbacks to see how each budget aligns with your situation. 

Top-Down Budgeting

Benefits

You may need to invest more spend upfront to drive more leads and brand equity further down the funnel. When you use a top-down budgeting model, you need more room to execute “hard asks,” like a customer demo. The goal is to enhance the quality of your leads for stronger conversions.

Drawbacks

When a product or service is in extremely high demand, you need a competitive budget to attract the leads you want. You could end up spending your whole budget and only see incremental gains across demo requests or sign-ups.

If you’re entering a market where the product you’re selling is already in demand, primarily focusing on the top of the funnel may only provide incremental gains. You may not see the results you want across sales-qualified leads and demo requests compared to the money you’re spending.

Bottom-Up Budgeting

Benefits

There are also benefits to adopting bottom-up budgeting vs. top-down in a mature market. Focusing your budget on the users with the highest intent allows you to increase your results faster than before. You end up spending less of your budget to capture more customers that will likely convert right away.

Drawbacks

Existing demand will inevitably wane at some point without more financial support pumping into your funnel. You may see an initial wave of gains and strong performance but, eventually, run out of highly motivated leads. As the returns diminish, you’ll need to put more emphasis on your upper marketing funnel. 

When There’s Low Existing Demand…

If you’re marketing and selling products or services with low demand, it’s crucial to pick the proper budget to maximize your efforts.

Top-Down Budgeting

Benefits

In most cases, a top-down budget is usually the best place to start. You’ll find you must invest heavily at the top of your funnel to generate the missing demand before you can actually capture any of it. 

You end up focusing your time and resources at the top and middle of your funnel to raise brand and product awareness. As the buzz builds, you’ll keep building up that lower funnel you ultimately need to capture. 

Drawbacks

Depending on how your top-down budget is allocated, you’ll probably see a lower ROI at the start. Those efforts at your upper funnel are about generating more demand, not necessarily driving leads. As a result, a marketing KPI centered around ROI will likely be seen as a failure, even if it is a necessary part of the customer journey.

If you use top-down budgeting, don’t expect to see an immediate increase in leads for your business. It can take months, or even years, to generate the demand needed to capture more customers and achieve long-term growth. 

Bottom-Up Budgeting

Benefits

When you use bottom-up budgeting vs. top-down budgeting in a market with little demand, you’re more likely to see a strong ROI at the bottom of the funnel. You should be able to capture all of the existing prospects with relatively small budgets in place. 

Drawbacks

When it comes to using a bottom-up budget, you end up with a market/budget cap. Despite the initial success of a bottom-up budget, it’s not a scalable approach. Your campaigns will quickly dry up without focusing on the upper part of your marketing funnel. 

Which Type of Budget Should You Use? 

Now that you’ve dug into different budgeting models, it’s time to decide. 

In most cases, you should adopt a top-down budget as opposed to a bottom-up budget when promoting a low-demand product, service, or brand. You end up with a healthy budget to fulfill those “hard asks” and enhance your lead quality because you generated interest higher up the funnel. 

When facing high demand, focus on building a bottom-up budget as opposed to a top-down budget since there are already leads primed higher up the funnel. Remember, though, your ROI will be lower at the start as you drive more leads since you’re asking more from your leads this far down the funnel. A bottom-up budget can grab more leads, which could work well for a short-term project or campaign, but isn’t scalable for long-term success.

The good news is that coming up with an answer is simple: ask yourself where your business stands in the marketplace and with your leads. What kind of demand are you entering, and how much work do you need to do to secure the leads you want? 

Need Help Understanding Your Budget? 

If you want support setting your budget, read our resource, How to Allocate a B2B Marketing Budget.