Our new parent company, Active, asked us to make a budget for 2008 for RegOnline. This was the first time that we have budgeted in a way that was more than just “add 50% onto everything we did last year”. So we naturally went to all of our department heads and said “tell us how many people you think you’ll need in 2008”.
For my marketing department, while we didn’t really need anyone new to keep driving growth, I figured, just to be safe, we’d add on another SEO person, another web designer, another copy writer, another direct marketing person. I figured better to have it in the budget now, rather than look stupid later having to ask for something that wasn’t in the budget. I even thought maybe I’d be a hero for being way under my budget for the marketing department… and all the glory that could go with being such a good beat-the-budgeter. Well, we soon discovered that all of our departments must of had the same thought process too!
We compiled all the numbers and discovered, surprise-surprise, that while we projected a 45% increase in revenues our profits were going to be flat. So we looked at the budget and started slashing new head counts to make it more reasonable… but it was still way off the 45% growth in profits we were anticipating, pre-budgeting exercise. We started cutting even more new additions to get to what we knew the organic growth profit number could be, which was 45%.
How have we done budgeting in the past? We hadn’t! We just let the department heads come to us and BEG for more people one person at a time… challenging them to make an argument for why adding each additional person was good for profits… challenging them to think about how could we do things more efficiently so we wouldn’t need another person. In fact, I think our teams were actually excited when we recently asked them to do budgeting so they wouldn’t HAVE to beg for people anymore!
In the end of this first budgeting process, it became abundantly clear to me that budgeting is a great way to LOWER profits! I heard Google doesn’t do budgets either. When a department needs more resources, they ask for it. Maybe for the same reason… they’d prefer to have more profits!!