Driver-based budget

A budget built from the operational drivers behind each line, such as headcount, volume and price, rather than from last year's totals.

DefinitionA budget built from the operational drivers behind each line, such as headcount, volume and price, rather than from last year's totals.

A driver-based budget computes each line from the few operational numbers that actually move it. Revenue comes from reps, quota and attainment, or from units and price; payroll comes from headcount and average cost. When a driver changes, the budget recalculates, which makes scenarios quick and keeps the plan tied to things managers control.

How it is computed

Each budget line = a formula of its drivers, for example revenue = number of reps × quota per rep × expected attainment.

Example

40 reps with a quota of $600,000 each and expected attainment of 85% give budgeted revenue of 40 × $600,000 × 0.85 = $20,400,000. Hiring five more reps who ramp halfway through the year changes one driver, not dozens of cells.

Where it goes wrong

Drivers that are assumed rather than measured: an attainment rate of 85% when history shows 72% builds the gap into the plan. Too many drivers also make the budget hard to explain. Start from the business budget template.

Articles that use this term

Territory, capacity and quota planning

Zero-based budgeting: how it works, with a worked example

What zero-based budgeting (ZBB) means, where it came from, and how it differs from an incremental budget. A finance department is worked through ten decision packages to a funded budget, with the check that the funded packages sum to the approved total, the pros and cons, and how to see whether the savings showed up.

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