Real-world examples of incremental budgeting examples for businesses

First, some real examples of incremental budgeting in action

Before we talk theory, let’s get straight to the examples of incremental budgeting examples for businesses. These scenarios come from common budgeting patterns I see in finance teams across industries.

SaaS startup: Incremental budgeting for headcount and software tools

Imagine a 40-person SaaS startup with \(6 million in annual recurring revenue. Last year’s operating expenses were \)4 million. The finance lead doesn’t rebuild the budget from zero; instead, they use last year as the baseline.

They start with the prior-year budget:

• Salaries: $2.4M
• Office & remote stipends: $240K
• Software subscriptions: $180K
• Marketing: $600K
• Other operating costs: $580K

For the new year, they apply incremental changes:

• Across-the-board 4% salary increase to keep up with 2024 wage and inflation trends (the U.S. Bureau of Labor Statistics has reported steady upward pressure on wages in recent years: https://www.bls.gov).
• Add two new engineers and one customer success rep, layering those salaries on top of the baseline.
• Cut office rent by 15% because more staff are permanently remote.
• Increase marketing by 10% to support a new product launch.

That’s incremental budgeting: start with last year’s line items, then adjust each one up or down instead of rethinking the entire structure. This is a clean example of incremental budgeting used in a fast-growing digital business where speed and predictability matter more than radical cost redesign.

Retail chain: Incremental budgeting for store operations

A regional clothing retailer with 25 stores uses a similar approach. Their finance team builds store-level budgets using last year’s actuals as the template.

For each store, they:

• Start with last year’s payroll, rent, utilities, and shrinkage (loss from theft and damage).
• Apply a standard 3–5% increase for utilities, reflecting recent energy cost trends reported by the U.S. Energy Information Administration (https://www.eia.gov).
• Increase payroll by 3% for cost-of-living, plus an incremental bump in high-turnover locations.
• Reduce inventory purchases by 5% in underperforming stores, but increase by 8–10% in top locations.

Instead of redesigning the budget store by store, they replicate the prior-year structure and tweak the numbers. This is one of the best examples of incremental budgeting examples for businesses that operate multiple similar locations: the method is fast, consistent, and easy for store managers to understand.

Manufacturing company: Incremental budgeting for production costs

Manufacturers often live and die by material and labor costs. A mid-sized manufacturer making industrial components uses incremental budgeting to plan production expenses.

Last year’s budget:

• Direct materials: $5M
• Direct labor: $3M
• Factory overhead (utilities, maintenance, insurance): $2M

When they build next year’s budget, examples include:

• Increasing direct materials by 7% to reflect expected commodity price increases, based on industry forecasts and data from sources like the World Bank commodity price outlook (https://www.worldbank.org).
• Raising direct labor by 4% for wage growth plus an extra 1% overtime buffer.
• Adding 3% to factory overhead for higher insurance premiums and energy costs.

They don’t question whether the factory footprint, shift structure, or product mix should change; they simply adjust the existing budget. This example of incremental budgeting keeps planning simple, but it can also lock in inefficiencies if leadership never steps back to challenge the baseline.

Marketing agency: Incremental budgeting for client work and overhead

Service businesses are classic candidates for incremental budgeting. Take a marketing agency with 50 employees and a mix of retainers and project work.

Last year’s expense structure:

• Salaries and benefits: 65% of total expenses
• Office and remote-work support: 10%
• Sales and marketing: 8%
• Software and tools: 7%
• Other overhead: 10%

For the new year, the CFO:

• Applies a 5% salary increase for key roles, 3% for others.
• Increases software spend by 12% to cover new AI tools for content and analytics.
• Cuts office expenses by 20% as more staff move to hybrid schedules.
• Adds a small incremental budget line for training on AI and analytics tools, reflecting the 2024 trend toward upskilling rather than hiring for every new capability.

Here, the examples of incremental budgeting examples for businesses show how you can respond to trends (AI tools, hybrid work) without reinventing your cost structure. The agency keeps the same categories but nudges the dollars to match strategy.

Nonprofit organization: Incremental budgeting for programs and grants

Incremental budgeting isn’t just for for-profit companies. A nonprofit that depends on grants and donations often needs predictability.

Last year, a health-focused nonprofit spent:

• 70% on programs and services
• 15% on administration
• 15% on fundraising

For the coming year, examples include:

• Increasing program budgets by 3% in line with expected grant renewals.
• Keeping administration flat except for a 2% inflation adjustment.
• Adding a 5% bump to digital fundraising to expand online campaigns.

They rely on last year’s allocation ratios and simply adjust the numbers. It’s one of the more conservative examples of incremental budgeting examples for businesses and organizations that need to show donors and boards that spending patterns are stable.

E‑commerce brand: Incremental budgeting for digital advertising

An online DTC (direct-to-consumer) brand spends heavily on paid social and search ads. Their budgeting is highly performance-driven, but the structure is still incremental.

Last year’s marketing spend:

• Paid social: $1.2M
• Paid search: $800K
• Influencer partnerships: $300K
• Email and retention tools: $200K

This year, the growth lead and finance team:

• Keep the same channels and line items.
• Increase paid social by 15% to support expansion into new markets.
• Trim paid search by 5% where customer acquisition costs have risen.
• Shift 10% of influencer budget into always-on creator partnerships instead of one-off campaigns.

The structure is incremental, but the tweaks are informed by performance metrics. This is a good example of incremental budgeting used in a data-heavy environment where the baseline is last year’s successful mix, not a theoretical ideal.

Professional services firm: Incremental budgeting for billable vs. non-billable time

A mid-sized accounting or consulting firm often uses incremental budgeting to balance billable staff time with support roles.

Last year’s staffing budget:

• Billable staff (consultants, accountants): 75% of payroll
• Non-billable staff (HR, finance, marketing, IT): 25% of payroll

For the next year, examples include:

• Increasing total payroll by 4% for salary growth.
• Adding two new junior consultants and one senior manager.
• Holding non-billable headcount flat, only increasing wages.

The firm keeps the same basic ratio of billable to non-billable roles, using incremental budgeting to control overhead while expanding capacity. This example of incremental budgeting shows how professional services firms can grow without constantly redesigning their org chart.

Why finance teams still use incremental budgeting in 2024–2025

After walking through these real examples of incremental budgeting examples for businesses, a fair question is: why are so many teams still using this method when zero-based budgeting, driver-based models, and rolling forecasts are trendy?

Three reasons keep coming up in 2024–2025:

1. Speed and simplicity
Most businesses don’t have the time or analytical firepower to rebuild every budget line from scratch every year. Incremental budgeting is fast: copy last year, apply percentage changes, adjust a few strategic areas, and you’re done.

2. Organizational stability
Boards, lenders, and investors like predictability. Incremental budgets produce year-over-year changes that are easier to explain: “Payroll is up 5% due to raises and three new hires” lands better than “We redesigned the entire cost structure.”

3. Data availability
In many smaller and mid-sized companies, the only reliable data is last year’s actuals. Incremental budgeting uses that data directly, rather than requiring complex cost drivers or activity-based costing models.

The tradeoff, of course, is that the method can hide waste. If last year’s spending was bloated, incremental budgeting quietly carries that bloat forward.

How incremental budgeting actually works (step-by-step, with context)

Finance teams usually follow a simple pattern when they apply incremental budgeting:

1. Lock in last year’s actuals as the baseline.
   They export last year’s income statement and use it as the starting tab for the new budget workbook.

2. Apply standard percentage changes.
   Common patterns:

   • Salaries: 3–5% increase for merit and inflation.
   • Rent: increase per lease terms.
   • Utilities and insurance: 2–6% depending on recent trends.

3. Layer on known changes.
   Examples include: new hires already approved, known vendor price changes, new leases, or contract renewals.

4. Make strategic tweaks.
   Leadership might decide to:

   • Boost marketing by 10% to support a new product.
   • Cut travel by 20% as virtual meetings remain the norm.
   • Add a new budget line for AI tools or cybersecurity.

5. Review and negotiate.
   Department heads push back (“We need more headcount”), finance pushes down (“We need margin”), and the final budget lands somewhere in the middle.

All of the examples of incremental budgeting examples for businesses you saw earlier follow this pattern: baseline, percentage changes, known adjustments, strategy tweaks.

Where incremental budgeting works best (and where it backfires)

Looking across the best examples of incremental budgeting examples for businesses, some clear patterns emerge about when this method fits.

Situations where incremental budgeting shines

• Stable business models. Manufacturers, utilities, and mature service firms with predictable cost structures tend to benefit. Their cost base doesn’t swing wildly year to year.
• Multi-location operations. Retail chains, restaurant groups, and franchises can roll out a standard template and apply small percentage changes per location.
• Lean finance teams. Smaller companies without a large FP&A function can still produce a reasonable budget without advanced modeling.

Situations where incremental budgeting is risky

• Rapidly changing industries. If your cost drivers are shifting fast (think ad-tech, AI, or heavily regulated sectors), last year’s numbers might be a poor guide.
• Turnarounds and restructurings. When a business needs a reset, copying last year’s spending is the last thing you want.
• High-waste environments. If travel, perks, or underperforming projects have been left unchallenged for years, incremental budgeting just locks them in.

This is why many CFOs now blend methods: they use incremental budgeting for stable, low-risk areas (rent, utilities, core salaries) and zero-based or driver-based budgeting for discretionary spending like marketing, R&D, or new initiatives.

Practical tips to improve incremental budgeting in your business

If you see your own company in these real examples of incremental budgeting examples for businesses, you don’t have to throw out the method. You just need to upgrade how you use it.

1. Challenge at least one major cost category every year

Pick one area—marketing, software, travel, or contractors—and don’t treat it incrementally. Instead, ask: “If we were starting from zero, what would we spend and why?”

For example, a SaaS startup might:

• Use incremental budgeting for salaries, rent, and basic tools.
• But rebuild the marketing budget from scratch, reallocating spend based on current customer acquisition data.

This hybrid approach keeps budgeting manageable while preventing the worst kind of autopilot spending.

2. Use external benchmarks to set increments

Instead of guessing at percentage increases, use real data:

• Wage and employment trends: U.S. Bureau of Labor Statistics (https://www.bls.gov) for salary and benefits trends.
• Energy and utility costs: U.S. Energy Information Administration (https://www.eia.gov) for fuel and electricity trends.
• Inflation: Federal Reserve Economic Data (FRED) via the St. Louis Fed (https://fred.stlouisfed.org) for inflation expectations.

These sources help you justify why you chose a 4% increase instead of 2% or 8%, and they keep your incremental changes grounded in reality.

3. Separate “maintenance” from “growth” spending

In your budget, clearly tag line items as:

• Maintenance: keeps the lights on (rent, core salaries, compliance tools).
• Growth: intended to drive revenue or long-term value (new hires in sales, new product development, brand campaigns).

Then, use incremental budgeting for maintenance costs and more analytical methods for growth spending. Many of the best examples of incremental budgeting examples for businesses quietly follow this pattern, even if they don’t label it that way.

4. Build rolling forecasts on top of your incremental budget

Incremental budgeting is usually an annual exercise. To avoid getting stuck with outdated assumptions, add rolling forecasts:

• Keep your annual budget as the baseline.
• Every quarter, update a 4–6 quarter rolling forecast using actual results and new assumptions.

This gives you the comfort of a stable budget plus the flexibility to adapt as conditions change.

5. Watch for “budget creep” in low-visibility areas

Travel, subscriptions, and small vendor contracts are classic areas where incremental budgeting leads to silent bloat.

Instead of blindly increasing these by a fixed percentage, pull a detailed transaction report and ask:

• Are we still using this tool or service?
• Did we get the expected value from last year’s spend?
• Can we consolidate vendors or renegotiate contracts?

Even a light review of these categories once a year can keep incremental budgeting from quietly inflating your cost base.

FAQ: Incremental budgeting examples and common questions

What is one simple example of incremental budgeting in a small business?
A local coffee shop spent \(120,000 on payroll last year. For the new year, the owner increases wages by 4% for inflation and adds \)10,000 for weekend staff to handle higher traffic. The new payroll budget is last year’s $120,000 plus the 4% increase and the extra weekend coverage. That’s a straightforward example of incremental budgeting.

What are some typical examples of incremental budgeting examples for businesses in 2024–2025?
Common examples include SaaS companies adding incremental headcount based on revenue growth, retailers increasing store payroll and utilities by a fixed percentage, manufacturers adjusting material costs based on commodity forecasts, and agencies layering AI tools on top of last year’s software budget. All of these use last year’s numbers as the baseline and adjust rather than rebuild.

Is incremental budgeting outdated compared to zero-based budgeting?
No, but it’s incomplete on its own. Incremental budgeting is still widely used because it’s fast and understandable. Many CFOs now combine it with zero-based or driver-based approaches in high-impact areas. The method itself isn’t outdated; using it blindly everywhere is.

When should a company avoid incremental budgeting?
If you’re in a turnaround, entering a new business line, or dealing with a major regulatory or market shift, copying last year’s spending can be dangerous. In those cases, you need to rethink your cost structure more fundamentally instead of layering small percentage changes on top.

What are the main pros and cons shown by real examples of incremental budgeting?
The pros: speed, predictability, and low complexity. The cons: it can hide waste, reinforce outdated spending patterns, and ignore changes in strategy or market conditions. The real examples of incremental budgeting examples for businesses in this article show both sides: it works well for stable, repeatable costs, but it needs guardrails and periodic deep reviews.

If you recognize your own planning process in these examples, you’re not alone. Incremental budgeting is still the default in many finance teams. The opportunity in 2024–2025 isn’t to abandon it—it’s to use it deliberately, combine it with sharper tools where it matters, and stop letting last year’s habits quietly dictate next year’s strategy.