What is value proposition budgeting?

What is value proposition budgeting?

This unique approach to managing your finances determines where you should spend your money, based on how much value each expense holds. In simpler terms, it’s about ensuring that every dollar spent contributes meaningfully to your goals, values, and overall well-being.

While budgeting often focuses on saving as much as you can, while cutting costs or unnecessary expenses, value proposition budgeting takes a more holistic approach at your finances. Here, you align your budget with the value derived from your spending by investing in the things that matter most.

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn More

Examples of value proposition budgeting

Value proposition budgeting works for both businesses as well as in your everyday life.

For example, imagine that you run a social media page about fitness. If you’re trying to save money in a traditional budget, you might think that a gym membership might be an unnecessary expense. However, you might gain views and potential opportunities by staying fit—so you’ll allocate more of your own budget towards the expenses of gym memberships and healthy foods.

Additionally, imagine that your company does most of its business via local delivery. You’ll want to invest in hiring drivers and maintaining vehicles to ensure that the core value-bringing area of your business can run smoothly. In this instance, other areas of expenses that you could cut down on include maintaining a customer-facing store, or website design.

In essence, value proposition budgeting lets you adjust your priorities instead of simply slashing costs across the board. Value can come from profit generation, but also brand reputation, cross-collaboration opportunities, and more intangible assets.

Advantages of value proposition budgeting

1. Strategic spending priorities: By assessing the value that each expense brings, you can prioritize what truly matters. This helps you align your financial goals with your personal or business priorities and ensures that your spending reflects what’s important to you.
2. Financial consciousness: By adopting this approach, you become more aware of your spending habits, making it easier to identify unnecessary expenses and redirect funds towards activities or investments that truly add value.
3. Adaptability: As your priorities shift and respond to changing needs or market conditions, this budgeting method enables you to adjust your financial plan accordingly, ensuring that it remains relevant and effective over time.

Disadvantages of value proposition budgeting

While the advantages are compelling, it’s essential to consider potential drawbacks:

1. Time-intensive: It can be much easier to establish the goal of reducing spending, instead of putting in the time and effort in evaluating the value of each expense.
2. Subjectivity: Value is subjective, and what holds value for one person or organization may not for another. In a business, you may be forced to make difficult decisions that affect various departments. This subjectivity can also make it challenging to establish universal guidelines.
3. Blind spots: Value proposition budgeting relies on existing expenses. By focusing on these, you could miss out on further opportunities that could benefit you if you choose to make an investment.

By putting in the time and effort of implementing value proposition budgeting, you can embrace a forward-thinking financial strategy that aligns with your vision, goals and ideal results. Check out other ways to spend wisely with budgeting tips on how to pay small business taxes, setting up payroll, or working on eliminating debt.