Projects are fueled by their budgets. If you run out of fuel, your project will stutter to a halt (and might disappoint a few stakeholders along the way).
Learning how to create and manage a project budget is critical to the success of your future projects—but there’s a lot more that goes into it than simply adding up how much you plan to spend. You have to consider your available resources, account for potential delays, and keep a close eye on scope creep.
This guide will help you understand the multiple layers of a project budget and how you can apply them to your own agency projects.
A project budget is a plan for how much you’re going to spend on what. It helps you control the costs of a project and understand where your money is going. But sticking to a defined project budget is easier said than done, especially when you’re working with multiple stakeholders across accumulating tasks.
In reality, project budgets don’t just define estimated costs. They also define how many resources you need and how much time a project is going to take.
If you’re about to start a web design project, you’ll need to consider:
Time: How much time will each task take? It might take 2-3 weeks to create content, a further week for editing, and another couple of weeks for the design—and that’s if things go smoothly. Now, how much will it cost for your team to create those assets and do those tasks?
Resources: What resources do you need to allocate to comfortably complete the project? For example, you might need your in-house design lead working on it full-time alongside a couple of freelance designers working in support roles.
Cost: How much do you need to pay team members and freelancers for the entire project to be completed? Remember to account for meetings, feedback sessions, edits, and creative thinking time, not just the time it takes to create the deliverables.
A project budget essentially informs what’s possible and what’s not.
As well as informing the limitations and opportunities a potential project has, it can help you answer questions like:
Project budgets are great for getting a thorough understanding of projects before they even begin.
For example, instead of figuring out that Project A is costing you $X in total, you’ll also learn that Tasks 1, 2, and 3 are costing $X, $X, and $X. You can use these numbers to inform future quotes and proposals.
Creating a project budget is also great for getting useful data for future estimates. If you’re working with a strategist for Project A, you’ll know how much they’ll charge for Project B based on their hourly rate.
Having a project budget helps you set expectations with your clients. If everyone knows how much everything is going to cost, there’ll be no (or slightly fewer) nasty surprises later down the line. Cold hard numbers are a great antidote to a world of misunderstandings and can provide a firm physical boundary for tasks that fall outside of that budget.
It’s much easier to say to a client, “I’m sorry, the budget doesn’t cover that” than to simply tell them “No”. You can always refer back to the project budget before you agree to any additional tasks that might initially seem minor, but in fact, turn out to be a huge resource and time-suck.
Start by accepting that every project budget you create will be an estimate.
Then, consider these questions:
A project budget can take many shapes, but regardless of the shape it takes, ensure your budget includes the following details:
A project budget is made up of the costs, time, effort, and resources it’ll take to create and manage a project.
Consider the previous budgets of similar projects to get an accurate assumption of how you should develop your current budget, or get in touch with SMEs and use first-hand experience to create your budget. Then, reach out to your required resources to get exact figures, like how many available hours a freelancer has and how much they charge per hour.
This will vary depending on the size of the project. You’ll need to revisit the budget of a multi-month project regularly to check you’re still on track, whereas a short, one-month project might not need revisiting at all.
If you don’t have a pre-defined timeline for a project (e.g., 3 months for a rebranding project), you can create a monthly project budget or extend the timeline for long-term projects. We recommend you create individual project budgets for each project and revisit them regularly—there’s nothing worse than being on the home straight and realizing you’re all out of budget.
It’s usually the responsibility of the project manager to manage the budget, but they will likely need any estimates approved by the internal finance team and CEO, as well as any external stakeholders.
There’s no one-size-fits-all strategy for creating a project budget. So, before we move forward with how to create a project budget, first decide which strategy you want to implement.
For example, some folks prefer to use the top-down estimation method (where you decide the total project budget first and then allocate tasks), whereas others prefer to use the bottom-up estimation method (where you decide the budget based on how much individual tasks cost).
There are also other ways of getting an estimation, them being:
Next up, decide on the project scope and deliverables which you can then divide up into individual tasks.
For example, a social media strategy might involve the following deliverables:
For each of these individual tasks, you’ll need to identify who’s going to do the work and create timelines for when they’ll be completed.
For example, the graphic design part of the project may require you to work with a freelancer, and for the freelancer to complete a publish-ready design, you’ll need to give them time for:
Dividing the project up based on tasks, subtasks, resources, and timeline allows you to understand exactly where you’re spending the majority of your efforts and money.
Lots of agencies make the mistake of only addressing their staff in terms of resources, but there’s a lot more that needs to be considered. Here are some of the most common resources that make up a project:
Here comes the heavy work—actually adding cost estimates to the project budget.
If you already work with freelancers or contractors, you can rely on historical data to create estimates. Alternatively, you can reach out to any new external resources you need and ask them for a quote.
We highly recommend creating estimates for every part of the project, and for every expense—however small.
Let’s look at an example. It might take a graphic designer 1-2 weeks to brainstorm and share initial sketches with you. Then, it might take another week to develop mockups, and another week to create the final documents. Find out how much the designer charges for each of these tasks—not just the final deliverable—and add them to your estimates. Then, if the mockup stage requires two rounds of edits, you know how much it will set you back.
Every project manager should have backup for “what if” situations.
Since a project budget is not set in stone, you’ll need to keep a contingency fund and make room for potential “what if” situations. We recommend adding buffer money to your project to account for any unexpected situations.
The goal of every agency owner is to optimize:
Identify opportunities for optimizing timelines, resources, and costs
For example, can you bulk schedule tasks so the client can provide feedback in one go rather than in dribs and drabs?
Or can your SEO experts, writers, and graphic designers work collaboratively rather than waiting for each other to complete their part of the project?
If you’re creating a project budget plan for your clients, you’ll need to add in your profit margins—an important step if you want to make any money on your projects.
Decide if your profit margins are based on a fixed percentage (a healthy profit margin is considered to be 25% for agencies, but you can go up or down).
Alternatively, you can also consider a fixed amount (e.g., $5000 for any social media campaign work you do). Bear in mind that if you choose a fixed amount, you might end up making less overall if the project takes longer than expected or if there are costly hiccups along the way.
Once the project budget is done and dusted (and optimized), your project managers can now forward them to their heads for review. Remember to get sign-off from all interested stakeholders—this might include the CEO and finance team, as well as the heads of departments for the team members you’re hoping to use for the project.
Creating a project budget template means you don’t have to start from scratch for every new project. The information you include will ultimately depend on the type of project and what resources you need to create it.
Here’s an example:
Here are some project expenses you should consider as you’re working out your project budget:
Let’s say, for example, you’re about to start a web design project. Here’s a very basic illustration of what the initial project budget planning might look like.
As you start moving through the project, you can adjust the “estimated time” to “actual time” and revise the budget accordingly.
Ready to get started? Here’s a recap of everything you need to create and manage a project budget.
While developing project budgets might look pretty straightforward, it’s not always a walk in the park—especially if you’re wrangling several resources and a multi-layered project over a long period of time.
There are a thousand variables you need to consider to ensure the final project budget ticks all the requirements either set by you or your client. And there’s no one who understands this better than us.
Our powerful project estimation and tracking tool helps you track project budgets and their profitability to make sure you have total visibility over where your money is being spent.
To truly understand what we can offer you, we recommend you take our live demo!