What is flexible budgeting?

Flexible budgeting is an adaptable approach that lets businesses adjust expense limits in real time based on changes in costs, sales, production, or other key factors. It’s a hybrid method: starting with a static framework for fixed costs, then layering in flexibility to account for the variables that are harder to predict.

How do you calculate a flexible budget?

A flexible budget starts with your fixed expenses, then layers in variable costs that adjust based on real-time data. Most often, variable costs are calculated as a percentage of projected revenue or another activity driver. This approach allows you to update the budget as business conditions change—factoring in things like economic shifts, increased competition, or changes in demand.

What is the difference between a fixed and flexible budget?

A fixed budget stays the same, regardless of how business activity changes. It’s based on a set of assumptions made at the beginning of the budgeting period. A flexible budget, on the other hand, adapts. It scales in response to shifts in variable costs—expanding or contracting as needed to reflect what’s actually happening in the business.

Who uses a flexible budget?

While flexible budgeting is traditionally common in manufacturing (especially for managing overhead), it’s also a great fit for SaaS companies. For example, if a SaaS business is forecasting employee benefits, it might tie that budget line to its headcount plan—so costs scale automatically as new hires are added, based on per-person assumptions.