It's time to start thinking about IP budgeting!
Fall is here, so it’s time to prepare for next year’s budget. With law firm rates increasing rapidly – some by as much as 10% in 2024, according to a recent Brightflag survey – it’s becoming more critical than ever for IP owners to take IP budgeting seriously.
As experienced IP professionals know, rising costs can quickly spiral out of control without careful planning. By preparing a well-thought-out budget, IP teams are better positioned to deal with the inevitable surprises and can avoid wasting valuable time reconciling time-sucking budget discrepancies.
With IP budgeting, the natural tendency is to focus on the tools and data, but we think the strategy behind assembling your budget is as important (if not more) than the tools used in the process.
We Get It: IP Budgeting isn't Easy
An IP budget has to maintain an organization’s existing rights while funding applications in progress. It also needs to cover as-yet-unfiled applications for projects that may not yet exist.
Throw in unpredictable litigation costs and alignment with the realities of how well the overall business is performing, and things get complicated quickly. This also explains why some organizations don’t try.
It can be easy to get lost (or overwhelmed) by all the data points, different systems, and inputs needed to build a budget. So, if you’re frustrated with your IP budgets, we recommend starting from the beginning to ensure you have the right approach.
Wait, there are multiple approaches?
Yes! There are several approaches to building an IP budget, each with pros and cons. Let’s examine three common budgeting approaches and see which is right for you!
The Top-Down Approach
In top-down budgeting, senior management sets overall financial goals based on historical data, anticipated business activity, and company performance and then allocates a budget to the IP department. This method is efficient and quicker to implement; however, it can lack granularity and frequently overlooks the real costs associated with building and maintaining a growing portfolio. Furthermore, historical IP spending isn’t always a good barometer of future costs.
This approach works well for organizations:
- With minimal or no annual portfolio growth
- That lack the tools, data, or expertise to predict costs
- Who don’t worry about IP costs (yes, they still exist)
This approach works less well for organizations:
- With fast-growing portfolios with significant filing activity
- With large, complex international portfolios
- That reconcile monthly or quarterly actuals to budget
THE BOTTOM-UP APPROACH
Bottom-up budgeting begins lower in the organization, with the IP group utilizing historical spending, portfolio data, and input from business partners to estimate and plan costs and then aggregate these estimates into a budget.
This budget is then aggregated with other budgets from the business to create an overall budget. Since this method is based on the portfolio and involves those closest to the day-to-day activities, it tends to be more accurate and reflective of actual operational needs. However, it can be time-consuming and may result in a budget request significantly out of alignment with leadership expectations.
This approach works well for organizations:
- With high levels of portfolio growth
- That have adequate tools and resources
- Looking for granular budget data and regular reconciliation
This approach works less well for organizations:
- With limited resources and tools
- Who are unable or unwilling to commit the time to properly analyze costs
- With basic budgeting and reconciliation needs
THE HYBRID APPROACH to ip budgeting
We recommend that IP groups use a hybrid approach when building an IP budget. This approach combines elements of both strategies to balance efficiency with accuracy.
Some Top-Down: Senior management sets overall financial goals, limits, and strategic priorities with this approach. They provide broad guidelines or budgetary constraints that help align department-level budgets with the company’s overall financial objectives. This ensures that the budgeting process starts with a clear direction, allowing the organization to maintain control over major financial targets.
Some Bottom-Up: Once the high-level goals are set, the IP group creates a detailed budget based on their IP portfolio, operational costs, and planned projects. Since the people closest to the day-to-day operations better understand the exact costs and resources needed, this process tends to produce more accurate and realistic estimates.
Reconciliation: The inputs from the top-down and bottom-up approaches are reconciled in a negotiation phase. Senior management reviews the departmental budgets, ensuring they align with company-wide goals. At the same time, the IP group provides feedback or adjustments to the initial top-down limits (“You realize what will happen if we stop paying maintenance fees?”). This negotiation helps ensure that both macro-level objectives and micro-level realities are considered in the final budget.
Approval and Implementation: After reconciling the budgets, the final budget is approved, balancing strategic goals and operational needs.
Why we like this approach: This approach provides a target for the IP team to aim towards while also delivering a reality-based budget based on the complexities of the portfolio and the business’s plans.
The reconciliation process ensures that the IP group has the appropriate budgetary scrutiny and alignment across the organization.
Lastly, by building a budget from the ground up, the IP team can reconcile actual spending to budget throughout the year, enabling them to learn and improve their accuracy in future years.
OUR SHAMELESS PLUG
The Planning Part doesn't have to be so hard
One of the challenges with the bottom-up or hybrid approach is the need to quickly create plans and reconcile them against historical spending and budget targets.
We’ve designed Strategic Planner to make this easy, eliminating the spreadsheets and tools you currently need and reducing the time to produce budgets from weeks to minutes.
Click here to learn more about Strategic Planner.
