How do I scope an SBIR/STTR project to fit the budget?
Start with the total maximum budget allowed by the agency. The current norm for Phase I is $275,000. Then remove 7% to cover that profit/fee. Next remove the amount needed to cover a portion of your indirect costs (the cost of being in business), based on the indirect rate percentage that you will derive for your firm. What is left over are the total funds available to actually do the Phase I R&D project, including your company’s labor, materials, and travel, plus the total amount required by any subcontractors or consultants you plan to include on the project.
What is an “indirect rate” and where do I get it?
An indirect rate is a way to cover your general costs of being in business. This includes items such as rent, your electric bill, telephone and internet access. The indirect rate is usually expressed as a percentage of the actual costs of doing work for a client (those are known as the “direct costs”). Each company has a unique indirect rate, based on its costs and how the company expresses them. You should NEVER use another company’s indirect rate, because it doesn’t reflect your costs and therefore is indefensible and inaccurate. Instead, you MUST derive your own company’s unique indirect rate.
What percentage of the budget does the Principal Investigator (PI) typically receive in a Phase I project?
First, make sure that the PI has enough involvement in the project, and enough budget to cover that involvement, so that it does not appear to be “window dressing.” This term refers to situations where an
SBIR/STTR applicant proposes a highly qualified and credentialed individual to serve as the PI, but then only gives them a token role in the actual project. This suggests you were “window dressing” with the PI rather than planning to really use their expertise in the project. Second, some agencies set minimums that a PI must contribute to the SBIR/STTR project. The Department of Energy (DOE), for example, says that the PI must contribute a minimum of 3 hours per week, on average, during the term of a Phase I project, and that goes up to 5 hours per week, on average, in Phase II. Therefore, in a 9 month DOE Phase I project, the PI must dedicate at least 117 hours to the effort. And NSF says that the PI must put in at least 1 calendar month of effort into a Phase I SBIR or STTR project.
How much profit should I ask for?
All agencies are required, by law to allow you a “reasonable” profit/fee on your SBIR/STTR project, but you have to ask for it in your cost proposal. Keep in mind does is the one part of the budget that does not need any justification because it’s not relevant to the review, it is just expected. The profit/fee is the most flexible money you will ever get from the Federal government. The only rule that applies to the profit/fee is how much is “reasonable” for the government to give you—once you have that profit/fee in your pocket, you can do whatever you want to with it. The range is typically 7 to 11%. However, with the various budget constraints that have been experienced over the past several years, today the most commonly accepted fee is 7%.