Introduction
Planning your SBIR budget is more than just a paperwork exercise—it’s a strategic move that can determine the feasibility and competitiveness of your proposal. For small businesses applying to the Department of Energy (DOE), understanding how to build a compliant and well-justified budget is essential. With strict caps, cost categories, and rules that differ slightly from other agencies, DOE SBIR budgeting requires precision. This post breaks down what you can include, how to justify it, and how to structure your Phase I budget for success.
Understanding DOE Phase I Budget Limits
DOE SBIR Phase I awards generally cap at around $200,000, but that number isn’t fixed. Some solicitations allow for higher caps—up to $225,000 or even $250,000—depending on the topic. The specific limit for each topic is always detailed in the Funding Opportunity Announcement (FOA), and exceeding that limit (excluding any Technical and Business Assistance, or TABA, request) will get your proposal flagged or rejected.
So, what does a typical Phase I budget look like? Most successful proposals fall between $150,000 and $200,000, spread across both direct and indirect costs. Here’s how those are usually structured:
- Personnel: Salaries and fringe benefits for your technical team—this is often the largest single category.
- Equipment: Limited in Phase I; only items over $5,000 are considered equipment, and must be essential.
- Travel: Modest, project-related trips (e.g., a required DOE meeting or specialized testing visit).
- Materials and Supplies: Consumables like chemicals, prototyping components, or specialty software.
- Consultants and Subcontracts: Outside expertise or university partners, subject to the “1/3 rule”—no more than 33% of the total effort can be subcontracted.
- Other Direct Costs: Includes lab testing fees, user facility access, or publication costs.
- Indirect Costs: General expenses like rent, admin, and utilities, usually applied as a rate.
- Fee/Profit: You can (and should) request up to 7% of your total project costs as a profit margin.
Important:
SBIR profit (fee) does not count against most DOE topic-specific budget caps—plan to include it unless the FOA specifies otherwise.
What Costs Are Allowable
DOE SBIR budgets must comply with federal cost principles outlined in 2 CFR 200. In short, costs must be necessary, reasonable, and directly related to your Phase I research. Here’s how allowable expenses break down:
Special Budget Elements
Certain budget line items are optional—but skipping them could mean leaving money on the table. Two of the most important to consider are the profit/fee and Technical and Business Assistance (TABA) funding.
Profit/Fee (Up to 7%)
The DOE allows small businesses to add a fee—essentially a profit—of up to 7% of total project costs. This fee is not tied to any specific cost item and doesn’t need to be justified. Nearly all applicants request the full 7%, and for good reason: it provides flexibility to cover unallocable costs or support your broader business operations.
Technical and Business Assistance (TABA)
TABA funds are offered in addition to the core SBIR award, not instead of it. DOE Phase I applicants can request up to $6,500 in TABA funding to pay for third-party commercialization services like:
- Market research
- Intellectual property (IP) consultations
- Customer discovery and business model validation
- Regulatory or FDA strategy support
You must include this request in your original proposal budget and specify the intended provider and services. If approved, your total DOE award will be increased by that amount—but you can’t use the funds for unrelated business expenses.
Budget Justification Tips
Best Practice:
Weak or vague justifications are a common reason for low review scores. Take the time to spell out the “why” behind each cost.
A well-prepared budget is only as strong as its justification. Reviewers will be scrutinizing whether your costs are reasonable, justified, and clearly aligned with your proposed work. Here’s how to make your justification persuasive:
- Be Specific: For each person on your team, state their role, hourly rate or annual salary, and estimated hours or months of effort. Make it clear how their work supports the research objectives.
- Explain Fringe and Indirect Rates: If you use a fringe benefit or indirect rate, describe what it includes—such as payroll taxes, health insurance, office utilities, or rent.
- Justify Equipment: Expensive items must be tied directly to the scope of work. If possible, explain why leasing isn’t viable or why shared use isn’t an option.
- Detail Travel Plans: Identify who is traveling, where, why, and how much it will cost. Keep it modest and tied to project goals.
- Support Consultant and Subcontract Costs: Clarify each consultant’s rate, role, and estimated hours. Subcontracts should include their own breakdown and indirect costs.
- Align with the Work Plan: The tasks in your technical narrative should match the people, tools, and time in your budget.
Common Mistakes to Avoid
Compliance Warning
Including unallowable costs or violating the subcontracting rule (more than 33%) can make your proposal ineligible. Always verify your budget aligns with DOE and SBIR guidelines (13 CFR 121.702).
Even technically strong proposals can be undermined by budget issues. Here are frequent missteps that can hurt your chances—or worse, disqualify your submission:
- Underestimating Your Budget: Asking for too little may signal you don’t fully understand the project scope. Don’t assume a lower request will make you more competitive.
- Padding the Budget: Reviewers can spot inflated estimates. Avoid including non-essential items just to reach the cap.
- Including Unallowable Costs: SBIR funds can’t be used for proposal prep, entertainment, bonuses unrelated to project work, or lobbying. Review 2 CFR 200 to be safe.
- Over-Subcontracting: For Phase I, no more than one-third of research effort can be subcontracted. Violating this rule is grounds for rejection.
- Misclassifying Indirect vs. Direct Costs: Be clear on what belongs where. Double-counting is a red flag.
- Forgetting the Fee: The 7% fee is often misunderstood. Don’t forget to include it on top of your other costs.