Can I Include a Profit/Fee in the SBIR Budget?
When preparing your SBIR budget, it’s perfectly acceptable—and often advisable—to include a profit or fee. Unlike direct or indirect costs, this fee is not tied to specific project expenditures. Instead, it represents a margin of profit for your small business and can be used flexibly, however you see fit.
Many first-time applicants skip this line item, either because they think profit isn’t allowed in a government grant or because they assume it must be justified with receipts. But that’s not the case. The SBIR program allows a small fee—typically up to 7% of your total project costs—that can serve as discretionary income for your company. This is your opportunity to strengthen your financial foundation while delivering innovation that meets federal needs.
Including this fee isn’t just allowed; it’s a signal to reviewers that you’re thinking like a sustainable, growth-minded business.
What the SBIR Profit/Fee Actually Is
The profit or fee line item in an SBIR proposal serves a unique purpose. It’s a fixed percentage that your company can request on top of all other project costs—both direct and indirect. While it’s often called “profit,” this line item doesn’t function like a traditional markup in commercial projects. Instead, it’s more akin to a general-purpose margin the federal government permits as recognition that your business is taking on risk and contributing value beyond labor and materials.
It’s Not Considered a Cost
One of the most important distinctions is that this fee is not considered a cost from the government’s point of view. It isn’t subject to audit, doesn’t require documentation, and doesn’t fall under cost-sharing or reporting requirements. That makes it different from any other line item in your proposal budget.
You Can Use It However You Want
Unlike other budget categories that are tightly controlled and restricted, the profit/fee line is completely flexible. Whether you use it to bolster your cash reserves, invest in new equipment, or pay for a patent attorney, the choice is yours. There are no rules or constraints once the money is awarded.
How Much Profit Can You Include?
The SBIR program typically allows small businesses to include a fee of up to 7% of total project costs. This percentage is calculated based on the sum of both your direct and indirect costs. For example, if your direct costs are $100,000 and your indirect costs are $50,000, your total project costs would be $150,000. You could then include a fee of up to $10,500 (7% of $150,000).
Some Agencies Allow Slightly More
While 7% is the commonly accepted standard, a few federal agencies have their own policies that may allow slightly higher fees. In rare cases, you might be able to include a fee of up to 10% or even 11%—but this is the exception, not the rule. You’ll need to review the specific solicitation carefully to know whether the agency you’re applying to permits a higher rate.
Importantly, the combined total of your direct costs, indirect costs, and the profit/fee must not exceed the budget cap specified in the funding opportunity. For example, if the cap is $275,000 for a Phase I award, your total budget—including the fee—must stay within that limit.
Some agencies may allow fees above 7%
Always check the current solicitation, and remember: the total budget including fee must not exceed the award ceiling.
How to Include the Fee in Your Proposal
Including the SBIR profit/fee in your proposal is straightforward, but it’s essential to follow the correct format and avoid common errors.
Where It Goes in the Budget
The fee should be listed as its own line item at the bottom of your budget form—separate from both direct and indirect costs. Whether you’re filling out an SF424 budget form or an agency-specific cost proposal, there’s typically a designated field labeled “Fee” or “Profit.” Enter the percentage you’re claiming (typically 7%) and show the corresponding dollar value.
This number will not be scrutinized the way your cost allocations might be. As long as it’s within the agency’s allowable limit, reviewers generally accept it at face value.
Don’t Make These Mistakes
A surprising number of applicants forget to request the fee altogether. It is not automatically applied or added by reviewers. If you don’t include it in your budget, you will not receive it—even if your proposal is otherwise funded.
Also, exceeding the allowable percentage—especially without agency approval—can raise red flags and potentially disqualify your submission.
Always explicitly request your fee
If you leave it out, the Grants Management team won’t add it for you.
Why You Should Include the Fee
Some applicants hesitate to add a fee to their SBIR proposal, fearing it might appear greedy or unnecessary. But in reality, including the allowable fee is standard practice—and it reflects smart business planning.
Supports Your Long-Term Sustainability
The SBIR fee gives you discretionary capital to strengthen your business beyond the immediate scope of your R&D project. You can use it to purchase lab equipment, cover legal costs for intellectual property, or build a financial buffer to manage payroll in lean months. These are not frivolous expenses; they are strategic investments in your company’s long-term stability and growth.
Demonstrates Business Maturity
From a reviewer’s perspective, a proposal that includes the full allowable fee suggests that you’re running your SBIR award like a business, not a one-off research project. It shows you understand the financial dimensions of innovation and are building a sustainable model—not just chasing grants.