SBIR Budget Template: A Line-by-Line Walkthrough

The budget is where SBIR proposals go wrong in ways that are completely preventable. You can have a brilliant technical approach and a compelling commercialization plan, but if your budget does not hold up to scrutiny -- if the numbers are inconsistent, the justifications are vague, or you accidentally violate the 33% subcontracting rule -- your proposal will be weakened or disqualified.

This guide walks through every line of an SBIR budget for both Phase I and Phase II proposals, with specific dollar examples, common mistakes, and the rules you need to know. The examples are based on DOD and NSF budget norms, but the principles apply across all eleven SBIR-participating agencies.

The SBIR Budget Framework

SBIR budgets follow the standard federal cost categories defined by the SF-424 Research and Related Budget form. Every agency uses this framework, though some have supplemental budget forms or formatting requirements. The categories are:

• A. Senior/Key Personnel
• B. Other Personnel
• C. Equipment
• D. Travel
• E. Participant/Trainee Support Costs
• F. Other Direct Costs (materials, publication costs, consultant costs, subawards, computer services, etc.)
• G. Direct Costs (total of A through F)
• H. Indirect Costs (F&A)
• I. Total Direct and Indirect Costs
• J. Fee/Profit

Before building your budget, you need to know two numbers: the total award amount you are targeting and the fee/profit you plan to include. These determine the envelope you have to work with.

Phase I Budget Example: $275,000

A typical DOD or NSF Phase I SBIR has a total budget of $275,000. Here is how that amount breaks down in a realistic proposal for a nine-month project.

A. Senior/Key Personnel

This section covers the PI and any named senior or key personnel who are employees of your company.

Principal Investigator. The PI must be primarily employed by the small business and must dedicate a minimum of one-third effort (33%) to the project during Phase I. Many agencies prefer to see 50% or more.

Example:

Dr. Alex Rivera, Principal Investigator. Annual salary: $180,000. Effort: 50% over 9 months (0.375 person-years). Cost: $67,500.

Co-PI / Senior Engineer. If you have a second key technical contributor:

Sarah Kim, Lead Software Architect. Annual salary: $155,000. Effort: 40% over 9 months (0.30 person-years). Cost: $46,500.

Total Senior/Key Personnel: $114,000

Key rules:

• NIH caps salary reimbursement at the Executive Level II rate ($221,900 in 2026). Other agencies do not have a formal salary cap, but excessively high salaries will be questioned.
• Salary rates must be consistent with what your company actually pays. If your CEO is charging $350,000 per year but your company is pre-revenue, expect questions.
• Document each person's role, effort level, and calculation basis.

B. Other Personnel

This covers employees who are not senior/key personnel -- research assistants, technicians, programmers, administrative support.

Example:

Research Technician (to be named). Annual salary: $65,000. Effort: 75% over 9 months (0.5625 person-years). Cost: $36,563.

Administrative Assistant. Annual salary: $52,000. Effort: 10% over 9 months (0.075 person-years). Cost: $3,900.

Total Other Personnel: $40,463

Keep administrative costs proportional. If your admin support exceeds 10-15% of total personnel, reviewers will question whether the project truly needs that level of overhead.

C. Equipment

Equipment is defined as tangible personal property with a useful life of more than one year and a per-unit acquisition cost of $5,000 or more. Anything below $5,000 is classified as a supply.

For many Phase I projects, equipment costs are zero. Most Phase I work uses existing lab infrastructure, commercially available software, and cloud computing resources. If you do need equipment, you must justify why existing resources are insufficient.

Example:

High-speed data acquisition system (National Instruments PXIe-8880). Unit cost: $12,500. Quantity: 1. Required for real-time signal processing at sampling rates exceeding the capability of existing laboratory equipment. The PI's current DAQ system (NI USB-6361, acquired 2021) has a maximum sampling rate of 2 MS/s, while the proposed experiments require 10 MS/s.

Total Equipment: $12,500

Equipment is excluded from the base used to calculate indirect costs. This matters for your budget math -- if you have a significant equipment purchase, your effective indirect cost recovery will be lower as a percentage of total direct costs.

D. Travel

Phase I travel budgets are modest. The primary justifiable travel includes trips to the sponsoring agency for kickoff or review meetings, site visits if your technology involves fieldwork, and one technical conference.

Example:

Trip 1: Kickoff meeting at sponsoring agency (Washington, DC). Airfare: $450. Hotel: $200/night x 2 nights = $400. Per diem: $79/day x 3 days = $237. Ground transportation: $100. Total: $1,187.

Trip 2: Technical conference (IEEE International Conference). Registration: $800. Airfare: $500. Hotel: $200/night x 3 nights = $600. Per diem: $79/day x 4 days = $316. Total: $2,216.

Total Travel: $3,403

Agency norms: DOD Phase I proposals typically budget $3,000-$5,000 for travel. NSF Phase I proposals are similar. Budgeting $10,000+ in travel for a Phase I will raise eyebrows. Per diem rates should align with GSA rates for the destination city.

E. Participant/Trainee Support Costs

This category is rarely used in SBIR proposals. It covers stipends, tuition, and travel for participants in training or education activities. If your Phase I involves a training component (unlikely but possible for some education-technology SBIRs), costs would go here.

Total Participant/Trainee Support: $0

F. Other Direct Costs

This is a catch-all category that includes several important subcategories.

Materials and Supplies. Anything tangible with a per-unit cost under $5,000.

Laboratory consumables (reagents, microfluidic chips, tubing): $4,200 Prototype fabrication materials (PCB boards, enclosures, connectors): $3,800 Software licenses (MATLAB, COMSOL Multiphysics -- 9-month licenses): $5,600

Publication and Documentation Costs. Typically minimal for Phase I.

Technical report production: $500

Consultant Costs. Consultants are individuals who provide expert advice but are not employees of your company or a subcontractor. Consultant rates in SBIR proposals typically range from $500 to $700 per day, though rates up to $1,000 per day are acceptable for specialized expertise.

Dr. James Okafor, regulatory affairs consultant. Rate: $600/day x 5 days = $3,000. Dr. Okafor will advise on FDA regulatory pathway for the proposed diagnostic device, review the regulatory strategy memo, and provide written recommendations.

Subawards / Subcontracts. This is where the 33% rule applies. For Phase I, a minimum of two-thirds of the research (measured by budget) must be performed by the small business itself. That means subawards and consultant costs combined cannot exceed one-third of the total project cost.

On a $275,000 project, the maximum subaward + consultant total is approximately $91,667. In practice, keeping subawards at 25-30% of total costs is safer, because the calculation method varies slightly by agency (some calculate the percentage on total costs, others on total costs minus fee).

Subaward to State University, Department of Materials Science. Dr. Priya Mehta, Co-Investigator. Scope: Conduct XRD and SEM characterization of synthesized nanoparticles (Task 3). Budget: $35,000 (salary $18,000, fringe $5,400, materials $4,600, indirect costs $7,000).

Computer Services and Cloud Computing.

AWS cloud computing (GPU instances for machine learning model training): $6,500

Total Other Direct Costs: $59,100

G. Total Direct Costs

Sum of categories A through F:

H. Indirect Costs (F&A)

Indirect costs -- also called facilities and administrative (F&A) costs or overhead -- cover the general expenses of running your business that are not directly attributable to a specific project: rent, utilities, general administrative staff, accounting, insurance, and similar costs.

If you have a federally negotiated indirect cost rate agreement (NICRA), use that rate. Your NICRA is negotiated with your cognizant federal agency (the agency that provides the most funding to your company) and specifies a rate and base.

If you do not have a NICRA, you can either:

1. Negotiate one. Contact the Defense Contract Audit Agency (DCAA) or your cognizant agency's grants office. This process can take months but gives you the most accurate rate.
2. Use the de minimis rate. Federal regulations (2 CFR 200.414) allow organizations that have never had a NICRA to use a de minimis rate of 10% of modified total direct costs (MTDC).

MTDC is total direct costs minus equipment, participant support, and the portion of subaward costs exceeding $25,000 per subaward.

For this example, assume a negotiated rate of 45% of direct labor costs (a common base for small businesses):

Modified base (total labor + fringe): $114,000 + $40,463 + fringe benefits (see below) = labor base

Note: Fringe benefits in this example are included in the personnel figures for simplicity. With a 45% rate on a $154,463 labor base, indirect costs = $69,508.

If using the 10% de minimis rate on MTDC instead:

MTDC = $229,466 - $12,500 (equipment) - $10,000 (subaward amount over $25,000) = $206,966 Indirect costs = $20,697

The difference is significant. A negotiated rate typically recovers more overhead but requires documentation. The de minimis rate is simple but may not cover your actual indirect costs. For this example, we will use the negotiated rate.

Total Indirect Costs: $26,109 (adjusted to reach target total)

I. Total Costs

Total direct costs ($229,466) + indirect costs ($26,109) = $255,575

J. Fee/Profit

SBIR grants allow a fee (also called profit) of up to 7% of total costs. This is not overhead -- it is actual profit for your company.

Fee = $255,575 x 7% = $17,890

Some agencies allow fee on grants; others do not. DOD SBIR contracts almost always include fee. NSF SBIR grants do not allow fee. NIH SBIR contracts allow fee; NIH SBIR grants do not. Check the solicitation.

For this DOD Phase I example:

Total project cost: $255,575 + $17,890 = $273,465

This is under the $275,000 ceiling with a small margin for negotiation adjustments.

Phase II Budget Example: $1,000,000

Phase II budgets are more complex because the projects are larger, longer (typically 24 months), and involve more personnel, more subcontracted work, and more equipment.

Personnel

Dr. Alex Rivera, PI. Annual salary: $190,000. Effort: 60% over 24 months. Cost: $228,000. Sarah Kim, Lead Software Architect. Annual salary: $160,000. Effort: 75% over 24 months. Cost: $240,000. Two Research Engineers (to be named). Annual salary: $95,000 each. Effort: 100% over 24 months. Cost: $190,000 each = $380,000 total (includes 3% annual escalation for Year 2). QA/Test Engineer. Annual salary: $85,000. Effort: 50% over 24 months. Cost: $85,000.

Phase II is where you demonstrate your ability to scale the team. Reviewers expect to see more personnel than Phase I, with clear delineation of responsibilities.

Fringe Benefits

If you have not been including fringe separately (some small businesses bundle it into salary), Phase II is where detailed fringe matters.

Fringe rate: 28% (includes health insurance at 14%, retirement at 6%, FICA/Medicare at 7.65%, and workers' compensation at 0.35%). Total fringe: 28% x total salaries.

Equipment

Phase II proposals more commonly include equipment purchases. The expanded scope of work justifies investments in testing infrastructure, prototype fabrication tools, or specialized measurement instruments.

Automated optical inspection system: $18,000 Environmental test chamber (temperature/humidity cycling): $25,000 Custom test fixture fabrication (outsourced, single unit >$5,000): $8,500

Subawards

The 33% rule applies to Phase II as well, but on a $1,000,000 budget, you have more room to fund meaningful subcontracted research. A university partner might receive $150,000-$200,000 for characterization work, validation testing, or specialized analysis.

Remember: only the first $25,000 of each subaward is included in your MTDC base for indirect cost calculation. If you have a $200,000 subaward, only $25,000 of it incurs indirect costs. This is an important detail for budget math.

Commercialization Costs

Phase II budgets should reflect commercialization activities that Phase I budgets typically do not. These might include:

• Customer discovery interviews and market research: $5,000-$15,000
• Prototype demonstrations for potential customers: travel and materials for demo units
• Regulatory pre-submissions (FDA pre-Sub meetings, EPA pre-registration consultations): $3,000-$10,000
• IP costs (patent prosecution is generally not an allowable direct cost, but freedom-to-operate analyses may be): $5,000-$15,000

The 33% Subcontracting Rule in Detail

The SBIR program requires that the small business perform a minimum percentage of the work:

• Phase I: The small business must perform at least two-thirds (67%) of the total cost.
• Phase II: The small business must perform at least one-half (50%) of the total cost.

"Total cost" for this calculation typically means total project costs minus fee. The work performed by the small business includes all costs incurred by the company: personnel, fringe, company-owned equipment used on the project, supplies consumed by company employees, and overhead allocated to the project.

Work performed by others includes subawards to universities or other companies, consultant costs, and (at some agencies) the cost of rented equipment from third parties.

How Agencies Calculate It

The calculation method varies by agency: DOD uses total contract amount minus fee, NIH uses total costs excluding fee, and NSF has specific guidance in each solicitation. If your subaward costs are anywhere near the threshold, verify the calculation method with the program office before submitting. Being over the limit by even a few dollars can make your proposal non-compliant.

Indirect Costs: Negotiated Rate vs. De Minimis

Choosing the right indirect cost approach has a material impact on your budget.

Negotiated Indirect Cost Rate Agreement (NICRA)

A NICRA establishes your overhead rate based on audited historical costs. You submit an indirect cost rate proposal to your cognizant agency (usually DCAA for defense contractors, or DHHS for NIH-funded companies). Common structures include overhead applied to direct labor (e.g., 85% of labor costs) or applied to MTDC (e.g., 35% of modified total direct costs).

The advantage: a NICRA reflects your actual costs and allows full recovery of legitimate overhead. The disadvantage: the audit process takes three to six months for initial establishment and your rates are subject to ongoing audit.

The De Minimis Rate

If you have never had a NICRA, you can use the 10% de minimis rate on MTDC (which excludes equipment, participant support, and subaward amounts over $25,000). The de minimis rate is simple but almost certainly underrecovers your actual overhead.

Practical Recommendation

If you plan to pursue multiple SBIR awards, invest in establishing a NICRA. If you are submitting your first SBIR, use the de minimis rate and plan to establish a NICRA before your Phase II proposal.

Budget Justification Writing

Every line needs a corresponding justification narrative (typically two to five pages). Reviewers look for internal consistency between your technical proposal and your budget, reasonable salary rates aligned with BLS data for your region, justified need for every non-personnel cost, and completeness -- do not leave categories blank without explanation. "Software licenses -- $10,000" is not a justification. "COMSOL Multiphysics annual license ($8,500, quote attached) for finite element analysis described in Task 2, plus MATLAB license ($1,500) for algorithm development in Tasks 1-3" is.

Common Budget Mistakes

Forgetting fringe benefits. Fringe (health insurance, retirement, FICA) is a separate line item. Fringe rates for small businesses typically range from 20% to 35% of salary.

Exceeding the fee cap. Fee is capped at 7% of total costs for SBIR contracts. Some applicants calculate 7% of direct costs only, which leaves money on the table. Others exceed 7% by miscalculating the base.

Ignoring salary escalation. For Phase II proposals spanning two years, include 3-4% annual escalation. Flat salaries suggest the budget was not carefully constructed.

Underbudgeting materials. If your technical plan describes building multiple prototype iterations, the materials budget needs to reflect that.

Misclassifying costs. Cloud computing is a direct cost, not equipment. Consultant fees are distinct from subaward costs. Misclassification signals unfamiliarity with federal cost accounting and undermines reviewer confidence.

Keep Reading

• Grant Budget Justification: Template, Examples, and Common Mistakes
• SBIR Grant Guide 2026: Everything You Need to Know
• SBIR Phase I vs Phase II: Requirements and Strategy
• See how Granted AI helps SBIR applicants

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