Research and Development Costs: Definition, Examples and More

research and development costs

How Much Does Research and Development Cost?

There are 2 major types of R&D that can be implemented by R&D teams, namely Basic Research and Applied Research. Both types have their own purpose and, depending on your R&D strategy parameters, can be the most effective R&D approach for your business.  

Basic Research

Basic research is driven by curiosity and drive to answer why, what, or how questions. This is to better understand the core principles of their subject matter. This type of research is more exploratory and mostly leads to process or product development and/or enhancement.

Applied Research

On the other hand, Applied Research aims to gain knowledge to answer specific questions and solve practical problems. Applied research is structured to be able to answer specific questions to solve practical problems and tend to lead to new fundamental questions for R&D research and development.

Which Approach is Better?

Basic research will be effective if the strategy and vision for the R&D research and development are focused on in-depth analysis of collected data to better understand or expound on a theory or concept. Applied research works best if your R&D has solution-specific goals and strategies for solving practical problems.

Research and development costs are other factors in determining which approach to use. Basic Research requires more time and resources for its exploratory approach. Applied Research, meanwhile, is more systematic in its approach, complex in nature, and requires higher spending compared to Basic research.

Factors Influencing Research and Development Expenditure

Aside from the research and development R&D approach that you implement, there are several other factors that affect the research and development costs.

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Company Size

Large firms or companies generate a larger share of the industry’s technological advantage. They are often the most important source of technological innovation. Small businesses and firms with active and effective R&D firms have proven to also be competitive in the market. Large firms have the advantage of established infrastructure and an accessible pool of resources and funding to support research-intensive R&D and employing dedicated R&D engineer teams.

Type of Industry

Research-heavy industries like pharmaceuticals, manufacturing, tech most definitely require well planned, funded, and resourced R&D compared to consumer-focused industries like retail, finance, or fashion. There are industries with established guidelines and frameworks for establishing and maintaining an R&D department in a business.

Project Risk

The value of a business can also be impacted by its stability and risk factor. The less stable and more risk there is in investing in a business, the less funding invested. The same is true for R&D and its projects. The higher the risk there is to R&D or any of its projects, the less likely a business will invest its resources and funding. The more risk to investing in R&D, the lower the expected value for R&D in the business.

Expected Return

Results are the bread and butter of R&D research and development. The expected returns from R&D projects of a business are among the first to be considered in determining the effort and resources to be allocated for R&D. The volume and quality of return from R&D projects also determine future research and development budget for resources and funding.

Cash Flow

The status of the current cash flow of a business or organization can also affect the resources and funding allocated to or spent by R&D. Cash flow can be highly variable and not consistent for businesses. Which affects its productivity and profitability. Having a steady and more than sufficient cash flow capable of supporting all identified and allocated expenditures, including R&D, is ideal for a business. However, a fluctuating or decreasing internal cash flow can lead to a reallocation of funding and resources, which can impact R&D funding and expenditure.

Sales Growth Rate

The sales growth of a business is the rate at which a business grows in sales in a year. It is typically used to forecast future growth and the expected return of the business. Sales growth positively impacts the market values of a business. An R&D research and development that has project results that contribute to the positive sales growth and profit of a business can lead to more R&D investments, leaving R&D with more resources to support future expenditure.

Human Capital

Humans remain the driving force of innovation. Despite the advancements in technology, it is still the human workforce, the talented innovators and researchers, that pushes and maintains the capacity of a business for innovation. The quality of the R&D team of a business can dictate the performance and impact of a company’s R&D. hiring top talent and ensuring that they stay and grow within R&D can only benefit the company.

Government Subsidy

Governments also provide subsidies or organizations or companies involved in certain levels of R&D, especially for subject matters relevant to the government. This can impact funding and resources allocated to R&D and its capacity to support expenditure. Businesses and organizations may account for any potential government subsidy. They should still clearly determine if they are indeed capable of supporting R&D regardless of government support.

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R&D Accounting

Unless fully realized, the benefits of R&D for a business is almost always uncertain. This means that R&D expenditure counts as incurred R&D expenses for the business. Several accounting standards can be used for documenting research and development R&D expenditures. 

When materials or assets, computer software, and intangible assets have the potential for future alternative use, they are considered assets to the R&D or business. Otherwise, they are classified as R&D expenses. Aspects such as indirect research and development R&D costs and software development are automatically classified as incurred R&D expenses.

Examples of R&D Spending and R&D Budgeting

In 2018 alone, numerous businesses invest in R&D by billions. Of the top 10 companies that spent and invested in R&D, Samsung tops the list with 14.9 billion USD, followed by Alphabet ($14.8 billion), Volkswagen ($14.8 billion), Microsoft ($13.6 billion), and Huawei ($12.5 billion). The majority of these top R&D investments are in the tech sector. Funding for R&D investments is most often drawn from the business sector, followed by government, then non-profit.

Globally, Asia has had the highest R&D investment from 2017 to 2020, with a 44.3% share in 2020. This is followed by North America (excluding the US), the United States, China, then Europe. The pharmaceutical and biotechnology industry accounts for the industry with the largest R&D investment worldwide. The software and IT services industry follow them, then the Hardware and equipment industry.

R and D Costs for the First Year of Operation for Different Ukrainian Dev Teams

Mobile Development Team

PositionMonthly Salaries Range USDTotal Costs Range Monthly
Project manager x1$1,500-2,500$2,900-3,900
iOS developers (middle) x3$7,800-12,000$12,000-16,200
Android engineers (middle) x3$7,800-12,000$12,000-16,200
Backend developers (middle) x2$4,600-7,200$7,000-10,000
DevOps (middle) x1$2,000-3,700$3,400-5,100
Manual QA (middle) x1$1,600-2,400$3,000-3,800
Manual QA (junior) x2$1,200-3,000$4,000-5,800
Automated QA (middle) x1$2,000-3,600$3,400-5,000
UI/UX designer (middle) x1$1,500-2,400$2,900-3,800
Total$30,000-48,800$50,600-69,800

Web Application Team

PositionMonthly Salary RangeTotal Cost Range Monthly
Project manager x1$1,500-2,500$2,900-3,900
Frontend developers (senior) x4$15,200-22,000$20,800-27,600
Frontend developers (middle) x4$9,200-14,800$14,800-20,400
Backend engineers (middle) x4$8,400-14,400$14,000-20,000
Backend engineers (senior) x4$14,800-20,000$20,400-25,600
DevOps specialist (senior) x2$7,600-11,000$10,400-13,800
Manual QA (middle) x3$4,800-7,200$9,000-11,400
Automated QA (middle) x3$6,000-10,800$10,200-15,000
UI/UX designers (middle) x2$3,000-4,800$8,800-7,600
Total$70,500-107,500$111,300-145,300

Software + Hardware Team

PositionMonthly Salary RangeTotal Cost Range Monthly
Frontend developer (middle) 1x$2,300-3,700$3,700-5,100
Backend developers (middle) 2x$4,200-7,200$7,000-10,000
Backend programmer (senior) 1x$3,700-5,000$5,100-6,400
IoT hardware engineers (middle) 2x$4,000-7,200$4,000-7,200
Embedded engineers (middle) 2x$4,000-7,200$4,000-7,200
DevOps (middle) 1x$2,000-3,700$3,400-5,100
DevOps (senior) 1x$3,800-5,500$5,200-6,900
Manual QA (middle) x2$3,400-5,200$6,000-7,600
Automated QA (middle) x2$4,000-7,200$6,800-10,000
Total$31,400-51,900$51,000-71,500
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Offshore R and D Services

There are numerous services equipped to assist businesses in determining the costs of establishing R&D department or the costs to build a research and development facility. Companies that have plans for building effective r&d capabilities abroad can benefit from partnering with offshore R and D service providers, especially those that are already set up in their target areas.

Outsourced R&D service providers are capable of:

  • Assessing R&D needs, scope, and R and D costs
  • Estimating research and development costs
  • Estimating costs of establishing R&D department in the target area
  • Establishing standards and processes for R&D accounting
  • Identifying the need for and estimating the cost of R&D centers
  • Recruiting and onboarding of R&D team

Need a quote for costs to build a research and development facility in Ukraine? Contact us now!

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