How Much Does Research and Development Cost?

Depending on your R&D strategy parameters, the most effective R&D approach for your business can be Basic Research and Applied Research. Both types have their own purpose and can be implemented by R&D teams. Now the question is:  which approach is better?

Basic research will be effective if the strategy and vision for the R&D of your company are focused on in-depth analysis of collected data to better understand or expound on a theory or concept. This type of research is more exploratory and mostly leads to process or product development and/or enhancement. Basic research is done in the Universities and research centers.

Meanwhile, applied research works best if your R&D has solution-specific goals and strategies for solving practical problems and this type of research is done in private companies.

But, what about the cost that involves each type of R&D? But which are the factors that are influencing Research and Development Spending?

If you want to know the answers to these two questions, then this article is for you.  

Research and Development Spending

The type of R&D approaches that you implement in your company is one of the factors that affect the R&D cost. The Applied research requires higher spending compared than the Basic research.

Now, we will see which other factors affect the research and development costs.

Company Size

Here the size of the companies is important. Large companies have the advantage of established infrastructure and an accessible pool of resources and funding to support the R&D. This means higher costs.

On the other hand, small companies have less resource, so the costs for them are less.

Project Risk  

The value of a business can also be impacted by the risk factor. For example, 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. In other words, the more risk to investing in R&D, the lower the expected value for R&D in the business.  

Expected Return

The volume and quality of return from R&D projects also determine future research and development budget for resources and funding.

If the expected returns from R&D projects are high, then the effort and resources to be allocated for R&D will be high and vice versa. This is also related with the next factor: sales growth rate.

Sales Growth Rate

An R&D that has project results that contribute to the positive sales growth and profit of a business can lead to more R&D investments.

Human Capital

The researchers are who push and maintain the capacity of a business for innovation, that is why, hiring top talent for the R&D team is synonymous of cost.

Cash Flow

Another factor that can affect the R&D cost is the status of the current cash flow of a business or organization
A fluctuating or decreasing internal cash flow can lead to a reallocation of funding and resources, which can impact R&D funding and expenditure.

 
R&D Accounting

Several accounting standards can be used for documenting research and development R&D expenditures. In general, R&D expenditure counts as incurred R&D expenses for the business, forming part of the assets on the company's balance sheet.  

Conclusion

R&D is expensive and there is no guaranteed of success. A company needs to employ high quality scientists and/or researchers (they tend to be expensive) and provide expensive facilities in which they can work.
Therefore, the risk is directly related to the investment in R&D and, therefore, to the cost.  

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