Calculating Indirects as Part of a Total Award Budget

Some funding announcements provide budget information as a maximum allowed total cost along with a rate to budget indirects. Here's how to calculate direct costs and indirect costs in such a scenario.

Total Costs = (direct costs) + (indirect rate * direct costs)

Example: The fabulous funders have a seed grant opportunity available that provides up to $100,000 in total costs for 1 year. Indirect costs are capped at 8% of direct costs and should be included in the budget.

Assumption: you want to get the full $100,000 in funding for your project.

$100,000 = (direct costs) + (0.08 * direct costs)

$100,000 = (direct costs)(1 + 0.08)

$100,000 = (direct costs)(1.08)

$100,000/1.08 = (direct costs)

Direct costs = $92,592.59

The most common error people make is to calculate the indirect costs off of the total costs as opposed to the direct costs. In the above example, this would be 8% of $100,000, or $8,000, leaving $92,000 in direct costs. This doesn't work though because 8% of $92,000 is $7,360, which would give you a total budget of $99,360, not $100,000.