Econ 101 for Assistant Professors: A Simple Guide to the Economics of Grants

Here is a simple guide to what assistant professors in STEM fields should know about funding their lab via research grants. This article may also be useful for students: by understanding the economics of academia, they can better understand their advisors' constraints.

One of the biggest transitions from being a Ph.D. student / postdoc to a tenure-track assistant professor at a research-intensive STEM department is the need to raise money to fund your lab. It's analogous to the contrast between being part of a company and founding your own startup company. As a professor in these fields, your career depends on continually raising enough money to keep your lab alive.

Aspiring professors often hear the G word being thrown around – grants, grants, grants – but don't have an intuitive grasp of the economics of research funding. Documentation on grants, like tax codes, is often cryptic and overly detailed. Everyone ends up learning on the job from mentors and trial-and-error, but the process can be confusing. Thus, I set out to demystify this topic with a simplified Econ 101-type approach.

This article is a simple guide to the economics of research grants, geared toward assistant professors in STEM fields in the United States. It makes a ton of simplifications, and since I am not a financial advisor, only rely on this as a starting point for your own investigations.

Economics 101 for academic labs

This diagram summarizes the economic engine of an academic research lab:

As a professor who runs a lab, it's your job to raise enough money to keep this cycle going round and round[1] for the duration of your career. If this cycle ever stops, it's really hard to start it up again, since each phase directly leads to the next. Unlike a company with revenue, a lab never makes money; it only consumes money. Thus, it's up to you to keep raising money to keep it alive. For an assistant professor, if you can't “cycle through” enough times in six years, then you don't make tenure and get fired. If you're already tenured but can't keep cycling, then other bad things happen which are outside the scope of this article (even if you can't get fired because you have tenure).

In my view, the central challenge of being a professor is enabling yourself and your students to do the deeply creative and meaningful kinds of research that you entered this career to do while raising enough money to keep funding those dreams. If you ever lose sight of those original dreams that brought you into this career path, then fundraising just seems like a massive grind without much reward; you can make far more money in industry with much less hassle.

OK, so you just got a grant, now what?

This article won't cover the intricacies of how to get grants, but assume that you've just gotten one ... now what?

Let's say your grant was for $300,000.

Your university immediately takes $100,000 from that grant, thus leaving you with $200,000. That's called “overhead” or indirect cost, which funds facilities like the building that houses your lab. Overhead rates are at least 50%, so let's use that as a baseline. In this example, $100,000 is 50% of $200,000. Thus, you need to actually raise $300,000 to keep $200,000 for your lab.

OK, you have $200,000 left. How will you spend that money? How long will this money last? When will you need to raise more money? Your burn rate depends on how big your lab is.

Personnel Costs

By far your biggest financial expense is personnel. Staffing costs vary greatly by university (e.g., public vs. private), but one super-simple approximation in the U.S. is that:

  • an undergraduate/master's student costs $15,000 per year
  • a Ph.D. student costs $50,000 per year
  • a postdoc costs $75,000 per year
  • a research scientist costs $100,000 per year

Note that these costs aren't only for salary; they also include benefits and possibly tuition for Ph.D. students. Also, these costs are after overhead has been taken by the university. For instance, to fund one Ph.D. student for one year, you need to actually raise $75,000, since $25,000 will be taken as overhead right away, thus leaving you with $50,000[2] to fund your student.

How big of a lab do you need to maintain to produce enough good papers to make tenure and beyond? The answer heavily depends on your field, professional ambitions, and working style. Here are some example lab sizes and associated costs:

  • A minimal lab has 2 undergrads and 2 Ph.D. students, which costs $130,000 per year to run. Add in 50% overhead, and you need to raise $195,000 per year to maintain your lab at this size. Let's round up and say $200,000 per year.

  • A moderate-sized lab, like many in my field of computer science, has 4 undergrads and 4 Ph.D. students, which costs $260,000 per year. Add in 50% overhead, and you need to raise around $400,000 per year to pay your staff.

  • A larger lab, like in more traditional science fields, has 1 research scientist, 2 postdocs, 6 Ph.D. students, and 6 undergrads, which costs $640,000 before overhead. With 50% overhead, your staff now costs almost $1,000,000 per year.

Now you see why it's important for students and postdocs to get their own fellowships! Every fellowship alleviates some of the funding burden on you.

Travel Costs

Aside from personnel, travel is the next biggest expense for me. Professors often travel once every month or two to conferences, professional meetings, and invited talks. Your students, postdocs, and staff will also travel to present their research at professional meetings, which you will need to pay for. Each trip costs anywhere from $1,000 to $3,000, depending on how frugal you are with airfare or hotel room sharing. With a moderate-sized lab, travel expenses can add up to $25,000 per year.

Equipment Costs

Grants also pay for all of your lab equipment. In some fields, that can add up to a lot, but in computer science, all you need are computers and maybe cloud storage or computing resources, which cost less than $15,000 per year. In short, equipment is a lot cheaper than personnel, and can be cheaper than travel.

Miscellaneous Costs

If you publish in journals, you'll need to pay publication fees. You'll also need to pay for professional association dues for your lab members. There's a bunch of other small costs as well, like buying food for lab lunches or dinners. One super-simple approximation is that travel, equipment, and other miscellaneous costs add up to the equivalent of one extra Ph.D. student per year ($50,000).

Putting it all together

Let's say you want to run a moderate-sized lab: 4 undergrads and 4 Ph.D. students. Add in an extra Ph.D. student's worth of funding to account for travel, equipment, and miscellaneous costs (see above), and you have an annual operating expense of $310,000. Add in 50% overhead and round up a bit, and you need to raise $500,000 per year in grants to keep your lab alive.

If you can find other ways to fund your staff (e.g., with fellowships or teaching assistantships), then that expense could drop to $300,000 per year if you're lucky.

Of course, these are all ballpark estimates to get you started in financial planning. But no matter the amount of money at stake, though, it's undeniable that being a professor means being a professional money manager. Check with your colleagues for details of how things work in your own academic field. Good luck!

1. Astute readers may wonder, “How does this cycle ever get started? Isn't there a chicken-and-egg problem?” The solution is that you begin your career with a startup package, which is a one-time grant that the university gives you to bootstrap your lab. Your startup funding lasts for 2–3 years, by which point you need to have gotten your first grant to keep this cycle going.

2. Out of that $50,000, their salary may only be $25,000, with the other $25,000 going back to the university to pay their full-time student tuition. Thus, if you raise $75,000, your university takes $25,000 for overhead and another $25,000 for tuition, leaving only $25,000 (or 1/3 of your grant money) for your student's salary.

Created: 2016-02-24
Last modified: 2016-02-24