Contract research: Revenue and budgeted expenditure 2016–2020#
For Fraunhofer, contract research is the mainstay of its business activities. Based on the Fraunhofer model, it consists of three pillars, each contributing equal amounts to the organization’s finances:
- Research directly contracted by industry
- Publicly funded research projects
- Pre-competitive research funded with base funding
The amount of base funding used to finance pre-competitive research increased by 13 percent to €845 million in 2020 due to the coronavirus. Base funding is provided by the German Federal Ministry of Education and Research (BMBF) and the state governments in a ratio of 90 : 10. An additional €195 million in federal government funding for supporting applied research by non-university research institutions enabled Fraunhofer to establish measures for retaining expertise. These include such as setting up internal funding programs for meaningful research contributions to overcoming the coronavirus pandemic. There was a significant decline in industrial revenues. On account of the crisis, they fell 9 percent to €658 million. Additionally, revenue from industry contracts fell by 9 percent to €559 million and license-fee revenue dropped by 7 percent to €99 million.
In contrast, there was a significant increase in revenue from publicly funded projects, which was an essential pillar of support in a time of crisis. Project funding from state governments, in particular, jumped by 22 percent to €196 million. Project funding from the federal government grew by 6 percent to €485 million. However, EU revenue decreased slightly to €92 million. With its participation in the European Union’s Horizon 2020 Framework Program for Research and Innovation, Fraunhofer is actively engaged in shaping European business and research and continuously holds a top position (currently 3rd place) in rankings for R&D research institution funding. Other revenue increased by 8 percent to €122 million, and includes funding granted by foundations, universities and other research-funding institutions.
The high funding ratio of external project revenue marks the success of the Fraunhofer Institutes and is a distinguishing feature of the Fraunhofer-Gesellschaft. The project funding ratio therefore serves as a key performance indicator and as a barometer for establishing an optimal funding mix for contract research. It is calculated as the share of external project revenue in the operating budget, including imputed write-downs on investments (excluding initial funding for newly established facilities and excluding changes in reserves). For a long period of time, the external revenue generated as a result of the growth in demand for Fraunhofer services was higher than the potential increase in base funding. A one-time, permanent increase in base funding in 2017 meant that the funding ratio declined in subsequent years as planned and in 2018 and 2019 it was again in line with the Fraunhofer funding model. In 2020, the project funding ratio fell by a further 65.5 percent as a result of the coronavirus pandemic. A sharp increase in revenue from federal and state governments resulted in their funding ratio rising to 28.6 percent. In contrast, the share of industrial revenues sank to 27.9 percent as a result of the crisis. Due to the coronavirus, the international project volume decreased for the first time in several years by 7 percent to €276 million (excluding license-fee revenue), with its share of total project funding for contract research falling slightly year-on-year to 18 percent. 33 percent of international project volume came from EU funding, 40 percent from customers and partners in Europe and 27 percent from those outside of Europe. The amount of project volume generated within Europe decreased by 7 percent to €109 million, while project volume generated outside of Europe fell by 11 percent to €75 million. Switzerland, at €29 million, remained the largest market outside of Germany, followed by the USA (€26 million) and Japan (€17 million).