SOC 2 Type I vs Type II for SMBs: The Decision Framework (2026 Guide)
TL;DR
For most SMBs, the Type I vs Type II decision comes down to three variables: how urgently you need a report, what your target customers require, and how much you can invest. Type I works as a fast credibility signal — achievable in weeks for under $5,000 with AI-powered platforms. Type II is the enterprise gold standard but requires a 3–12 month observation period that can't be compressed. The smart play for most startups: pursue Type I to unblock immediate deals, then begin your Type II observation period the same week. With traditional consulting running $30,000–$150,000+, AI platforms like Humadroid have collapsed that to under $10,000 total — making enterprise-grade compliance realistic even at seed stage.
You know you need SOC 2. The question keeping you up at night isn't whether — it's which type, how fast, and how much.
If you're a founder, CTO, or head of operations at a company with 10 to 200 employees, this guide is built specifically for you. Not for Fortune 500 compliance departments with dedicated security teams and six-figure budgets. For the people making this decision with constrained resources, competing priorities, and real deals on the line.
For a comprehensive technical breakdown of how Type I and Type II audits work, what auditors actually test, and industry-specific considerations, see our complete SOC 2 Type I vs Type II guide. This article focuses on the business decision: which path is right for your specific situation, and how to execute it without burning through your runway.
The 60-Second Version: Type I vs Type II for SMBs
Type I is a snapshot. An auditor confirms your security controls are properly designed at a single point in time. It's faster (1–5 months), cheaper ($15,000–$60,000 traditional, under $5,000 with AI), and good enough to unblock most early-stage deals.
Type II is the full documentary. Auditors test whether your controls actually work over a 3–12 month observation period. It takes longer (6–15 months total), costs more ($30,000–$150,000+ traditional, under $10,000 with AI), and carries significantly more weight with enterprise buyers.
The critical difference for SMBs: Type II's observation period cannot be compressed or accelerated. You can speed up preparation with automation, but the clock itself is non-negotiable. That timeline constraint shapes everything about your decision.
Three Questions That Determine Your Path
Before diving into frameworks and cost models, answer these three questions honestly. They'll tell you more than any matrix.
1. What do your customers actually require?
Not what you think they require. What they've actually said. Call your top 10 prospects this week and ask directly: "Would a SOC 2 Type I report satisfy your security requirements, or does your procurement team specifically need Type II?"
If even 30% say Type II, that's your answer — plan for Type II. If most say "any SOC 2 report would help," Type I gets you moving immediately while you build toward Type II.
The nuance matters by industry. In our experience, financial services and healthcare buyers almost universally require Type II. Mid-market SaaS buyers are often satisfied with Type I as a stepping stone if you communicate a clear Type II timeline. For a detailed breakdown by vertical, see the industry-specific section in our main guide.
2. How much time do you have?
Be realistic about your deadline. If a deal closes in 8 weeks and requires "SOC 2 compliance," Type I is your only option — and with AI-powered preparation, it's achievable. If your timeline is 6+ months, going straight to Type II often makes more financial sense than paying for two separate audits.
3. What can you actually invest?
Not just dollars — people and attention. SOC 2 requires someone to own the process. At a 20-person startup, that's usually the CTO or a senior engineer who's already stretched thin. The approach you choose needs to account for that reality, not pretend you have a dedicated compliance team.
The SMB Decision Framework by Funding Stage
Your company stage shapes the SOC 2 decision more than any other factor. Here's what we've seen work across hundreds of conversations with founders at different stages.
Pre-seed / Seed (under $2M raised, fewer than 15 employees)
Default recommendation: Wait — unless a specific deal requires it.
At this stage, your priority is product-market fit, not compliance certifications. The exception: if a single enterprise customer is willing to sign a contract contingent on SOC 2, and that contract is large enough to justify the investment. A single $100k+ deal absolutely justifies pursuing Type I.
If you do move forward, Type I is the only practical choice. Your team is too small to sustain a 6-month observation period while simultaneously shipping product. With Humadroid, the total investment is roughly $2,750 — three months of platform subscription plus audit fees through our assessor network starting at $2,000. That's less than a month of a junior developer's salary.
What to skip: don't pursue SOC 2 if you're pre-revenue, have no enterprise customers, or have fewer than 10 employees. At that size, you lack the organizational structure to implement meaningful controls. Focus on building security hygiene into your culture now, and formalize it later.
Series A ($2M–$15M raised, 15–50 employees)
Default recommendation: Start Type I immediately, begin Type II observation within 30 days of your Type I report.
This is the inflection point. You're actively pursuing mid-market and enterprise deals. Prospects are asking about security compliance in every sales cycle. Your sales team is spending 10–20 hours per week filling out security questionnaires manually — time that a SOC 2 report would eliminate.
At $1M–$5M ARR, you have the budget to justify the investment and the customer base to see clear ROI. A single enterprise deal over $50k ACV can pay for the entire compliance process multiple times over.
The playbook: use Humadroid to reach audit readiness in 1–2 weeks, complete Type I within 4–6 weeks total, then immediately designate your Type II observation start date. By the time you've closed a few deals using your Type I report, your Type II observation period is already months along.
Budget at this stage with Humadroid: $250/month platform + $2,000 Type I audit + $3,500 Type II audit = roughly $6,500–$8,500 for the first year, including both reports. Compare that to $50,000–$150,000+ through traditional consulting.
Series B+ ($15M+ raised, 50–200 employees)
Default recommendation: Go straight to Type II. Skip Type I entirely.
At this stage, you should already have security controls operating — even informally. Your target customers are increasingly enterprise, and their procurement teams won't accept Type I. The economics also favor a single audit: paying for Type I ($2,000–$20,000) plus Type II later ($3,500–$50,000) costs more than going straight to Type II ($3,500–$50,000).
If you've been running access controls, conducting security training, and documenting incidents for 3+ months, you may already have enough operational history to begin a Type II observation period immediately. Humadroid can help formalize those informal practices into SOC 2-compliant controls in about a week, and your observation clock starts ticking right away.
The risk at this stage isn't cost — it's delay. Every month without SOC 2 is a month of deals stuck in security review. Every security questionnaire your team fills out manually is 5–15 hours that could go toward product or customer success.
The Real Cost Breakdown for SMBs in 2026
Cost data online ranges wildly because most sources blend SMB numbers with enterprise figures. Here's what SMBs — companies with 10 to 200 employees — actually face.
Traditional consulting path
Industry data from multiple sources paints a consistent picture for SMBs pursuing SOC 2 through traditional consultants and audit firms:
| Type I | Type II | |
|---|---|---|
| Readiness assessment | $10,000–$25,000 | $10,000–$25,000 |
| Consulting / remediation | $10,000–$30,000 | $15,000–$75,000 |
| Security tooling | $5,000–$15,000/year | $5,000–$15,000/year |
| Audit fees | $5,000–$25,000 | $7,000–$50,000 |
| Internal staff time | 100–200 hours | 200–500 hours |
| Total first-year cost | $20,000–$60,000 | $30,000–$150,000+ |
| Annual maintenance | — | $10,000–$40,000 |
That internal staff time is the hidden killer. At 200–500 hours for Type II, you're looking at 3–6 months of a senior engineer's focused attention. For a 30-person startup, that's not a line item on a budget — it's a strategic trade-off against product development.
AI-powered path with Humadroid
| Type I | Type II | |
|---|---|---|
| Platform subscription | $250/month | $250/month |
| Preparation time | 1–2 weeks | 1–2 weeks + observation period |
| Audit fees (vetted assessors) | Starting at $2,000 | Starting at $3,500 |
| Consulting fees | $0 (AI replaces them) | $0 (AI replaces them) |
| Internal staff time | 10–20 hours | 20–40 hours |
| Total first-year cost | Under $5,000 | Under $10,000 |
The math is stark. Traditional Type I costs $20,000–$60,000. With Humadroid, it's under $5,000. Traditional Type II runs $30,000–$150,000+. With Humadroid, under $10,000. That's a 90–97% reduction, and the internal time commitment drops from months to days.
How? The AI handles the work that previously consumed hundreds of consultant hours: generating company-specific policies, creating your SOC 2 System Description, identifying gaps, providing remediation guidance 24/7, and during the Type II observation period, automatically collecting evidence from your infrastructure across AWS, GCP, GitHub, and Cloudflare.
The ROI Math That Justifies the Investment
For founders who need to justify SOC 2 spending to a board or co-founder, here's the business case in concrete terms.
Deal acceleration. Without SOC 2, enterprise security reviews take 4–12 weeks of back-and-forth questionnaires. With a SOC 2 report, that collapses to a document handoff. If your average enterprise deal is $75k ACV and SOC 2 accelerates three deals per year by even one month each, you've added $18,750 in earlier revenue recognition — more than covering the entire Humadroid investment.
Security questionnaire elimination. A single SOC 2 report replaces dozens of custom security questionnaires. Industry data suggests sales and security teams spend 20+ hours per week on questionnaires once enterprise sales begin. At a blended cost of $75/hour, that's $78,000 annually in staff time. Even cutting that burden by 80% saves over $60,000 per year.
Deal unlocking. Some deals simply don't happen without SOC 2. According to recent compliance surveys, 74–78% of enterprise buyers require SOC 2 before signing contracts. If SOC 2 unlocks even one $100k deal that wouldn't have closed otherwise, the ROI is 10–20x on a Humadroid-powered investment.
Fundraising signal. Investors at Series A and beyond increasingly evaluate security posture during due diligence. SOC 2 compliance signals operational maturity — it tells investors you're building infrastructure that scales, not just shipping features. Getting SOC 2 before your next raise strengthens your position at the table.
The Type I → Type II Playbook for SMBs
Most SMBs at the Series A stage follow a two-phase approach. Here's the specific playbook, with realistic timelines.
Weeks 1–2: Reach audit readiness
Sign up for Humadroid. Complete your company profile so the AI can generate context-specific outputs. The platform generates your complete policy library, control documentation, and System Description in this period. Your CTO or security lead reviews and customizes the AI-generated content — this typically takes 10–15 hours of focused time, not months of committee meetings.
Weeks 3–6: Complete Type I audit
Engage an auditor through Humadroid's vetted assessor network (starting at $2,000 for Type I). The audit itself takes 2–4 weeks. At the end, you have a Type I report you can share with prospects immediately.
Week 6: Start Type II observation
This is the critical step most companies miss. The day you receive your Type I report, designate your Type II observation start date. Ensure automated evidence collection is running across all your infrastructure — access logs, change management records, incident documentation, training completions. Every day without automated capture is a day of evidence you might need to reconstruct manually.
Months 3–9: Operate and monitor
Your controls run. Evidence accumulates automatically. The Compliance Daily dashboard tells you what needs attention each day — a quarterly access review that's due, a policy that needs annual acknowledgment, a training cycle that's approaching. You spend 30 minutes per week on compliance, not 30 hours.
Month 9–10: Complete Type II audit
After 6 months of observation (or 3 months minimum for faster timelines), your Type II auditor reviews the accumulated evidence. Because it's been collected automatically and organized continuously, the audit goes smoothly. Total Type II investment: platform subscription + $3,500 audit fee.
End result: From standing start to Type II report in roughly 9 months, at a total cost under $10,000. Traditional path: 12–18 months, $50,000–$150,000+.
When to Skip Type I and Go Straight to Type II
The two-phase approach isn't always the right call. Go straight to Type II when:
Your customers won't accept Type I. If you're selling to banks, healthcare systems, or Fortune 500 companies with formal vendor security programs, Type I is essentially worthless in their procurement process. Don't spend money on a report nobody will accept.
You already have 3+ months of operational history. If your team has been running access reviews, documenting incidents, and conducting security training — even informally — you may already have the foundation for a Type II observation period. Formalizing those practices into SOC 2-compliant controls and starting the clock immediately is more efficient than doing Type I first.
Budget favors a single audit. Type I audit ($2,000–$20,000) plus Type II audit later ($3,500–$50,000) is strictly more expensive than a single Type II ($3,500–$50,000). Unless you have an urgent deal that specifically requires Type I now, the economics favor one audit.
Your timeline allows it. If you don't need a report for 6+ months, going straight to Type II gives you a stronger result without the interim step. With Humadroid compressing the preparation phase to 1–2 weeks, your observation period can begin almost immediately.
When NOT to Pursue SOC 2 at All
Not every company needs SOC 2 right now. Save your resources if:
You're pre-revenue or under $500k ARR. Focus on product-market fit first. The exception is if a single whale customer requires it and the deal economics justify the investment.
Your customers are exclusively consumers or very small businesses. SOC 2 primarily matters in B2B contexts where procurement teams evaluate vendor security. If you're B2C or selling to 5-person companies, the ROI isn't there yet.
You have fewer than 10 employees. Below this threshold, you typically lack the organizational structure to implement meaningful controls. There's no IT department to separate duties, no HR function running background checks, no formal incident response team. Build good security habits now and formalize later.
Nobody is asking for it. If you've never lost a deal to a security review, never been asked for a SOC 2 report, and don't sell to regulated industries — there's no business case yet. Revisit when your customer base shifts upmarket.
Real Results: How We Did It at Humadroid
We don't just sell compliance automation — we used it ourselves. Humadroid achieved SOC 2 compliance using our own platform, without hiring a single external consultant.
As a small team building a compliance product, we faced the same constraints every SMB faces: limited headcount, competing priorities, and a founder who was already wearing six hats. Here's what that looked like in practice.
Week 1: Generated our complete policy library and System Description using Humadroid's AI. The platform understood our specific tech stack (Rails application, AWS infrastructure, GitHub for code management) and generated documentation tailored to our actual operations — not generic templates that needed 40 hours of customization.
Week 2: Connected our infrastructure integrations. Automated evidence collection began pulling from AWS, GitHub, and Cloudflare immediately — over 50 evidence types running in the background without any ongoing manual work.
Weeks 3–4: Completed our Type I audit with assessors from our network, at the same rates we offer customers: $2,000 for Type I.
Months 2–8: Observation period for Type II. The Compliance Daily dashboard flagged what needed attention each day. Average weekly time investment on compliance: under an hour.
Total cost: platform development aside (since we were building it simultaneously), the audit and operational costs were under $6,000. Total staff time dedicated to compliance activities: roughly 50 hours across the entire process. That's what happens when AI handles policy generation, evidence collection, gap analysis, and daily prioritization — the work that traditionally consumes hundreds of consultant hours at $200–$400/hour.
The Five Most Expensive Mistakes SMBs Make
We've seen these patterns repeatedly. Each one costs time, money, or both.
Starting too late. The most common scenario: a $200k enterprise deal surfaces, procurement requires SOC 2, and the founder discovers Type II takes 6+ months. Even Type I needs 4–8 weeks. Starting compliance 6–12 months before you expect to need it — typically around $1M–$2M ARR — is dramatically cheaper than scrambling under deal pressure. For more on why early compliance pays off, see our article on the 18 reasons to become SOC 2 compliant early.
Over-scoping the audit. Your first SOC 2 should cover Security only — it's the only mandatory Trust Services Criterion, and it satisfies the vast majority of customer requirements. Adding Availability, Confidentiality, or Privacy increases audit complexity by 20–30% per criterion. Ask your customers what they actually require before adding scope. You can always expand criteria in subsequent audits.
Assigning compliance to one person without authority. SOC 2 touches engineering (access controls, change management), HR (background checks, security training), operations (incident response, vendor management), and leadership (risk acceptance, policy governance). Roughly 50% of SOC 2 requirements are non-technical. The person owning compliance needs cross-functional authority, not just technical skills.
Choosing the cheapest auditor without references. Audit fees range from $2,000 to $50,000+. The lowest bid can become the most expensive option through delays, poor communication, excessive exception findings, and reports that sophisticated buyers find lacking in rigor. Always reference-check auditors with companies similar to yours. Humadroid's vetted assessor network starts at $2,000 for Type I and $3,500 for Type II — below market rates, but with experienced professionals who understand SMB realities.
Treating Type I as a finish line. Companies that celebrate their Type I report and relax create a dangerous gap. When it's time to demonstrate 6 months of consistent operational evidence for Type II, they discover months of undocumented activity. The smartest approach: begin operating as if you're in a Type II observation period from day one of your Type I preparation.
What Makes Humadroid Different for SMBs
The compliance automation market has several players — Vanta, Drata, Secureframe, Sprinto — most charging $10,000–$50,000 per year for platform access alone, before audit fees. That pricing was designed for well-funded companies with dedicated security teams.
Humadroid was built for the companies those platforms price out.
AI that replaces consultants, not just organizes checklists. Our AI generates company-specific policies based on your actual business model, tech stack, and risk profile. It creates your SOC 2 System Description automatically. It identifies gaps and provides remediation guidance 24/7. It's a compliance expert that never takes vacation, never bills hourly, and never sends a junior analyst to do senior-level work.
Pricing that respects SMB budgets. $250/month for the platform. $2,000 for a Type I audit. $3,500 for Type II. No $30,000 "implementation fees." No multi-year contracts. No surprise charges for "additional scope." Total first-year cost for Type I + Type II: under $10,000.
Automated evidence collection that actually works. Direct integrations with AWS (17 evidence types), GCP (14 types), GitHub (12 types), and Cloudflare (11 types). Over 50 evidence sources running in the background, 24/7. When your auditor asks for six months of access logs, they're already organized and waiting.
Daily guidance, not annual checklists. The Compliance Daily dashboard tells you exactly what to work on each day, with themed focus areas and urgency-based prioritization. It transforms compliance from a quarterly panic into a manageable daily habit.
And yes — we achieved SOC 2 compliance using our own platform. No consultants. No six-figure budget. Just the same tools we offer every customer.
Ready to Streamline Your Compliance?
Discover how Humadroid can simplify your compliance management process.
Your Action Plan Based on Where You Are Today
If you need SOC 2 within 8 weeks: Start Type I immediately. Sign up for Humadroid, generate your documentation in week one, engage an auditor in week two, complete the audit by weeks 6–8. Total investment: under $5,000. Begin your Type II observation period the day you receive your report.
If you have 3–6 months: Go straight to Type II with a 3-month observation period if you have existing controls. Start on Humadroid now (one week to implement), begin observation immediately, complete audit after the window closes. Total investment: under $10,000.
If you're planning 6–12 months ahead: Implement Type II properly with a 6-month observation period. This provides the strongest market position and avoids any customer objections. With Humadroid, you're looking at under $10,000 total versus $100,000+ through traditional consulting.
If you're not sure you need SOC 2 yet: Read our guide on 18 reasons to start SOC 2 compliance early, then survey your pipeline. If enterprise deals are in your 12-month plan, start now. The preparation work you do today reduces friction in every future sales cycle.
Ready to see how fast you can get audit-ready? Start your journey at humadroid.io and discover why founders are replacing $200k consultants with AI that works 24/7 at 97% less cost.
For the technical deep-dive on what auditors test, observation period mechanics, and how enterprise buyers perceive each report type, see our comprehensive SOC 2 Type I vs Type II guide.
February 2026 update: This guide has been fully rewritten with 2026 cost data, a funding-stage decision framework, updated ROI calculations, and Humadroid's own SOC 2 journey as a practical case study. Competitor case studies have been replaced with first-hand experience.
Frequently Asked Questions
With traditional approaches, 6-12 months. With proper planning and automation tools, 3-6 months is achievable. The timeline depends on your starting point—companies with existing policies and documentation move faster than those building from scratch.
Many startups do, especially with modern automation tools. The key is having someone own the process, using frameworks like SOC 2 or ISO 27001 as guides, and maintaining consistent documentation. Compliance automation platforms provide the structure and guidance that previously required consultant expertise.
Traditional approaches vary widely. Consultants often charge $15,000-$30,000 for initial assessments and $80,000-$150,000 for SOC 2 preparation. DIY approaches save money but cost significant employee time. Modern AI-powered platforms (like humadroid.io) have reduced costs dramatically—some offer comprehensive compliance management for under $3,000 annually, making enterprise-grade compliance accessible to early-stage startups.
For SMBs, the key difference is time and deal impact. Type I is a point-in-time snapshot of your control design — achievable in 4–8 weeks for under $5,000 with AI-powered platforms. Type II proves your controls work consistently over a 3–12 month observation period, costs more ($30,000–$150,000 traditional, under $10,000 with AI), but carries far more weight with enterprise buyers. Most Series A startups start with Type I to unblock immediate deals, then begin their Type II observation period the same week they receive their report.
AI compliance platforms like Humadroid replace the work that traditionally consumed hundreds of consultant hours at $200–$400/hour. The AI generates company-specific policies, creates your SOC 2 System Description automatically, identifies gaps, and provides 24/7 remediation guidance. Combined with automated evidence collection across AWS, GCP, GitHub, and Cloudflare, total first-year costs drop to under $5,000 for Type I and under $10,000 for Type II — compared to $20,000–$60,000 and $30,000–$150,000+ respectively through traditional consulting. Internal staff time also drops from 200–500 hours to 20–40 hours.
Funding stage is the strongest predictor. Pre-seed/Seed (under $2M raised, fewer than 15 employees): wait unless a specific deal requires it. Series A ($2M–$15M, 15–50 employees): start Type I immediately and begin Type II observation within 30 days — this is the inflection point where enterprise deals begin and security questionnaires start consuming 10–20 hours per week. Series B+ ($15M+, 50–200 employees): skip Type I and go straight to Type II, as enterprise procurement teams at this level typically won't accept Type I. The general trigger is reaching $1M–$2M ARR with enterprise customers in your pipeline.
Yes, and it often makes financial sense. Go straight to Type II when: your target customers (banks, healthcare, Fortune 500) won't accept Type I; you already have 3+ months of operational history with access controls and security training; your timeline allows 6+ months; or you want to avoid paying for two separate audits. The economics are clear: Type I ($2,000–$20,000) plus Type II later ($3,500–$50,000) costs more than a single Type II ($3,500–$50,000). With AI platforms compressing preparation to 1–2 weeks, your observation period can begin almost immediately.
SOC 2 delivers measurable ROI for SMBs across three dimensions. Deal acceleration: enterprise security reviews that take 4–12 weeks of questionnaires collapse to a document handoff, adding $18,750+ in earlier revenue recognition per year. Questionnaire elimination: SOC 2 replaces dozens of custom security questionnaires, saving an estimated $60,000+ annually in staff time (based on 20+ hours/week at $75/hour blended cost, reduced by 80%). Deal unlocking: with 74–78% of enterprise buyers requiring SOC 2 before signing, even one $100k deal that wouldn't have closed otherwise delivers 10–20x ROI on a Humadroid-powered investment of under $10,000.
Save your resources if: you're pre-revenue or under $500k ARR (focus on product-market fit first); your customers are exclusively consumers or very small businesses (SOC 2 matters in B2B contexts with procurement teams); you have fewer than 10 employees (you lack organizational structure for meaningful controls — no IT department, no HR function, no formal incident response); or nobody is asking for it (no lost deals to security reviews, no SOC 2 requests, no regulated industry customers). The exception: if a single whale customer requires it and the deal economics justify the investment.
The five costliest SOC 2 mistakes for SMBs are: (1) Starting too late — discovering Type II takes 6+ months when a $200k deal requires it now; start at $1M–$2M ARR, 6–12 months before you expect to need it. (2) Over-scoping — your first audit should cover Security only (the sole mandatory criterion); each additional criterion adds 20–30% complexity. (3) Assigning compliance to one person without cross-functional authority — roughly 50% of SOC 2 requirements are non-technical (HR, legal, operations). (4) Choosing the cheapest auditor without reference checks — the lowest bid often costs more through delays and weak reports. (5) Treating Type I as a finish line — companies that relax after Type I discover months of undocumented activity when Type II preparation begins.
With AI-powered platforms like Humadroid, the realistic timeline from zero to Type II report is roughly 9 months at under $10,000 total. Weeks 1–2: reach audit readiness (AI generates policies, controls, System Description). Weeks 3–6: complete Type I audit ($2,000 through vetted assessors). Week 6: immediately start Type II observation period with automated evidence collection running. Months 3–9: controls operate while evidence accumulates automatically — about 30 minutes per week of oversight. Month 9–10: complete Type II audit ($3,500). The traditional path takes 12–18 months at $50,000–$150,000+. The critical insight: begin your observation period the day you receive your Type I report, and ensure automated evidence capture is running from day one.
