What's the ROI on Your Business Travel?

Since the days of expense reports coated in road-weary cursive, managers have burrowed through spending data to figure out what business trips are actually worth. As Christa Manning, director of research at American Express Business Travel puts it: “Measuring ROI is somewhat art and somewhat science.” The science aspect has never been more valuable.
In recent years, companies have mined mountains of credit-card and booking data to scrutinize their staff travel. According to Future Watch 2010, a survey of 1,832 Meeting Professionals International (MPI) members presented by MPI and American Express, roughly 70 percent of organizations reported using benchmarks to track the value of their meetings. Only 7 percent said they didn’t track ROI at all.
“The data is actually becoming the fundamental tool that can be used to support strategic use of travel budgets in the company,” Manning says. “By just collecting the data and sharing it with executives and business line leaders, they can see just how significant travel expenditures are and what impact they are having on the business.
How Travel Generates Revenue
Two other studies released in late 2009 seem to support the correlation between travel and revenue on a macro level. One of them, conducted by Oxford Economics USA for the U.S. Travel Association and the Destination and Travel Foundation, found that a dollar spent on travel returned an average of $12.50 in revenue and $3.80 in profit. Another study, conducted by IHS Global Insight for the National Business Travel Association and partly underwritten by American Express, pegged the increase in sales at closer to $20 per travel dollar spent. Returns varied by industry, but the latter report went so far as to say that the economy could realize an additional $248 billion in profits if all industry sectors increase travel to optimal levels.
“Travel does drive the revenue numbers both ways,” says Manning. Following two years of deep cuts in travel spending, both she and Future Watch respondents are cautiously optimistic that an economic recovery will help stabilize travel budgets this year. Future Watch participants predict smaller budget cuts in 2010, although meeting planners also anticipate an average 21 percent increase in the number of meetings. Manning says that she expects flight prices to creep up in 2010, although she doesn’t expect pre-recession spending to return until 2012.
Whatever executives decide to spend, new techniques for analyzing travel data now allow them to hone budgets in surprisingly precise ways. Craig Fearon, the senior product director at New Jersey’s Cyber Shift, has spent the past 11 years turning the administrative backwater of expense reporting into a fount of cost-saving insight. Many customers who use his firm’s automation software, he says, also use the data it produces to enforce travel policy compliance, analyze the difference between expense reports and corporate card charges, and even capitalize on overlooked savings such as exchange-rate fluctuations or VAT refunds abroad. In many cases, travel managers approach vendor negotiations with specific dollar amounts spent on their companies in the past 12 months.
“Travel expenses have come under the microscope in the last couple of years, especially during this downturn,” Fearon notes. “So we’re seeing clients tinker with data and really push it into other systems,” such as customer relationship management and bookkeeping programs that can link trips to particular projects.
Why face-to-face business meetings are important.
Using Benchmarks
Beyond their own spending, data-driven companies have the ability to compare their travel expenditures with the rest of their industry. American Express Business Travel draws insight from $100 billion in travel transactions to set industry benchmarks for its consulting clients, and Travel GPA, a smaller firm that offers real-time reports on travel spending, uses anonymous data gleaned from more than 32,000 companies. This type of raw, aggregate information can point out hard-to-spot norms in areas such as the hotel tiers most used by a given sector—a touchy subject among travel managers, who are fearful of driving away talent.
“By focusing on performance benchmarking, that helps us get to that point where we can provide a detailed ROI analysis that pinpoints the problem areas by identifying the trips, travelers, markets, suppliers and those areas where savings opportunities were lost,” says Travel GPA chief executive Rock Blanco. Historically, executives have found ROI in travel hard to nail down because prices change so frequently. But a constant stream of data from travel companies now enables services like Blanco’s to calculate, for example, how much a department could have saved by booking flights to a given destination for a Tuesday instead of a Monday. In other instances, Blanco says, the data reveals that departments can save money by abandoning a policy to book flights longer in advance because the rebooking fees far outstrip the savings.
Even companies without a six-figure travel budget to scrutinize have found advantages to treating travel as an investment, rather than an expense. “Everything’s got to pay back six,” says Ted Wright, CEO of Fizz, an Atlanta word-of-mouth marketing company. “What that does is keep things from being willy-nilly.”
For conferences, the corporate policy employs similar logic. You should try to gauge how much attendees can learn from a conference’s advertised offerings. The better the development opportunities, the more people the figures will show up and the more potential customers your team can meet to earn back the cost of the trip. Like a growing number of businesses, you should no longer settles for a good price but instead takes a hard look at the numbers to figure out what travel is worth in terms of sales down the road. “I just say to them, ‘Look, its five grand for me to come out there. What’s my payback on this?’”