Metric Type Level
SAVINGS: Yes MASTER
SERVICE: No ADVANCED
SAFETY: No BASIC
SUSTAINABILITY: No
Description
In the ideal world, every business trip would generate more revenue than its cost. That's not the way the world works however. There are always trips that do not directly, or even indirectly, increase sales. While teasing out which trips pay for themselves and which do not is challenging, tracking overall travel costs compared to revenue can tell you if your program is getting better at reducing travel expense as a percentage of overall company revenue. Highlighting this metric can even encourage senior management to start paying more attention to what it truly costs from a travel perspective to acquire and retain business.
Formula
Total Travel Spend / Total Company Revenue = Travel as a Cost of Sales
alternatively
Total Managed Travel Spend / Total Company Revenue = Managed Travel Spend as a Cost of Sales
Process
For Total Travel Spend take the sum of all Travel & Entertainment (T&E) reports. You can usually get this figure from Finance. Next, for public companies, getting the revenue figure is easy. Simply take it from the annual report. If your company doesn't publicly release revenue figures, you can get this figure from Finance.
Now divide the first into the second to get a percentage. If Total Travel Spend was $1M for a given time period, and company revenues was $14M, then the Travel as a Cost of Sales figure was 7.1%.
You could do this with Managed Travel Spend (e.g. anything that's booked through your preferred agency or tracked under your negotiated agreements--typically airlines, hotels, car rental, and ground transport). This figure will be lower than the Total Travel Spend (which would include "un-managed" items like meals, taxis, etc.). This may be a better metric for showing the value your program is creating, but it lacks the brutal simplicity of the former.
Usage
This metric should be tracked over time, ideally quarter by quarter. It's usually easy to go back and get the historical data to get started. The goal of this metric is to a) highlight that travel is a manageable part of the Cost of Sales, b) identify any out-of-the-ordinary spikes or troughs that could identify potential problems, and c) to elevate travel management to a more strategic level in the company. Use this metric correctly, and senior management will be coming to you for ideas on how to optimize the cost of travel for the company.
Caveat
Of course, this number in a vacuum doesn't do you any good. "7.1%? You don't say? [yawn]"
I can see three clear uses for this metric.
- Oddness: this metric is good for identifying potential issues that might not normally be detected over time. Let's say your quarterly figure trends around 7% (with a couple of tenths of a point variance). Then one quarter it shoots up to 9.5%. Something is up. This metric won't tell you what it is, but it can help you bring it to senior management's attention.
- Benchmarking: this is a handy benchmark figure that eliminates the impact of revenue and cost variances. A company with $100M in sales can benchmark the Travel as a Cost of Sales against companies with $10M in sales and $1B.
- Travel Alternatives: Let's say you want to see the impact of a new strategy or tactic in travel (e.g. videoconferencing, gamification, etc.). It is notoriously challenging to measure the ROI of videoconferencing for example. Rather than focus on a reduction of travel costs (typically the metric IT uses for installing videoconferencing), you can augment this with the Travel as a Cost of Sales. The number of trips taken may decline with the introduction of videoconferencing, but because the technology allows for more people to join in a meeting--the sales person on site could have his IT, Legal, and Product people join via videoconference--revenue should go up and travel costs should go down. The Travel as a Cost of Sales helps measure this impact.
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