# 6: Travel as a Cost of Sales

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.

1. 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. 
2. 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. 
3. 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. 

# 4 Stakeholder Satisfaction

Metric Type                                                      Level
     SAVINGS: No                                                  MASTER
     SERVICE: Yes                                               ADVANCED
     SAFETY: No                                                    BASIC
     SUSTAINABILITY: No

Description
Simply put, corporate travel is in the customer-service business. If people do not like the service, they will push back, sandbag, complain, and work against the other goals of the program. It won't matter how much your program is saving if all senior management hears are complaints and criticism of the program. Employing and maintaining a structured set of satisfaction metrics enables you to a) get ahead of service issues before they blow up, b) communicate real results company-wide that minimize the impact of one-off anecdotes about horrible service, and c) show value to the company beyond simple spend-and-savings statistics.

To get started, all you need to do this are three questions and a survey tool (many online options to choose from). 

1. How well does the company's travel program suits your needs as a business traveler and/or arranger of business travel? Rate your satisfaction on a scale of 1 (Not At All) to 100 (Perfectly).
2. What do you think the travel program does particularly well? [Comment Box]
3. What do you think the travel program could do better? [Comment Box]

Why These Three Questions
The first question provides you with a benchmark score to compare over time. The following two questions are where you find out what people really think about the program. Simply read all the comments, categorize them based on what the comments relate to (e.g. the agency, the online tool, airline, etc.), and you have all the information you need to improve the perception of the program. 


After That
Asking questions is the easy part. However, it is critical that once the survey is complete that you quickly perform the following tasks. 

• Address any comments that require immediate attention (whether because of the timeliness of the complaint or the importance of the respondent). 
• Next, review the results and the comments with the agency, the front-line agents, concerned travel suppliers, and other relevant parties. 
• Draft action plans to address any significant and/or frequently cited concerns.
• Publish a summary of the responses. Highlight the overall satisfaction score, note some of the positive comments received, and share a high-level summary of the action plan to address some of the common complaints or opportunities for improvement. This summary should be published no later than 1 month after the end of the survey period. 

It's been said that one of the best ways to demoralize a group of people is to hang out a suggestion box and to ignore it. Think of the surveys as a periodic suggestion box. Once people see you are listening to them, engagement and satisfaction increases. 


Whose Satisfaction Are We Measuring?
Certainly the travelers and travel arrangers. You should do this at least twice a year, and as frequently as once a quarter if you can. You can get a list of who traveled and/or who booked trips during the time period since your last survey. 

Department/line managers who have significant numbers of travelers should be surveyed twice a year. For them, modify the first question to "How well does the company's travel program support your department/line of business?" or something similar to change the focus from the individual to the department. The other two questions stay the same.

Senior/executive management should be surveyed once a year. Again, simply adjust the first question to focus more on the company overall rather than an individual or a department. 

Suppliers with whom you have contracts and/or a lot of business should be surveyed at least once a year. For them, the focus is on how your company is perceived as a client and the ways in which you can improve your relationship to better serve both entities. 


What about Other Questions
When designing surveys, people tend to get question-happy--piling on question after question to try to learn everything about everything--seemingly afraid that they'll never get another chance to ask a question.

You can certainly add a couple of questions to the Basic Three. Here  are a couple you might consider:

• For the traveler/arranger survey, ask whether they felt they were quoted the lowest logical fare when making reservations (whether or not they took it). There is a strong correlation between low fare perception and overall satisfaction. Sometimes it's real, but sometimes the respondent doesn't take into account how the firm's travel policy affects what fares are offered.
• Consider having your agents add this to their script: "The lowest fare, based on the company's travel policy, is $650. However, there are fares between these two cities that can run as low as $250, but you would need to be flexible with your times or dates. Do you want me to investigate those for you?"  A few will actually work with the agent to look for a lower fare, but the majority will simply gain a better perception of the low fare performance of the agency--in turn improving overall satisfaction rates. 
• You may also wish to differentiate between satisfaction with the live travel agents and the online booking tool (if you employ one). The variance between these two modes of reservation can be stark. 

What you want to avoid when adding questions are those whose answers do not inform actions. For example, I've run across surveys that ask "Do you find the agents friendly, knowledgeable, and professional?" The results show that 67% of respondents do. What next? Does this mean that the agents are friendly and professional but not knowledgeable? Or some other combination? Do one-third of the respondents simply not like the agents? You can't tell from the way the question was phrased. This is the inverse of the old maxim which in case says:  If you can't manage it, do not bother measuring it.

Usage
The first question is used to evaluate, over time, changes in the perception of the travel program from a range of stakeholders. The others are used to inform your short-term action plans to improve and/or enhance certain aspects of the program based on respondents' feedback. 

This type of metric is easily understood by non-travel professionals.

The Purpose of this Blog - Introducing the Four Ss

First off, let's be clear...if you are a corporate travel manager, or an account manager for a travel agency, or a travel supplier representative, you are not reporting all the value you are creating for the company you are servicing.  And by not doing so, you are at least hindering, if not outright hurting, your program and potentially your own career prospects.

Traditionally, the metrics reported by corporate travel programs are limited to the amount the company spends on travel, some level of savings generated by the program (although typically far-from-comprehensive totals), and, in some cases, periodic traveler satisfaction scores. A well-managed travel program, however, creates value far beyond these basic metrics. Unfortunately, not many take the effort to quantify this expanded value proposition, and in not doing so, they expose their programs to some significant challenges that can be easily avoided.

If you're a corporate travel manager, is your department simply seen as a cost center? Has your firm ever imposed a "travel freeze"?  Do you spend too much time addressing anecdotal service issues? If so, you haven't communicated the total value of your program.

If you work for a travel agency that supplies corporate travel services, have you ever lost a client because a competitor offered a transaction price a couple of dollars cheaper than yours? Has a departing client ever justified leaving by saying "it is just time for a change"? If so, you haven't communicated the total value you can create for a company's travel program.

If you work for an airline, hotel, car rental firm or other travel provider, have you lost business to competitors based solely on small price variations? Are you seen as a commodity by your clients, easily replaced?  If so, you haven't communicate the total value you can create for a company's travel program. 

The purpose of this blog is identify how to identify and track all the value created by and for well-managed corporate travel programs. Most entries will focus on one metric at a time. However, they will be categorized using a more-expansive view of value creation than is typically used in corporate travel today. We have four primary categories of value:

1. SAVINGS: these metrics compare your program's performance to a) what the cost would be with no program in place, and b) the changes in your program's performance over time.
2. SERVICE: these metrics track the quality of the experience various stakeholders have with the travel program. Typically thought of through a traveler-centric lens (e.g. traveler satisfaction, SLAs, phone performance); we expand the focus to include line manager, senior management, supplier, and other stakeholder interactions with the program.
3. SAFETY: these metrics track how safe and productive travelers are when on the road for the company. Individual-level, corporate-level, and global-level risk-exposure and management are all considered. These measurements are critical to meeting Duty of Care requirements, and for ensuring that travelers are treated and cared for appropriately.
4. SUSTAINABILITY: a growing concern for many companies, these metrics measure the environmental impact of travel programs. 

These are the four primary categories of value. In later posts we will discuss HOW to use the results of these metrics to enhance the value of your program to the company and how to use them to change behavior to meet your program objectives. But for now...just start tracking. 

And remember...if you don't measure it, you can't manage it. 

# 2 Car Rental Contract Value

Metric Type                                                      Level
     SAVINGS: Yes                                                MASTER
     SERVICE: No                                                   ADVANCED
     SAFETY: No                                                     BASIC
     SUSTAINABILITY: No

Description
When you have a contract with a car rental agency that offers special corporate rates, calculating the value of the contract savings may require multiple calculations and a few grains of salt here and there.

Formula
Corporate Rate Paid (with surcharges and fees) - Next Lowest Alternative Rate (with same) x number of rental days = Contracted Rate Savings

• For example, a three day car rental cost $45 per day plus $3 per day city surcharge for a total of $144. The benchmark rate for a similar class of car at the same time was $49 per day plus a $5 daily city surcharge for a total of $162. The contract savings for this rental is $18. 

Many car rental companies offer a discount off of 'best rate of day' which protects you should prices drop below your contracted rate. The calculation noted above still applies here.

Alternate Formula
It must be noted that the above metric can be time-consuming to calculate (since you have to look at every rental or at least have your travel agency note a savings amount in each record for easier reporting). An alternative method is to identify at the point of contracting what the average savings per rental would be (assuming volumes and trends remain consistent). There is a three-step process, which is quite quick to perform, once these assumptions have been made.

1. (Total Rental Spend x Percent of Rentals at Corporate Rate) / (1-Average Corporate Rate Savings %) x Average  Corporate Rate Savings % = Total Savings from Corporate Rate
2. (Total Rental Spend x Percent of Rentals at 'Best Rate of Day')  / (1-Average 'Best Rate of Day' Savings% ) x Average 'Best Rate of Day' Savings %  = Total Saving from 'Best Rate of Day' discount
3. Total Savings from Corporate Rate + Total Savings from 'Best Rate of Day' discount = Total Contract Savings

For example, let's say your company has spent $500,000 over the last year on car rentals. Based on conversations with your car rental rep, you estimate that 90% of these rentals were booked at the corporate rate (which you estimate at 7% less than what you would have paid without the discount) with the rest getting the 'Best Rate of Day' discount (which you saved 5% on based on your agreement). Using the steps outlined above, we find:

1. ($500,000 x 90%) / (1-7%) x 7% = $33,871 in Corporate Rate Savings
2. ($500,000 x 10%) / (1-5%) x 5% = $2,632 in 'Best Rate of Day' Savings
3. $33,871 + $2,632 = $36,503 in Total Contract Value

Bonus Formula
You may wish to take this one step further and calculate your Net Effective Discount using the following formula:

• Total Savings / (Total Spend + Total Savings) = Net Effective Discount
• $36,503 / ($500,000+$36,503) = 6.8% Net Effective Discount

Usage
This Contract Savings figure can be used as a snapshot measurement (e.g. how much did we save last quarter) and as a trend metric showing variations in savings performance over time (e.g. are travelers more compliant, is this year's deal better than last year's, etc.).

The Net Effective Discount can be used as described above, plus it is a useful metric for benchmarking with other companies whose actual spend and savings totals will vary from yours.

This type of metric is usually understood by non-travel professionals.

Caveat

1. This metric measures contract value only. In the above example, there may have been an alternate car rental, from another car rental agency perhaps, priced between the corporate rate and the standard rate. The true contract value may be somewhat less than calculated here, but tracking to this level is quite impractical. With explanation, most executives accept contract value as a valid savings metric.
2. Where you get your data is critical here. In most companies, travelers will book car rentals either through the preferred travel agency, direct with the car rental agency, or both. Relying on travel agency data reporting my shortchange your savings. Use the car rental agency reports for more accurate tracking.