# 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.