#8: Valuing Hotel Amenities

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

Description
Okay. You've negotiated the best daily rate you could at a hotel. You then negotiate to include free breakfast and free WiFi. How do you realistically account for the savings generated by these 'free' extras?


Formula
Regular cost of amenity x % of population likely to use it x Room Nights = Projected Amenity Savings

For example, let's say the cost of WiFi, in the absence of your agreement, is $9.95 per day. You project that 80% of your travelers would have otherwise purchased WiFi access (and expensed it). You put 300 room nights into this hotel under this agreement.

     $9.95 x 80% x 300 = $2,400 in WiFi savings

Do the same for breakfast, airport shuttle service, and any other amenity that replaces costs that would have been spent otherwise.



Process
How do you come up with the percentage of travelers likely to purchase and expense these amenities? 

You could dig through a representative sampling of expense reports to come up with an answer. Depending upon how detailed your expense reporting requirements are, you may find this information challenging to sift through.

Ask the sales manager at the property what their take rate is for each amenity. I typically use this as my first data point. 

Then I augment what I've heard from the property by asking the travelers. A quick, targeted survey, done annually with your traveling population, can help you establish baseline percentages for your assumptions. (TIP: you may want to offer something in return for responses like a drawing for a free weekend stay at a hotel to ensure a strong enough response rate). 

I take what I've learned from these sources, drop it down a little to be conservative, and use the resultant percentages in my calculations. 

I usually see about 80% for WiFi usage (although this is dropping with greater use of smartphones that can access emails via cellular networks). I put breakfast at about 25% (or 0% if it's not reimburseable). The shuttle service can be a big savings, but it's very dependent upon location (i.e. do people still have to rent cars to get to the destination or is the hotel very close?). 



Usage
Let's assume you did a great job at negotiating a rate of $25 under the standard corporate rate at the hotel in the example above. You put 300 room nights in there for a rate savings of $7,500. Without adding in the value of the amenities you negotiated in as well, you are under-counting the value you created. You can add the $2,400 for WiFi savings, and maybe $1,000 for breakfast as well. That just improved your savings figure by almost 50%

Do this exercise for each of your top properties (in terms of room nights) and make conservative assumptions for the other properties that mirror percentage-wise what you're saving in the top hotels in your program. Add this savings figure to the total you report to senior management, your boss, and the traveling population. 

#7: Travel Agency Transaction Fees

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

Description
When it comes to metrics, I've always embraced the "Trust But Verify" approach. Your travel agency (or travel management company or TMC) should be your trusted partner in managing your company's travel program. You pay it a fee in exchange for its assistance in reservations and service.

But let's face it, sometimes wires get crossed. Sometimes you are paying more than your agreement outlines, but because no one is paying close enough attention, you never find this out. I'm not saying a TMC would do this purposefully (and hope to remain in business), but I have found that doing a quick and easy measurement of fees is worth your time and effort. 

This metric works if you are paying your TMC a transaction fee for each reservation. You simply measure the number of charges you receive compared against a benchmark like airline tickets issued. We know that the number of TMC fees should exceed the number of airline tickets issued because of changes and refunds, and the like. It's the change in the ratio between TMC fees and Airline Tickets that is the key here.


Formula
Total Number of Transaction Fees Charged / Total Number of Airline Tickets = Travel Agency Fee Ratio

For example, one of my clients began its partnership with a TMC with a ratio of 120 transaction fees for every 100 airline tickets issued (a ratio of 1.20). This metric slowly increased over the span of two years to 151 transaction fees for every 100 tickets (1.51). 


Usage
As you can imagine, this metric sent off some warning bells once we started measuring it. The funny thing is that we never would have noticed it in the normal course of business, but we were looking for the total we paid the TMC for a year and simply applied historical measurements to it. 

Turns out that both the TMC and the company were "at fault." The TMC was double-counting certain online transactions that were 'touched' by an agent (instead of simply reverting to a 'touched' fee, the TMC was charging both the initial fee and a touched fee). Because the company was pushing online adoption hard, but hadn't given enough training to the travelers on what information was required for billing, a larger number of transactions were transitioning from no-touch to touched.  The agency corrected its transaction billing, and the company increased training to streamline the booking process.

# 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. 

# 5: The Preferred Hotel Savings Metric (Easy Version)

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

Description
There are a number of different ways to calculate savings from contracts your company may have with hotels. None are perfect. Maybe that's why so many corporate travel managers and travel management companies shy away from even trying to quantify savings. Of course, if you have done the work to set up a list of preferred hotels, you might as well get credit for the savings. 

This posts shows the simplest form of calculating hotel savings from contracts (we called these 'preferred hotels'). 


Formula
Preferred Hotel Contract Savings = Dollars Spent in Preferred Hotels / (1 - Average Savings % for Preferred Hotels) x Average Savings % for Preferred Hotels


Process
At the time you negotiate your hotel rates (typically Q3/Q4 for the following calendar year), you must identify the difference between the standard rate your travelers would pay without a negotiated discount and your contracted rate. For example, if a hotel's typical corporate non-contract rate is $150, and you negotiate a rate of $125, your savings is $25 per night or 17%. 

Do this with each of the hotels you have in your preferred hotel program (some firms have only a few while others have hundreds). Average the savings percentages together to find the average (mean) discount.  [NOTE: you may want to weight the average if you have a few hotels with significantly more room nights than average, especially if your discount percentages with these hotels is significantly different than the median discount). 

Whichever way you do it (unweighted or weighted), you have now identified your Average Savings Percentage for the entire year (assuming your program and your travel trends don't change). 

Now, using data supplied by your travel agency, identify how much spend your firm had in these preferred hotels for a given time frame (quarterly is pretty standard). Then simply apply the formula above to come up with a good, yet conservative, savings projection. 


That Was Too Easy
You have to acknowledge that this is a relatively rough (although perfectly credible) estimate.  Things to keep in mind:

• Because we are using an overall average, the "true" savings figure will most likely not be exactly what you calculated. When you think about the work that would go into researching and documenting every single reservation (whether it was made via the travel agency or not), the cost of getting a more accurate number seriously outweighs the value of having a truly accurate figure.
• Some may argue that if the preferred rate wasn't there, the traveler would have stayed in some other place at the same rate (because the travelers is oh so budget conscious). Point out that the reasons hotels are selected for your list go beyond simple rate calculations. Consideration is given to proximity to office or client destination (saving ground transport costs), quality of the property (cheaper hotels may not be of a reasonable enough standard for your travelers), and savings from negotiated ancillary services (calculations for which to be discussed in another post).
• Finally, for most companies, only a percentage of hotel bookings are actually made through the travel agency. Industry benchmarks show that 40 to 60% (more for non-US locations) of room nights are not booked through the agency. Some unknown portion of these 'unmanaged' room nights are booked in the preferred hotels at your preferred rate anyway. By only using the travel agency's reporting, you are purposely under-counting the savings. Therefore, the hotel savings you are claiming with this calculation are actually conservative if nothing else. 

Usage
This metric should be used in your communications to your boss, senior management, and the travelers. Clearly highlighting the value of these programs, and asking for more compliance (both in staying at these properties and booking through the agency) can help you improve the savings figures each year.

This type of metric is easily understood by non-travel professionals, although as we noted above, some push-back may be expected from some cranky quarters.