Try to book a last-minute, premium economy seat on a flight from Europe to China for your sales team lead. You’ll likely be met with eye-watering ticket prices.
Two questions will probably spring to mind in this scenario. Is taking on this cost – and generating all of those emissions – really justifiable? And couldn’t the meeting just be done virtually anyway?
With inflation, supply constraints and high demand pushing up travel prices, these are questions that businesses are increasingly reconsidering, as the return on investment (ROI) of business travel comes under intense scrutiny. Their answers, though, can go either way.
“If we don’t go in-person to a sales pitch, our competitors will,” explains Will Jackson, managing director of Zalaris UK, a payroll and HR services firm. After all, client acquisition is often a sure-fire way to get a trip signed off, since it feeds the bottom line. That’s why the race to win new sales has driven much of the global business travel recovery.
Why business travel decision-making is never easy
But the cost-benefit analysis here is something that even the largest global enterprises are finding difficult. CEOs and CFOs are understandably frustrated by what they see as a lack of credible mechanisms by which to judge travel budgeting decisions. Business trips have historically been treated as part and parcel of the cost of doing business, qualified but not quantified, budgeted for, but not totally justified.
“It’s fiendishly difficult to calculate the ROI of some trips,” says Tom Housden, CEO of Hand & Eye Studio, a UK-based lighting company. “If we exhibit our products in New York, we may not see sales until six or nine months down the line. Word of mouth might generate interest in our business, but that’s not specifically attributable to the exhibition. So it’s never black and white when it comes to budgeting.”
Therein lies the rub. If corporate trips aren’t directly focused on winning business, keeping top talent within the company, strengthening client relationships or visiting vital operations overseas, then there are lots of grey areas in determining whether that travel budget is being spent wisely.
“Our research shows that 25% to 30% of business trips are of low value,” says Scott Gillespie, CEO of tClara, a travel advisory service. “Eliminating these trips would do little or no economic harm to the organisation. At the same time, low-value trips can be predicted before booking with 75% accuracy.”
No gold standard in calculating ROI
On that front, there’s now a raft of tools to help companies make better decisions on trip ROI, ranging from pre-, mid- and post-event surveys to various data-capture platforms. Yet none represents an independent gold standard across the travel industry. Cynics would argue that it’s not in the interest of the sector to create a comprehensive tool since it would see the number of trips slashed, affecting their bottom line.
Cynicism aside, because a lot of information can now be processed about any flight, hotel, restaurant or ground transportation booking, businesses are able to evaluate their trips in far greater detail.
It’s fiendishly difficult to calculate the ROI of some trips. It’s never black and white
“We’re also seeing greater integration of travel and expense policies, which means companies can report on the true cost of winning a deal, from the plane ticket to the dinner,” says Fred Stratford, CEO of travel management company Reed & Mackay. “And with more granular sustainability data, we can even begin to wrap in the CO2 impact.”
Any remaining opacity, therefore, lies within organisations, their specific budgets, allocations and decision-making processes.
There is also a large, long-standing void of data about the true value of any business trip. Data of this kind is rarely, if at all, shared with the business travel industry and travel management companies.
Another fundamental challenge with calculating ROI is that not all business travel directly feeds the bottom line or is financially motivated. “Downstream benefits might be revealed at a later time, by way of a contribution to corporate social responsibility goals, greater ability to attract and retain talent, or increased employee engagement and productivity,” explains Richard Johnson, head of the global solutions group at travel management company CWT Meetings & Events.
How businesses can amplify a trip’s ROI
Nevertheless, CFOs and other senior executives can’t afford to abandon their discipline when it comes to deciding who travels and why – especially as the economy tightens.
For instance, Zalaris UK’s Jackson believes that since the Covid crisis, employees have been using business trips to fill the social gaps in their professional lives, having sorely missed these interactions during the lockdowns. With many more executives now working from home, there is pent-up demand to be sociable, and employees will find just about any way to justify a trip.
“The solution to valuing a business meeting is to ask the traveller or their manager to set a cost at which the trip can no longer be justified,” says Gillespie. “And the key to maximising the return on a travel budget is to prevent low-value trips and invest in high-value trips.”
The question, then, is how much of a return is required. The direction of travel appears to be towards raising the bar, ensuring every trip counts and ticks multiple boxes: sales, networking, innovation, visiting overseas operations, and even incorporating leisure.
“If companies encourage ‘purpose amplification’ when travelling, the ROI to the company is also amplified and more justified,” points out Paul Tilstone, managing partner at travel consultancy Festive Road. “So, for example, staying an extra day at a conference where you’re marketing your products, and visiting some clients or someone innovating in your space can help with this process.”
It’s a change of mindset which could make a big difference when budgets are tight.
Try to book a last-minute, premium economy seat on a flight from Europe to China for your sales team lead. You’ll likely be met with eye-watering ticket prices.
Two questions will probably spring to mind in this scenario. Is taking on this cost – and generating all of those emissions – really justifiable? And couldn’t the meeting just be done virtually anyway?
With inflation, supply constraints and high demand pushing up travel prices, these are questions that businesses are increasingly reconsidering, as the return on investment (ROI) of business travel comes under intense scrutiny. Their answers, though, can go either way.
