The total cost of travel is a concept that has been around for some years now but most companies are still no closer to getting their hands on this elusive figure.
Total cost of travel is a measure – and it is often just a measure rather than a fixed figure – of the price of researching, booking and undertaking a business trip. The key point is that it refers to the full end-to-end cost of the travel, rather than just the core elements of an air or rail ticket, hotel and travel expenses.
I started my career as a business controller for a company. As a result, those who know me know I always talk about total cost. I look at travel management in a way that not all travel managers do since many have come to travel management via other routes, perhaps as PAs. They don't like figures as much as I do.
When I talk with clients, I always talk about looking at the time it takes people to get to the airport as there has not been enough focus on ground transportation costs from the home or office to the airport, from the airport to the hotel and maybe from the hotel to the meeting.
I have a story about a famous clothing company which was travelling all over the world. They were negotiating with the airline to get fares to China as low as possible, getting people to stop over en route in order to get the best deal. What they didn't do was take into account the cost of the hotel and, as a result, total trip costs actually increased.
It is important to note that this approach also takes into account the cost to the company of the process by which the travel was booked. In the case of a booking handled by a travel management company consultant then this is manifested in the form of a transaction fee or a transaction fee plus as many change fees as are incurred before the trip takes place.
Worryingly, a new Business Travel iQ benchmarking report on TMC fees shows that many corporate travel buyers are unsure what proportion of total spend the transaction fees they pay their travel management companies for example.
©iStock.com/stevanovicigor
The rise of the transaction fee to replace the old commission-funded model of travel management means that for many years now there has been a huge focus on the transaction fee. The consequence of this is that travellers have begun to say they can book their trips themselves because they then do not have to pay this 'extra' fee. Yet this has knock-on consequences for the company which are not so good. It takes an employee more time to research and book and for the company time is money. This trend has been followed the emergence of the internet, allowing easy looking and booking of travel, and of corporate self-booking tools in particular.
As a result, for a growing number of bookings, it is an executive or employee themselves that manages the research and booking of the trip; this is where total cost of travel becomes more nebulous and hard to get a handle on.
How do you measure the value of an employee's time? It is difficult to establish a model for their costs. While you can easily work out an average hourly rate for an employee earning, say, 35,000 Swedish kronor a month, it is much harder to gauge the amount of time they are spending on research and booking. What is easier to recognise is that the cost of the TMC's consultant's time is likely to be much lower than this and they will get the job done more quickly because they are experts at it. Internal meetings can also represent a huge proportion of total spend on travel, one that is often hidden from view.
Take, for example, a company with around 2,000 employees that I have worked with. The travel spend as reported by the company's TMC was 21 million SEK, of which fees represented 1.5 million SEK. (Touching on what I wrote about in my previous article for Business Travel iQ, it is important not to push TMCs too far on fees either. A travel agency will not survive if it doesn't earn any money. It is better to give them a reasonable fee so you can continue working with them for many years.)
But the total cost of travel is far higher than this 21 million crown. The company's accounting department said total travel and meetings costs were actually 59 million crowns. The annual cost of the travel manager – some 0.5 million crowns – suddenly seems good value in comparison.
But there is a further step to consider when looking at the total cost of travel. When internal meetings were considered, the total cost of travel was far, far higher. With meetings, I try to make people understand that every hour of work is money. By measuring the amount of time employees were in internal meetings, and calculating the cost of these meetings as being 25% of that time at an hourly rate of 400 crowns per hour, the company was 'spending' 380 million crowns on internal meetings.
When you look at this total costs, the intense focus on TMC fees suddenly seems non-sensical.
Assessing internal meetings can show some hidden costs. ©iStock.com/Rawpixelr
There are signs that there is a recognition of total cost of trip emerging too. KDS's Neo online tool allows bookers to consider door-to-door journeys rather than airport-to-airport ones. It also lets you rank results according to compliance with company policy, lowest cost or best for the environment. I truly believe in the total cost of travel approach but companies are increasingly not. At many big companies in Sweden, travel management is decreasing. The problem for companies is that there is more to good travel management than just procurement.
Where senior management is more far-sighted then change can happen. Analysing the total cost of travel requires management support. If management don't care about total cost then it is much more difficult.
Some useful measures for travel managers
Even if companies are not looking at total cost of travel, here are some thoughts on what you can track to get a better idea of what you are spending and whether the programme is improving or not.
- Increases/decreases in the cost of travel and meetings
- Increases/decreases in bookings through the travel agency
- Increases/decreases in the destinations, number of transactions, costs of flights and trains
- Increases/decreases in share of used agreements and average price for hotels with agreements compared to other hotels at the most frequent destinations
- Number of annual passes during the period
- Online adoption rate per unit and product (flight, train)
- Environmental impact
- Video conferences – number of minutes used
- The most frequent travellers