No company wants to pay thousands of dollars every year on business travel, but you can hardly grow revenue if you don’t have people on the road, meeting with potential partners and clients. That’s why you should try to treat these costs as an investment, Priceline founding chief technology officer Scott Case told CFO Dive Tuesday.
Case launched Upside Business Travel two years ago to help companies take the sting out of travel costs by tying them into a platform that uses volume discounts, while making it easier to align those costs to the benefits.
"If I spent $25,000 on travel, but I won the $1 million account, was that worth it?" Case said. "Let’s just say that account is profitable by a multiple of that $25,000. All of us would say, 'Of course we would do that.' The big challenge is, we see the $25,000 expense report, but we have no idea what it was tied to."
Case’s company doesn’t turn that travel cost into an investment by directly tying the expense to the revenue generated. Instead, it provides a reporting mechanism that increases visibility into these expenses for CFOs who are under the gun to justify their company’s travel spend.
"Payroll, healthcare, and travel are your top three expenses," said Case. "If you’re a CFO, you’re looking at this — are we getting the bang for the buck? The first thing to look at, as a business, are we getting a good return?"
There are two ways to measure the return on your travel costs, Case said. The first is negative ROI. If you have a salesperson stuck at O’Hare airport in Chicago scrambling to change a flight, that person isn’t focusing on her job. She’s not trying to find solutions for a potential client. And then if she drags herself into a meeting the next morning because her flight came in late and she got little sleep, she’s not able to perform at her best.
"Business travel is hard," he said. "You’ve got human beings moving through space and time. There’s a bunch of stuff that’s in and out of their control that causes the travel logistics to be changed. Thirty percent of travel for business changes before the trip even starts."
Airlines, hotels, and rental car companies have built business models around the frequent changes business travelers make by charging higher prices and fees for late bookings and flight changes. "Suppliers have a real incentive to provide a great product or service to these types of travelers but it’s also the most expensive category," he said.
To help reduce that negative ROI, his company tries to do all the work for travelers. If you’re stuck in Chicago, you use an app on your phone to let the company know that and it makes the new flight arrangements for you. "Our average agent has 10 years of experience in corporate travel, so these are people who know what it’s like to be on a trip and manage it," he said.
The second way to measure return is positive ROI, and that has to do with tying the cost to the revenue you ultimately generate from the travel.
"Let’s say you book your travel two weeks before the trip," he said. "The expense might be expensed 6 to 8 weeks after the trip. There’s almost no hope of correlating those expenses with the outcome that happened, even when it’s a positive one. 'Hey, we won the account.' Well, how many trips did it take to get to that place?"
For a giant like IBM, which might spend $1 billion a year on travel, discounts are part of its budget. But for companies that spend between $100,000 and $500,000 a year, the scale isn’t there to negotiate discounts with airlines, hotels, and rental car companies.
Case said his company tries to remedy this by aggregating the travel spend by companies using the Upside platform to negotiate discounts with suppliers. The company also partners with Flight Center, an Australia-based travel agent, that spends about $20 billion a year on travel. "We combine all that," he said.
The company makes its money on the spread between the retail price of the service and the discount it negotiates.
"We guarantee that the price we charge for airline tickets, hotel rooms, or rental cars will be at or below what companies would pay to those same suppliers," he said. "We aggregate all that demand from our clients, and we negotiate deeper discounts from the airlines, hotels, and rental car companies. So, we make the difference on the spread."
By leveraging that spread, his company doesn’t need to charge its customers anything to use its platform — the service is free, he said.
For companies that spend $100,000 or more on travel using the platform, Upside gives them a 3% rebate at the end of the year. "So, if you spend $250,000 on travel, you’re going to get a $7,500 check," he said.
That refund might not qualify as positive ROI, but it makes for positive PR.