Businesses have been operating under challenging circumstances in the last few years with economic uncertainties, a long pandemic, geopolitical pressure, inflation and unemployment. However, even as businesses slowly limp back to normalcy, the future looks promising. Business travel volumes are now returning to pre-COVID levels.
According to the GBTA 2023 Business Travel Index™ Outlook, global business travel will recover to its pre-pandemic total of $1.4 trillion in 2024 and grow to nearly $1.8 trillion by the end of 2027. Travel costs have also increased to surpass pre-pandemic levels, making it difficult for companies to control their business travel and employee expenses (T&E).
For many companies, business travel is a necessary expense to boost customer acquisition, and CFOs are focused on maximizing the return on investment (ROI) to ensure they’re getting the highest return for every dollar spent on travel. In this article, learn what a CFO needs to do to stay on top of T&E management within their organization.
CFO's role in T&E management: From budgets to strategies
CFOs today are no longer seen as number crunchers in a tactical finance function role aiming to maintain the financial health of the company. They are expected to add more strategic value to the company and aid the leadership team in navigating business uncertainties. They are required to identify the right areas of investment to balance both growth and cost control. So, CFOs today must be equipped with skill sets and business acumen that can optimize business spend and get the maximum value from every dollar spent.
When it comes to T&E management, it becomes tricky for businesses to manage and control costs. This subsequently affects employee experience and productivity. It's critical for travel spend to stay in line with the company's overall budgeting and financial goals.
Integrate T&E management with your broader financial strategy
First and foremost, a CFO must align the T&E policies with the organization's broader financial strategy. Together, T&E policies, budgets, rules, limits and processes hold the potential to add to the company's growth plans. Consider a startup enterprise whose main goal is to acquire new customers. According to a survey from Oxford Economics, every dollar invested in business travel generates an incremental average of $12.5 of revenue, primarily driven by new customer acquisition. The T&E policy here should, thus, have more budgets allocated to business travel since face-to-face meetings directly add to new customer acquisition.
Calculating ROI on business travel
Business travel plays a key role in an organization's revenue. Per an Oxford study, 28% of current business would be lost without in-person meetings. However, an ACTE survey revealed, only 13% of organizations actively measure trip success rate and trip ROI.
The challenge is how to measure this success rate. How do you arrive at the ROI on business travel? It depends on various criteria. Many organizations prioritize and track different activities achieved through business travel and their returns to calculate their ROI. While it is better to dive deep and identify such factors for your business, it is a complicated process. Take a look at the stats to find an approach that helps a majority of businesses calculate their business travel ROI.
A January 2024 poll showed 32% of business travel spend goes towards sales and account management meetings aimed at core sales activities, and 28% of revenue is dependent on these in-person meetings that add to business travel. These activities aim to improve and increase new customer acquisition, requiring customer relationship building and management. Keeping in mind these stats and priorities, here's one of the approaches to calculating your ROI on business travel.
Return on business travel for new customer acquisition = (Revenue from new customer)*(Percentage of in-person meetings to get new business)/Total business travel spends to acquire new customers
Maximizing the ROI on business travel
Automate expense management to tailor T&E policies and stay compliant
According to a report by Mastercard, 59% of travel decision-makers struggle to ensure employee compliance with spending policies and controls. These challenges can be caused by many reasons, such as lack of awareness, complex policies, mismatch between business objectives and T&E policies, incorrect benchmarks leading to insufficient limitations and more. However, one of the biggest hurdles is the lack of an expense automation tool that brings your policies to life. Ensuring expense management process automation from travel booking to expense reimbursement, along with automated policy checks designed based on the business requirements and objectives.
Connect your CRM to T&E software
When discussing calculating ROI based on the above formula, the questions most CFOs ask are, How do we arrive at the numbers? How do we get business travel spends for customer acquisition? It's simple: integrate your CRM and expense software.
Just like capturing a lead in CRM, sales teams can capture the related expenses right there. When the customer is won over, you will know the expenses incurred to win over the customer from a business travel perspective. With an analytics tool, see how much you spend on each account and optimize your spending patterns to acquire new customers.
Stop overspending before it happens—monitor budgets in real time
As a CFO, it is necessary to track real-time spending against your budgets. The approving managers should be empowered with real-time budget utilization so they can stop spending before it happens. The right expense automation tool enables managers to block/warn employee travel requests based on real-time budget availability. This also gives CFOs a real-time view of budgets vs. actual spend and helps them allot more resources in the right areas if needed.
Get the best from your suppliers
Lastly, one of the reasons why managing business travel is difficult is the involvement of multiple supplier ecosystems and the complex nature of the travel industry. For a company with a global presence, getting the best fares and rates for every region is a tedious task. To maintain cost efficiency and secure optimal deals, the CFO should regularly assess vendor spending reports, negotiate contracts and monitor vendor performance. This will help your firm identify cost-saving opportunities and ensure you're getting the best rates from airlines, hotels and transportation rental companies.
Conclusion
Measuring ROI is just a start when optimizing your corporate travel expenses. Consistency in measuring, tracking, and analyzing these statistics over time will help iron out the kinks in your processes and allow you to maximize the return on the expenses incurred in business travel. While the formula may not completely encompass the various aspects that add to the company revenue, measuring new revenue ROI rules out subjectivity to help showcase a clear picture of the returns business travel earns for the company.
Explore software solutions, like Zoho Expense, that help track integrated data points across sales cycles, travel bookings, travel expenses and revenues with analytics modules that sync seamlessly and allow you to customize reports to ease the process of maximizing your ROI on business travel. Try Zoho Expense and see the difference in your business.
