In the first six months of 2009, total business travel spending was down by 12.5 percent. That cut in spending may have put those companies at a competitive disadvantage.
According to an Oxford Economics study, for every dollar companies invest in business travel, they reap an average of $12.50 in increased revenue and $3.80 in profits. The study also found that the average U.S. business would forfeit 15 percent of its profits in the first year of eliminating business travel, and it would take more than three years to recoup those lost profits.
“The study shows that not all spending cuts are smart cuts,” stated Adam Sacks, managing director of Oxford Economics. “When companies cut their travel budgets, there are negative consequences that we can now quantify, in terms of lost revenue and profit growth, and in terms of giving competitors a distinct advantage.”
- The executives and business travelers surveyed estimate that 28 percent of current business would be lost without in-person meetings.
- They also reported that roughly 40 percent of prospective customers are converted by face-to-face meetings, compared to 16 percent who could be converted without such a meeting.
- Executives reported customer meetings had the greatest return on investment, roughly $15-$19.99 per dollar invested.
- Conference and trade show participation had a return on investment of $4 to $5.99 for every dollar invested.
- More than half of business travelers reported that five to 20 percent of their company’s new customers were the result of trade show participation.
- 85 percent of corporate executives perceive Web meetings and teleconferences to be less effective than in-person meetings with prospective customers.
- 63 percent believe virtual meetings are less effective than in-person meetings with current customers.
- Nearly 80 percent of executives indicated that incentive travel has a positive impact on employee morale and job satisfaction; more than 70 percent said it had a positive impact on employee performance.
- According to executives surveyed, companies would have to increase an employee’s base salary by 8.5 percent in order to achieve the same effect as incentive travel.
- The majority of corporate travelers said internal company travel is key to professional development (66 percent), job performance (58 percent) and morale (56 percent).
- A 10 percent increase in business travel spending would increase multi-factor productivity, which the study calculates would increase the U.S.’s gross domestic product, or economic growth, by 1.5 to 2.8 percent.
“Business travel is economic stimulus,” stated Roger Dow, president and CEO of the U.S. Travel Association, which commissioned the study with the Destination & Travel Foundation. “In order to grow, businesses have to invest. This study shows that face-to-face meetings and incentive awards to top performers are among the smartest investments companies can make.”
The Oxford Economics study covered 14 economic sectors over a span of 13 years. Findings were verified through a combination of three separate surveys of corporate executives and business travelers and a broad review of related research before being reviewed by Dr. Martin A. Asher, adjunct professor of finance at the Wharton School.
Click here to download the full study.