The United States Travel Association with research partner Oxford Economics has added to the discussion about the value of business travelwith an extensive research project announced Tuesday which determined that business travel does indeed offer a return on investment. Moreover, cutting travel for business (including incentives and conferences) eats into profits, the researchers found.
Surveys this year of about 300 corporate executives and 500 business travelers projected that "28 percent of current business would be lost without in-person meetings." The researchers also noted that most customers require in-person meetings, and that such meetings are more valuable than virtual meetings.
Is this common knowledge? Perhaps, but "this is the first time that the return on investment of business travel has been successfully measured," USTA claimed.
Some of the results also question the validity of recent cutbacks in corporate travel demand.
After a separate February survey of about 400 business executives found that 72 percent of "business travel decision makers believe reduced travel is necessary during an economic downturn," the report released this week argued that every dollar invested in business travel produces $12.50 in revenue and $3.80 in profits. Eliminating business travel, the researchers found, would cut 17 percent of profits within a year for the average U.S. business. In-person meetings result in new sales 40 percent of the time, the study indicated, versus 16 percent without such meetings.
'Negative Consequences' To Cuts
"Not all spending cuts are smart cuts," according to Oxford Economics managing director Adam Sacks. "When companies reduce 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."
Customer meetings generate $15-$20 per dollar invested, with conference and trade show participation ranging from $4-$6 per dollar, according to the report. "Maintaining strong customer relationships is perhaps the most fundamental purpose of business travel," the authors wrote. "More than 75 percent of customers either require or prefer in-person meetings, according to business travelers surveyed in April 2009."
Eighty-five percent of corporate executives perceived Web meetings and teleconferences to be less effective than in-person meetings with prospective customers, while 63 percent believed virtual meetings to be less effective than in-person meetings with current customers. Even for internal company travel, 47 percent and 39 percent of business travelers perceived remote conferencing to be less effective for training and company meetings, respectively.
Scope Of The Sector(s)
Slightly less than 1 percent of the average company's revenue is spent on business travel, according to the report. "In terms of absolute [annual] expenditures, the top business travel spenders are: business services ($60 billion); finance, insurance, and real estate ($48 billion each); manufacturing ($31 billion); and education and health care ($18 billion each). Sales-related meetings comprise about one-third (34 percent) of business travel expenditures. Work at client offices follows with 22 percent. Internal meetings, conferences, and trade shows each represent about 10 percent of the average corporation's travel budget."
Business and government travel in the United States last year was "responsible for $246 billion in spending and 2.3 million American jobs; $100 billion of this spending and 1 million American jobs are linked directly to meetings and events," according to USTA. "In the first six months of 2009, business travel spending is down by 12.5 percent and business travel volume is down more than 6 percent. A 10 percent increase in business travel spending would increase multi-factor productivity, leading to a U.S. gross domestic product increase between 1.5 percent and 2.8 percent."
A Wharton School finance professor reviewed the Oxford findings, which were based on 13 years of data in 14 economic sectors and "verified" by the business traveler and corporate executive surveys, as well as "a broad review of related research." The initiative was co-sponsored by the Destination Marketing Association International and USTA, which represent destination marketing organizations and travel suppliers, respectively.
Related resource: Download the full study here.