Travel Cuts Cost Firms 28% in Lost Business

September 21, 2009

This article is included in these additional categories:

Analytics, Automated & MarTech | B2B | Financial Services | Trade Shows & Events | Travel & Hospitality

For every dollar invested in business travel, businesses experience an average of $12.50 in increased revenue and $3.80 in new profits, according to a study by Oxford Economics, which one of the research’s sponsors – the US Travel Association – claims establishes the first clear link between business travel and business growth.

The study (pdf), which was undertaken at a time when 51% of executives say their organizations are cutting costly business travel because of tough economic conditions, included responses from both executives and business travelers and a detailed analysis. It found that limiting travel may actually be detrimental to businesses in the longer term.

Key study findings:

  • The average business in the US would forfeit 17% of its profits in the first year of eliminating business travel. It would take more than three years for profits to recover.
  • Both executives and business travelers estimate that 28% of current business would be lost without in-person meetings.

us-travel-oxford-percent-customers-lost-without-meetings-september-2009.jpg

  • Both executives and business travelers estimate that roughly 40% of their prospective customers are converted to new customers with an in-person meeting, compared with 16% without such a meeting.

us-travel-oxford-conversion-rate-prospects-customers-with-without-meeting-september-2009.jpg

  • More than half of business travelers say that 5-20% of their company’s new customers are the result of trade-show participation.
  • Executives say customer meetings return approximately $15-$19.99 per dollar invested, with conference and trade-show participation returns ranging from $4-$5.99 per dollar invested.
  • The manufacturing sector of the economy stands to lose the most by cutting in-person meetings:

us-travel-oxford-loss-current-customers-revenue-without-meeting-september-2009.jpg

  • Executives say that in order to achieve the same effect of incentive travel, an employee’s total base compensation would need to be increased by 8.5%.

Not surprisingly, the US Travel Association believes this study comes at an opportune time for American businesses that are planning their 2010 budgets, and for federal policymakers looking to stimulate a struggling American economy.

“Business travel is economic stimulus,” said Roger Dow, president and CEO of the association, adding that an increase in government travel spending of $1 million will increase government worker productivity and therefore output by between $4.6 million and $6.3 million.

Business travel in the US is responsible for $240 billion in spending and 2.4 million American jobs; $100 billion of this spending and 1 million American jobs are linked directly to meetings and events. In the first six months of 2009, business travel was down by 12.5%, according to the USTA. A 10% increase in business travel spending would increase multi-factor productivity, leading to a US GDP increase between 1.5% and 2.8%.

“In tough economic times, many business executives have an understandable short-run focus on managing costs,” said Martin A. Asher, adjunct professor of finance at the Wharton School. “The report points out the less visible – but significant – long-term benefits resulting from business travel, such as partnership building and new business opportunities. Increased business travel in this economy can actually increase sales and reduce the financial decline companies might otherwise suffer.”

Perhaps in response to concerns about lost revenues related to travel cutbacks, a separate study by Unisfair found that half of US marketers are planning to increase their use of virtual events and environments in 2010.

About the study: The Oxford Economics Business Travel study is sponsored in part by the Destination & Travel Foundation, a combined effort of the US Travel Association and Destination Marketing Association International. The analysis covered 14 economic sectors over a span of 13 years. Care was taken to control for other contributing factors to business growth and productivity. The findings were verified through a combination of three separate surveys of corporate executives and business travelers and a broad review of related research.

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