Case Study 2: $2 million of Wasted Travel and Entertainment Expenses.

There is no more easy, and at the same time, inane comment used by managers who intend to “stem losses” than to say “stop spending money on travel”.  What these individuals have failed to take into account is that not only is travel a necessary business function, in 99% of corporate departments, it is probably the most out of control and abused expense, because managers refuse to hold travelers accountable, and fail to take the time needed to understand how best to purchase travel.

This case study examines how at one of my clients, travel expenses were slashed by 50%, or $2 million, while increasing the frequency of business interactions, and being partially responsible for a 100% increase in revenues.

This improvement is accomplished by creating a fair, reasonable and logical T+E policy and enforcing it.  But no matter how detailed, and how well thought out a T+E policy is, it is worth noting that without planning, it is worth nothing.  That planning with regard to travel is “planning ahead”, which in most badly managed company, is missing from the management’s lexicon!

This particular client had a very large national sales force based in one US city (and a European sales force based in one European city).  The salesmen were opportunistic and hard charging, and rang bells when they scored an appointment.  The problem was that these appointments were often set for the day after the phone call was made, ensuring the following three negative implications to the business;

1. There was no time to plan the visit, research the customer, research his needs, or tailor the presentation.
2. Airfare would be full on $1,000 or more, as a last minute purchase.
3. The salesman would spend 5 hours traveling each way (and maybe require an overnight) for a two hour customer presentation.

Consequently, the average trip would cost $2,000, and in a good week, a salesman might have three face to face meetings.

What was needed was to change round the whole paradigm…. Instead of randomly calling people and seeing if they wanted to meet, and then buying the ticket, we agreed that the salesmen would make six week rolling plans of which cities they would visit for 2 – 3 days each week, then purchase their air tickets (preferably bought on a Tuesday, for flights on Tuesdays – Thursdays), and then make targeted calls to buyers in those cities, with our staff suggesting times to meet which tied in to our schedules.

There was initial resistance, of course.  The salesmen wrongly believed that they would be away from home more, when in fact it meant they could actually plan on when they would be at home or not.  They also worried about what would happen if a meeting got cancelled, or if they could not fill up the whole 3 days with meetings.  When it was pointed out that even if they only got one two hour meeting in each of three days, they were still doing better than before, and that they could just as easily make phone calls from their hotels as the office, they agreed.

We also had to demonstrate that there was only a miniscule risk of not making a sale if we could not visit a particular client for three weeks.  Given that the product we were selling required a large capital investment and significant training, it was not the sort of thing that a purchasing agent could say, “meet me tomorrow and I’ll buy one”.

Salesmen will often argue that “if we don’t go now we won’t get to see the customer,” but I have never, in over 20 years of reviewing sales reports and expenses, seen a situation where a sale was obtained at such short notice.  Consider the circumstances.  The most usual scenario for a customer to say, “See me tomorrow,” is because there is a deadline at the customer for a decision which we were not part of, and as a result, we are the last competitor in a bid.  It is far more likely that other companies with long standing relationships to the customer have been invited to tender long before you hear “See me tomorrow.”  The probable reason therefore for us to be asked to present is to provide a possible low bid which an existing supplier will then be asked to match.

The best test of the value of making a trip “now” was to offer to let the salesman make such unplanned trip if he would pay the difference in air fare from his commission.  This offer was never taken up, which I think conclusively demonstrates that the salesmen fully understood what they were being asked to do.  (Unrelated to T+E expenses, but highly relevant to what the sales force understands about clients is to take back commissions from sales made to customers who don’t pay.  Applying this rule means you can do away with credit analyses from any of the ratings agencies, because salesmen can smell a bad prospect at 100 yards!)

So I say emphatically―if a trip can’t be planned at least a week in advance, don’t make it.

The same company liked to present its latest and greatest offerings at trade shows.  Excellent publicity, excellent way to gage the competition, meet buyers in a social situation etc.  What was interesting was that 12 salesmen would attend the January trade show in Honolulu to the “Fifty Top Hawaii Hoteliers”, while three people would volunteer to staff the booth in Cleveland at the same time to the “World Wide Convention of the Ten Thousand The Most Qualified Buyers”.

This was fixed by tracking all leads generated and not attending a show the following year if leads had not developed into more sales than covered he costs.  (And also limiting attendance, and rotating who went).

The final part of this plan was tracking and follow up.  There is no point in promulgating rules if they are not going to be enforced.  Thus I required all T+E reports to be reviewed by me personally.  The CEO though this would be an impossible task for me to complete, as we had about 400 reports per week from all travelers throughout the entire company.  But I did not need to review every line item on every report.  I simply picked out the most egregious examples of waste, such as a $1,000 air ticket when I knew an advance purchase fare was $300, or a $1,000 bottle of wine on a dinner with a non-customer.  Once the miscreant had been asked for an explanation, the old bush telegraph quickly communicated that “that nasty CFO will be questioning you”, and irregularities became fewer and fewer.