The average cost of business travel for many organizations can quickly escalate, particularly if companies rely heavily on manual expense reporting. Business travel doesn’t come cheap and the costs incurred from taking business trips can add up over the year to become a significant overall expense.
Before the COVID-19 pandemic struck, data suggests that up to 445 million individual business trips were taking place every year, contributing to a $1.28 trillion industry. And with each trip costing an average of almost $1300, it’s clear why organizations are actively trying to cut costs. But to be able to make savings on business travel expenses, you first need to understand them.
We have put together the following guide to help you understand the average cost of business travel expenses, what specific costs are involved, and what techniques you can use to save money.
What’s in this guide:
- What is the average cost of business travel?
- How do you calculate business travel costs?
- How to minimize the average cost of business travel
- How to enforce travel expense etiquette
What is the average cost of business travel?
Research estimates that pre-pandemic, the average cost of domestic business travel is $111.7 billion each year. This figure is made up of several individual components – from transport costs to food expenses – each of which can vary in expense depending on where your employees are traveling and for how long. The variables involved in business travel make it one of the most difficult expense categories to control; however, it’s important to understand where your money is being spent so you can think about how to make your trips more cost-efficient.
One study found that the costs involved in an average business trip can essentially be split into four categories: accommodation, airfare, food budget, and ground transportation costs. While the actual split depends on the type of trip employees are taking (and especially if it’s international or domestic), accommodation is generally the most expensive element, contributing to 34% of the overall cost. The study also found that, following accommodation, airfare makes up 27% of the average cost, while meals contribute 20%, and ground travel adds the final 19%.
Average cost of accommodation
Understandably, accommodation typically accounts for the largest proportion of business travel expenses which is especially the case for multi-day international travel. However, the average cost of accommodation varies massively depending on the destination your employees are traveling to.
In most US cities, for example, you should expect to pay between $150-$300 per night, whereas a business trip to Paris might necessitate a budget of up to $400 per night. It’s also important to remember that there are plenty of potential hidden costs involved with accommodation that you should be aware of, from late check-out fees to minibar costs.
There are some methods you can consider to cut the cost of accommodation, including inquiring into building an exclusive partnership with a specific hotel if your organization holds regular events in one location, or looking into alternative providers like Airbnb.
Average cost of air travel
Just like with accommodation, the cost of air travel also varies significantly depending on where your employees are traveling, in which season, and even the time of day they are due to fly.
The US Passport Service Guide estimated that, in 2019, the average air travel cost was $357 for domestic trips and $1368 for international trips. However, there are many ways your organization can minimize these costs, from implementing an off-peak travel policy and encouraging employees to fly during off-season months to prioritizing flights in the early hours of the morning, when fares tend to be cheaper.
Air travel costs can also be reduced by dedicating time to researching flight options. Something as simple as choosing to fly from a different airport or using a different airline can dramatically reduce the cost of tickets, so it’s important to educate employees on the organization’s travel policy and the conditions of booking air travel.
Why not make this easier for your employees? Travel sites, such as KAYAK, enable you to find the cheapest flight to your destination; you can even compare the prices of different airports to make sure you’re getting the best deal.
Average cost of food
Food is another big expense for companies, especially for business trips that last more than a couple of days. The average cost of food can be split into several sub-costs, most notably the cost of food for employees and expenses incurred through entertaining clients.
Generally, a budget of $100 per person, per day should cover the average cost of meals; however, this is largely dependent on the location. For example, the average cost of food in San Fransico costs approximately $76, while in Paris it’s more likely to cost you closer to $169 per day. The cost of taking clients out for dinner or drinks could see this budget increase significantly, so it’s important to take this into consideration. Add these costs up over a lengthy trip and it all starts to add up!
Thankfully, food costs are one of the easiest expenses to control simply by establishing rules within your travel expense policy. Organizations can benefit from having a set policy on food expenses, with limitations on the cost of a single meal and by removing the ability to order room service or raid the mini-bar.
Average cost of ground travel
Finally, there are the costs involved in ground transportation. For domestic trips, ground travel is a major transport expense, while for international travel it’ll often come on top of airfare in the form of an airport transfer. No matter where your employees are traveling, the costs involved in getting around – whether by ordering a ride-hail, renting a car or using the train – can add up.
The average cost of ground travel depends largely on the location. A metropolitan area with good public transport might be relatively cheap to cover, while more rural areas could be more expensive, especially if it involves renting a car. Generally, it’s a good idea to budget up to $100 a day purely for ground transportation costs.
Travel costs are particularly difficult to pre-empt and monitor, which is why using a single platform like Gett to manage all your ground transportation can provide more visibility over your organization’s travel expenses. A platform like Gett gives you the ability to create a travel policy inside the booking experience, giving you better control over these costs and the opportunity to make all-important savings.
How do you calculate business travel costs?
If you’re trying to forecast how much a business trip is going to cost beforehand, we recommend creating a preliminary budget based on the above four categories: accommodation, air travel, food, and ground travel. Research your options for your chosen travel, accommodation, and food, then estimate an average business travel cost per day. Multiply this cost by the length of the trip, and you should be in the right ballpark.
Having a rough idea of the overall cost of the trip will help you to set an appropriate budget (allowing for a margin of overspend). Creating a document that summarizes expense policies can also help to make sure this budget isn’t exceeded, avoiding unnecessary and unexpected expenses from popping up during the trip.
How to minimize the average cost of business travel
It’s clear that business travel isn’t cheap. In fact, for businesses that rely on travel to generate revenue or build important commercial relationships, travel expenses can be one of the most significant overall operational costs. So, minimizing the average cost of business travel has the potential for improving profit margins and ensuring cash flow is healthy.
An important step to take to keep travel costs down is setting a sensible, realistic corporate travel budget for each individual trip. There are two main budget types to consider: dynamic budgeting and hard cap budgeting.
Dynamic budgeting uses real-time market data to adjust price estimates based on actual projected costs, and benchmarks these estimates against similar previous trips. The combination of both of those factors means that dynamic budgeting has the potential to be strikingly accurate, meaning you can set budgets that are realistic and avoid the risk of massively under- or over-estimating costs.
While it’s a little more complex than other budgeting methods, there are plenty of benefits to be gained from making use of a dynamic budgeting system. These include the ability to more accurately forecast expenses before they occur and the chance to refine your expense policies for each individual trip to ensure they’re appropriate. Being able to benchmark corporate travel costs on a quarterly basis also gives you the opportunity to identify ways to cut costs in future and save money over time.
Hard cap budgeting
Hard cap budgeting, on the other hand, is a more rigid way of forecasting costs. A hard cap budget involves setting a fixed limit on the cost of any business trip – a much simpler rule to comply with than the variance involved in a dynamic budget. This means that a hard cap budget system will usually result in lower average travel costs, forcing a level of frugality that dynamic budgets don’t.
However, hard cap budgets can be overly restrictive. They lack any real flexibility, meaning that a significant amount more research might have to be conducted into the options open for each trip to make it fit within the expense cap. A hard cap budget will also have to be amended on a regular basis to keep up with general market fluctuations. It’s no use keeping the same budget limit in place for a decade when air travel costs, for instance, might double in that same time period.
How to enforce travel expense etiquette
Business trips can be seen as an investment. Each trip should theoretically offer a tangible return, whether directly through client wins or indirectly through relationships built for future revenue generation. Working towards gaining better control over travel expenses is a great way to make each individual trip a more cost-positive exercise.
It’s really important that your employees understand all expectations, and more importantly that they are completely clear on what the rules are for each trip they take. Setting a company-wide business travel policy with a significant section covering budgeting and expense rules is a great way to achieve this – just make sure to keep everyone up to date with changes as and when they occur.
Enforcing your travel expense policy doesn’t have to be difficult. Give your employees the tools they need to book, manage and expense their travel in one place. Many booking platforms, like Gett, enable you to build your programme around your travel policy to make it easier for all employees. Not only will this promote compliance, but it will also give employees the independence to manage their travel without seeking help from management.
Save your business time and money with Gett. Organize your business travel expenses in one platform and optimize your employees’ experience by consolidating booking, riding and invoicing all in one place.