There are some business owners who do a ton of business travel and then there…
The Hidden Costs of Travel, Are You Really Saving?
I’ve spent 30 hours driving in the past three weeks for my business, and I’ve got more to do.
There are a number of questions to ask yourself when you’re travelling for business about saving money and whether you think you are but are you really?
The obvious cost of travel is the cost of transport itself. When travelling longer distances, it may be a train, taxi or Uber to the airport, the plane ticket and then either car hire or more local transport costs at your destination.
The less obvious, hidden costs of travel, are the time taken and the lost opportunity of earning income during that time.
To work out what this cost would be, you first have to identify an hourly rate for your time.
If you work in a service industry where you have a pre-determined hourly rate, perfect. But for those that are providing fixed fee services, value pricing, fixed contracts or selling products you need to do some calculations.
You will need to identify the following information to determine your hourly rate:
1. Total gross revenue for the year.
For this example, I’ll use $ 1,000,000.
2. The number of full-time equivalent people working in the business who are generating income. That is, excluding admin and support staff.
For this example, I’ll use 6.
3. Calculate the number of hours that a full-time team member works during the year.
Usually this will be 52 weeks less 4 weeks annual leave, less 2 weeks personal leave (for the purpose of this calculation assume that the staff take this leave each year), less 10 days public holidays (i.e. 2 weeks, but check in your State, the number may be slightly different) then multiply this figure by the hours worked in a week (mostly 37.5 hours) and then apply a productivity factor (if the team are working effectively this should be in the order of 75% to 80%).
For this example, this would be 52 – 4 – 2 – 2 = 44 weeks.
44 weeks x 37.5 hours/week x 75% = 1237.5 hours.
4. Now the final calculation is the Total Revenue divided by the number of team and then in turn divided by the number of hours per annum.
For this example, this would be $ 1,000,000/6 = $ 166,667
Then $ 166,667/1237.5 hours = $134.68 per hour.
Now you have your hourly rate.
Let’s look at the hidden costs of travel in these two options.
The option of flying:
If your total travel time from door to door is say, 4.5 hours, then you have a cost of travel of 4.5 hours x $134.68 per hour = $606 in addition to the cost of transport itself.
For the purpose of this example, let’s assume transport costs to and from the airport of $60 each way plus an airfare of $175, a total of $295.
Add the two together, and the cost of the trip is $901.
The option of driving:
Driving saves money, right? Well yes, the cost is the petrol used and a bit of wear and tear on the vehicle. Let’s call it $100.
Logic says in the first instance that $100 for petrol is less than $ 295 for flights and transfers, so you’re saving money.
But if you take into account the hourly rate and let’s say that the drive takes 8 hours. The cost in hourly rate terms is 8 hours x $134.68 = $1,077.
Add the $100 for petrol, and you’ve got a cost for the trip of $ $1,177.
Now the cost of flying is starting to look better.
But there’s another factor to balance these two options.
That is, if you take the transport option, you’ve used up 4.5 hours, whereas the driving option is 8 hours.
What that means is that with the transport option you have another 3.5 hours that you can be earning revenue.
So, 3.5 hours x $134.68 = $471.
In order to compare the two options accurately, you now need to take the income of $471 from the cost of the transport of $901 to give you a net cost for the 8 hours using the transport option of $430.
And now the driving option is looking very costly.
There is one other factor to take into consideration, and that is whether there is any benefit to driving itself.
For me, I will often choose this option as it gives me a forced day off from my business, it gives me time to think, it allows me to enjoy our beautiful country, see the sky, the fields, the trees and enjoy being out in nature (albeit from the window of my car as I’m driving by).
Next time you’re looking at a business trip, check the hidden costs of travel and ask yourself whether you are really saving money?
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
SHARE THIS ARTICLE WITH LIKE MINDED SMALL BUSINESS PEOPLE