Agency ROI: Cash Return Not All That Counts
by Dori SaltzmanWhen determining a travel agency’s return on investment (ROI), it’s not always cash returns that count most.
Sometimes services that don’t seem to be revenue-generators, including selling airline tickets, may actually be beneficial to an agency overall.
These are among the insights on ROI analysis that Libbie Rice, co-president of Ensemble Travel, shared with Travel Market Report.
ROI analysis brings unexpected results
One of Rice’s first acts as co-president a little more than a year ago was to run ROI analyses on most of Ensemble’s operations. What she found turned some common assumptions on their heads.
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While it might seem that any product an agent sells to a client brings in revenue, that isn’t always the case, Rice told Travel Market Report.
Furthermore, even marketing campaigns that bring in sales might not have been worth the investment and should not be repeated.
“You can definitely be selling a product that costs you more either in hard costs or in labor efforts than what you sell it for, or what the inherent benefit is that it brings to you,” Rice said.
Three things to examine
To determine the ROI of a particular product, marketing effort, or even a service offered by an agency (say, doing frequent flyer mile air bookings), an agency owner must look at three pieces: hard costs, time spent and monetary result.
Hard cost: Take a marketing campaign, for instance. What does it cost to print the marketing collateral? What’s the postage? Did you have to pay for content, either editorial or images?
“Everything that goes into the creation of the published marketing piece is part of the hard cost,” Rice explained.
Time spent: Travel sellers also need to determine the time spent on the project. How many minutes, hours or days did you spend on selling the product or putting together the marketing campaign?
To assign a rough dollar amount to the time, figure out what percentage of your or your employees’ daily or weekly workload was spent on the product, service or campaign. Knowing how much you make in a year (or what you pay your employees per year), you should already know what a day’s or week’s worth of work is worth. Now apply the percentage of time you or your employee spent to what your time is worth.
Monetary result: The monetary result, which is not the same as ROI, is what the agent made on the product or marketing campaign. What is the average commission on a particular product, or how many bookings with how much commission did a marketing campaign result in?
ROI and the big picture
Once the three prongs of ROI have been determined, agency owners can figure out the ROI by subtracting the hard costs and time spent value from the monetary result.
But just figuring out a hard cash ROI doesn’t always determine whether an agency should eliminate selling a product or give up a marketing campaign or service.
“You can’t always take things in isolation,” Rice advised. Some products, services and marketing efforts do not need to bring hard cash ROI to be worth the time spent on them.
Airline tickets, customer service as examples
As an example, Rice cited airline tickets.
“They’re not high commission and they can take significantly more time versus what the agent makes,” she said. “So a lot of agencies no longer want to offer air, but they need to take a look at the holistic picture of what they offer to clients. The benefit of offering air is that it makes you a one-stop shop for the client.”
Another example Rice cited is time spent on customer service, which unless an agent is charging for their time, brings in no actual hard dollars.
“Most of the time, if you do a hard ROI analysis, your customer service doesn’t make any sense. But you have to have customer service as part of your business.”
Additionally, with email and e-newsletter campaigns, hard dollars aren’t the only criteria to check. If your emails are being opened and links clicked on, you’re engaging with your clients and that has value, if even they don’t buy right away.
Look at what you aren’t doing
It’s also important to look at what you aren’t doing because you’re busy doing other things, Rice advised. If after running an analysis you determine that a product or marketing campaign had a marginal ROI, take a look at what you’ve been putting off to see if something else might potentially have a higher ROI.
So while analyses must include the hard numbers, travel sellers should also place the product, service or marketing effort into the bigger picture to see what makes sense.
Customer ROI
You can do a similar ROI analysis on your clients. The “value” of a customer takes into consideration both the revenue/commissions a client has brought you, as well as the time you’ve spent on that customer.
“Some customers are high maintenance and when the time spent on them is considered, they aren’t as valuable as they seem,” Rice said.
If an analysis reveals such clients, don’t necessarily unload them. Instead, if possible, find ways to reduce the time and energy spent on the client.
“For example, leave messages or sending emails rather than actually talking to the customer to confirm details,” Rice said. “This avoids wasting time talking to a chatty client.”
