The Downward Drag of Travel Expenses

The travel time and travel expenses associated with delivering service engagements seems like such a mundane topic. Yet, the nuances surrounding travel time never seem to cease.

Billing for Travel Time

Way back in October of 2008, I posted the following question on behalf of a TSIA member:

Do technology professional services organizations typically bill customers for the travel time incurred by delivery consultants related to the customer’s project?

The current polling results from that entry shows that roughly 65% of service organizations do indeed bill customers for various levels of travel time. So this is clearly the common industry practice.

VSOE and Travel Expenses

In November of 2008, another TSIA member was curious how service organizations were handling VSOE compliance when customers requested that travel expenses be covered in the daily rate of the resources. I posted the following polling question:

If customers request you include travel expenses in the daily rate, your service organization:

  • A. Includes those data points when calculating VSOE compliance.
  • B. Excludes those data points when calculating VSOE compliance.
  • C. Creates two VSOE rate schedules–one with travel expenses and one without.
  • D. Other

Here, there is no common industry practice. Currently, 50% of the respondents create two distinct VSOE rates (option C). However, 50% of respondents do something else.

Avoiding the Downward Drag of Travel Expenses

Now, for another question asked by a TSIA member on this topic of travel expenses:

Typically we are able to bill back approximately 90% of the Travel and Lodging incurred on client funded projects which is accounted for as revenue. However, there is no margin on this revenue. This zero margin revenue results in a 5%- 8% drag on our delivery margins. If we were able to take this as cost offset our operating margin would improve in a significant manner. We are keen to find an alternative approach to dealing with travel. Are any other service organizations handling travel expenses differently to avoid the negative margin implications?

I have to admit, I have never been asked this question before. Perhaps the accounting rules prevent any creative alternatives. But my interest has been peaked. The above inquiry actually spawns two questions:

  1. Is there a way to keep travel expenses from diluting margins?
  2. Are service organizations marking up travel expenses?

If a service organization is making margin on travel expenses that is not dilutive, they may want to keep the travel expenses on the service books! So, here are two quick polls. Take a moment and let me know what you are doing. If you have an interesting insight on this topic, please feel free to comment below.



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