When the employees in your company order food, what is the goal of that food spending? There are, of course, short-term goals like feeding people, harnessing attention spans, and helping build or maintain relationships. But really what you want in the long term are profits. According to Certify, every dollar a company invests in T&E expenses drives toward an average of $9.50 in revenue and $2.90 in profit. But hitting this average — or better yet exceeding it — will only happen when you monitor the value you get for your food spending. Here’s a look at how to do that.
Determining the Real Value of Your Food
You can find the underlying value of food spending by analyzing the financial effect it has on your organization. There are three main categories for which you might spend on food:
- Prospecting: This would include T&E expenses for networking events, social outreach, and dinners with potential clients. The ROI of prospecting food spend is measured ultimately by the number of new customers, orders, and revenue you bring in from any of these prospecting events.
- Client Relationship Management: For all events with existing clients like parties, dinners, and office lunches, you’re working at maintaining relationships. ROI is, of course, measured in the revenue from these existing clients. But remember, that new clients don’t always make money right away. So in your ROI, also take into account the benefit of avoiding new customer acquisition costs from retaining your current relationships.
- Employee: Your employee food spend includes food for team functions like meetings, free lunches, and holiday celebrations. ROI can be measured in three key areas:
- Turnover Costs: Your recruiting, training, and onboarding costs are reduced due to an improved company culture and thus increased employee retention.
- Employee Payroll: You’re gaining value from your employees since your team is staying on campus longer to work on projects.
- Compliance: With more training opportunities comes fewer mistakes, and thus, fewer fines for compliance issues.
Ensuring Your Food Spend Brings in Value
The only way to confirm the value of your spending is to determine the ROI. So how do you do that?
- Get a Handle on Your Expenses: Consider all your food spending expenses. Remember that spending isn’t solely about the cost of the food. Include the expenses that come from an employee placing the order, dealing with delivery instructions, and managing special dietary needs. It’s a cliche for a reason: time actually is money. And don’t forget the overhead related to processing expense reports. As Certify notes, manual processing for an expense report costs you on average $26.63. The cost drops to $6.83 if processed through an automated system. Keep all of this in mind as you determine your expenses.
- Determine Your Revenue: Your revenue, of course, is the money that has come in as a result of a specific event or t&e expense. But as noted earlier, don’t forget to also include the financial benefit you have gained from maintaining a client relationship or avoiding employee turnover.
- Calculate Your ROI: Now take the number you determined for your revenue and divide that by your expenses. Multiply that number by 100 to create a percentage. So for example, if you spend $100 on food for an event, and it brings in $200 in revenue, you’re ROI would be:
(200 / 100) x 100 = 200%
You can deem that event a success, there was a 200 percent return on your initial investment. Here’s another example to help illustrate how this can work in your business.
Say you compare employee turnover in years when you throw a holiday party against years when you don’t. You see a 10 percent reduction in turnover in the years following holiday parties. That’s 10 percent fewer people you need to recruit, onboard, and train, which would have cost you money. Calculate the average cost to cover those expenses. Consider that savings as your financial benefit. Use that number as your revenue and divide it by your holiday party expenses to determine your ROI.
It takes a strong system to dig down into T&E expenses and ROI. But it’s worth it to determine whether your food spending is bringing your company value or dragging down profits.