If you are operating home deliveries as a result of the pandemic or simply customer demand for online ordering then you need to be switched on to the economics of home delivery. As we keep on saying in this small part of the internet, optimized home delivery is not only good for your business and the environment but it is also a great customer experience. Getting the economics right ensures you can grow your business online, getting them wrong will result in your business failing. Simple mathematics.
The main points you need to be thinking about when starting your home delivery service include:
- Can you charge for home delivery?
- How dense is the catchment area you are delivering to?
- Have you implemented a route optimization software?
- Do you know the impact of scaling your deliveries?
- Do you know your per-delivery cost?
Can you charge for home delivery?
And what is the acceptable rate? If this is possible it will help matters greatly. Typically, for local delivery customers might be willing to pay up to $4-5 for a delivery but this can vary depending on the size of the item or how quickly you promise to fulfil the order. The faster the delivery or bigger the item, the more customers are likely to pay.
How dense is the catchment area you are delivering to?
If it is a small area in an urban environment then you are likely to be able to fulfil more orders in a short space of time, thereby reducing the cost to you. You might also be able to use more cost efficient modes of transport such as cargo bikes, electric vehicles and so on. If you have too large of a catchment area then your costs will rise with the miles driven and you will need bigger fuel-burning vehicles to fulfil the orders. Sometimes it is better to not make a sale online if the delivery location is outside of your catchment zones.
Have you implemented a route optimization software?
If you haven’t then you will be reliant on drivers or yourself to figure out the best routes, which is never a good idea. Route optimization software will ensure you have the lowest possible cost per delivery all other things being equal. It will also give you great insight into how your deliveries are actually carried out in the real world. These insights will help you to figure out catchment areas, the most favorable delivery times and optimal customer experience.
Do you know the impact of scaling your deliveries?
Assuming you are growing your delivery business then you might need to think about restricting the delivery area initially so you can control your per-delivery costs. You might also restrict the days of the week that you deliver on, say Mondays, Wednesdays and Saturdays, to allow you to build up the density of deliveries.
Do you know your per-delivery cost?
Finally, you need to be hyper-focused on the key metric of per-delivery cost. How that is calculated can vary but it should typically be the cost to the business of delivering divided by total number of deliveries made. Some businesses include just fuel and driver wages on the cost side but others will include vehicle leasing, packaging, insurance costs and so on. Whatever way you decide to do it, the idea is to keep that number as low as possible using efficiencies we have just described. It is good to know at which cost-per-delivery number the delivery operation becomes unprofitable, just to steer you off the rocks if that does happen.
If you want to talk about home delivery for your business and how route planning software can help you get a handle on the economics of home delivery then get in touch here.