Last Mile Delivery Cost: A Small Business Guide

February 27, 2020
small business logistics

Today’s consumer wants their deliveries to arrive as soon as possible. It used to be as soon as “humanly possible,” but now UPS and others are looking to drones or autonomous vehicles to help increase delivery speed. As soon as a consumer hits “buy now,” the clock is ticking down to speedy delivery.

But once the order is placed, how does it get to its final destination? And how much does it actually cost?

What is Last-Mile Delivery?

Last-mile delivery is the act of getting a product from the closest hub or warehouse to its final destination, which include both businesses and private homes.

Planes, boats, trains, and semitrucks are perfect for moving a lot of product quickly to regional locations and major warehouse hubs. They can move tons of goods long distances rapidly.

But once the delivery is offloaded, it still needs to make it the rest of the way to the consumer or business, and it needs to get there on time for the customer’s needs.

This is where last-mile delivery services come into play.

What Does Last-Mile Delivery Mean to Small-Business Fleets?

Managing the “last mile” can be costly, accounting for up to one-third of the total cost of a product, according to a report from Business Insider. It can account for more than half of overall shipping costs. It can also be the most inefficient part of the entire delivery process.

As a small delivery business, you have to compete with Amazon, Walmart, and other huge corporations that are pushing the bar every day in terms of how soon they get an item to the purchaser, promising windows as short as two hours.

When a business is unable to compete with the larger corporations in terms of time, it has to do something else to keep customers coming back.

Managing your business’s last-mile costs can mean the difference between making or losing a sale. The high cost of shipping can be what turns up to 38% of people away from finalizing a purchase from your business.

Small business delivery fleets also depend on last-mile delivery services, even if they are a final-mile provider themselves. The products they depend on or the original materials for items they produce come to them via last-mile providers. This makes last-mile logistics especially important.

Planning Last-Mile Logistics

Planning properly for last-mile logistics can reduce costs and improve overall customer satisfaction.

To improve – or start – planning for your business’s last-mile logistics, you must answer a few important questions:

  1. How is your operation impacted by last-mile delivery?
  2. Do you deliver the final mile, or do you depend on an outsourced company to handle last-mile logistics for you?
  3. What are your overall last-mile delivery costs? When determining these costs, be sure to include your overall fleet costs, such as driver salaries, maintenance, and vehicle acquisition.
  4. What type of delivery experience do you want your customers to have? This question should include analyzing the turnaround time you promise your customers, and how much flexibility your customers have in terms of delivery date and time requests.
  5. How will you plan, manage, and optimize your last-mile delivery costs?
  6. Who is planning your routes and last-mile logistics, and what (if any) technology do you depend on?
  7. How can you reduce your last-mile costs while still ensuring your customers receive the best possible delivery experience?

Tips to Improve Last-Mile Logistics

Knowing that last-mile delivery logistics can cost a small business big, it’s essential to take action to reduce this expense and ensure an excellent delivery experience for your customers.

Here are a few ways small businesses can improve last-mile delivery costs:

1. Plan properly

By properly planning for last-mile logistics, you can keep your customers happy. Guaranteeing your customers receive their products when promised will keep your customer ratings high and keep them coming back.

Make sure your warehouse or distribution hub is set up to receive and efficiently redistribute products to the final destination quickly.

Planning deliveries efficiently can also save money on fuel and driver salaries.

Read more: What is Route Optimization?

 

2. Improve routing and mapping

Driving extra miles costs your business more in fuel and delays final delivery. By utilizing a routing solution, you can ensure that your drivers are taking the most direct route possible to save on fuel and time.

A report released by Mapillary uncovered nearly $6 billion in costs associated with driving extra miles and wasted time alone. Beyond miles and time, inaccurate mapping and routing can contribute to missing delivery times. The report estimates that $2.5 billion is spent on wasted salary and $611 million in extra miles due to map issues alone.

Routing systems will help avoid human error in terms of the most appropriate route and can take into account factors such as traffic, road work, vehicle size, and more.

Additionally, these solutions ensure the most efficient use of your vehicles for the jobs at hand. This can be especially helpful for drivers with routes that change often due to delivery needs.

Read more: Google Maps and Route Optimization - What’s the Difference?

 

3. Spec vehicles effectively

By selecting the most efficient vehicles that fit your delivery needs, you can reduce fuel costs and return-to-hub time.

Spending more money on larger or even unneeded vehicles can result in wasted space and more fuel expense. Be sure that you review your fleet’s asset utilization regularly.

Additionally, vehicles that are too big for the areas in which they are delivering will waste time finding parking and will have to drive circuitous routes to fit under low bridges or avoid narrow streets.

Read more: A Beginner’s Guide to Managing Small Fleets

 

4. Train drivers to be more efficient

Efficient, happy drivers do their jobs more effectively. Train drivers to operate their vehicles eco-consciously, including reducing or limiting idling time, driving the speed limit, and working efficiently to stay on schedule.

Consider providing incentives for drivers for lowest miles per gallon, safest driving records (accidents cost a company money and add to vehicle downtime), or most accurate deliveries during a specific time frame. Increased driver morale can deliver huge results to your bottom line.

Read more: How do I retain good delivery drivers?

 

5. Manage the whole process

If you currently outsource your final, last-mile delivery needs, consider managing the entire process.

By investing in your fleet and warehouse locations, you can become more involved in the final mile of the delivery process. Being able to oversee more aspects of your last-mile delivery process helps weed out inefficiencies and makes sure that someone who cares about your business is handling this expensive process.

New eras call for new ideas. In addition to drones and autonomous vehicles, crowdsourcing is becoming popular for last-mile delivery. Think Uber for the last mile.

This option can help small businesses deliver with some with the speed of the larger delivery giants providing same-day delivery, without requiring a huge fleet of vehicles and the associated expenses. The process utilizes apps and social media to get the jobs done.

Crowdsourcing is another way that small businesses are taking control of the entire delivery process without investing in a larger fleet, but a business does lose some quality control over the final delivery process.

 

6. Invest in Communication

Keeping progress visible and communicating with your customers will help keep them happy and reduce the phone calls asking where their goods are.

Making sure you have tracking and proof of delivery can also help protect your company from problems related to late or lost packages.

Technology, such as telematics, in-vehicle video, and routing systems, exponentially increase the communication between the driver, dispatcher, vehicle, and fleet manager. Tech provides the data needed to monitor, analyze, and benchmark progress to ensure your fleet is not wasting money on inefficient last-mile delivery services.

Finally, communicate regularly with everyone involved in your last-mile delivery efforts. Hold quarterly meetings, send out communication and updates by newsletter, and make an effort to ensure that everyone is working toward the same goals.

 

Conclusion

Small businesses today have to be conscious of their budgets and their brand. Late deliveries or long delivery time frames and high shipping prices can cost you customers.

Last-mile delivery can be the most inefficient, expensive portion of the overall delivery process, and mismanaging it not only leaves potential money on the table in the short-term, but can cost you big in the long-term.

Ask yourself the important questions, and make sure you know exactly what last-mile delivery is and how it impacts your business. Small changes you put into effect now can make a big difference today and in the future.

I hope this article helped you start to unpack why making local deliveries is so hard. If you're looking for more content on how to make route planning easier, check out Manual Route Planning Is Hurting Your Delivery Business 👇

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