Insight into Delivery Costs Part 2

Delivery isn't free, but what does it actually cost?

In our previous blog, we wrote about the 'forgotten' factors that influence the cost of a delivery operation. If you face financial surprises every quarter, chances are you haven't included those factors in your calculations. But how do you actually calculate the cost of an individual stop, this time with those 'forgotten' factors in mind? What can you then do with this insight into your delivery costs? We'll explain:

What you need for your calculation

We previously wrote that it's not always possible to estimate the cost of a stop in advance. It's difficult to price all factors individually and include them in a calculation. Of course, you can grosso modo figure out what a stop will cost you. But if you don't want your estimate to deviate from your actual costs, you'll need to do the math. To do this, you summarize all individual factors influencing the price of your delivery into three generic units: time, distance, and cost per vehicle. With these three units, you calculate the cost per individual stop. This allows you to see exactly what your cost structure looks like and its impact on your organization.

How to calculate the cost of an individual stop

Calculating the cost of an individual stop essentially means 'isolating' a single stop from your total daily schedule. At the start of the day, you create an overview of your routes. In this, you efficiently plan how many stops you will make that day. You then calculate the total costs using the three generic units. If you want to know the cost of an individual stop, you remove that stop from your plan and redo the planning and cost calculation. The difference in costs corresponds to the price of an individual stop. If you calculate this for every stop in this way, you gain insight into the costs of each individual stop. You also know how these costs relate to the total costs of your delivery operation. This is valuable information that you can use to gain more control over your costs.

How to reduce the cost of an expensive stop

'I think I'm spending 6 euros per individual stop. But wait! Last time I spent 5 euros, and this morning's stop cost me 9 euros!'Suppose you gain this insight. While this insight may not be very accurate, it is indeed valuable. You can build on this. Why is that 9-euro stop so expensive? How realistic is the 6-euro estimate? How do you turn the right levers to reduce the price of more expensive stops? Ideally, you automatically create a database containing the individual costs of all your stops. From this, you can extract a wealth of information within just a few weeks. You gain insight into the effect of changing factors on the ultimate cost of a stop. For example, the price of your stops during peak times might be higher because you hire expensive drivers to handle the increased workload. At the same time, stops are closer together, allowing you to make more stops and potentially lowering costs. You can therefore use data to clarify what this does to the price of an individual stop. You can then take this into account during the next busy period. Or do you see that the costs per stop in a certain postal code area are very high? Then you might consider increasing your marketing in these areas. You could also consider charging more for delivery in that specific postal code area. Whatever your decision, the point is that data gives you the right levers to pull to influence the costs of your delivery operation.

How to deliver cost-effectively

If you plan your routes efficiently, you won't encounter many outliers in the costs of individual stops in your data. Exceptions occur, for example, if you have to drive further, always spend more time with a particular customer, or if a customer has a specific delivery time request. Such an extra 'demand' naturally incurs additional costs. If you collect this data, you'll have insight into your costs per stop, allowing you to easily see what that extra 'demand' costs. If you determine your prices based on the costs per individual stop, you'll be charging your customer a fair and realistic price. But are your costs covered by that? You can now calculate that precisely! You might wonder if you want to pass on the costs of more expensive stops to your customer. To what extent do you find it appropriate within your service policy to drive back 'for free' and re-offer a package? How you handle this is an individual choice. The bottom line is that you have this choice in any case, precisely because you have insight into the costs of your delivery operation. Do you have questions about this blog? Are you struggling with your analysis? Let us help you and get in contact with us!