Decoding Last Mile Delivery Costs & Tips for Optimization

Tired of battling rising last mile delivery costs and looking for a respite? Here are 5 proven ways to minimise last mile delivery costs and maximise profits.

With the rising customer demand for same-day delivery, companies are constantly on their toes and over their budgets to deliver fast to keep up with consumers’ expectations. The last-mile delivery segment is already the most expensive leg of the supply chain, and jumping on the latest delivery trend has the till ringing!

You need to look for ways or methods to curb costs while maintaining consumer satisfaction. This would be simple if you are aware of all the costs you pay knowingly (unknowingly) while carrying out last-mile operations—justifiably or maybe unnecessarily.

Let’s uncover all the last-mile costs attuned to every process, from dispatching to final delivery.

At the bottom, you will find  5 proven ways to achieve optimised deliveries, too (so stick around).

What are Last mile Costs?

The last-mile cost is an investment that is pumped into the final step of the delivery process, which starts from the distribution centre and ends at the final consumer. The importance of seamless last mile delivery cannot be neglected, as it helps to achieve customer satisfaction.

Implementing a cost-effective and efficient system helps build brand loyalty. However, if last-mile delivery is not executed efficiently, it can result in massive losses in the form of financial damage, poor brand reputation, and bad customer experience.

But how much is too much when it comes to last mile delivery?

How Much Does Last-Mile Delivery Cost?

If not controlled properly, the cost of last mile delivery can skyrocket and dent your bottom line. Here are some numbers that prove how expensive expediated last mile delivery can be:

  • Last mile delivery costs account for 53% of the total cost of shipping.
  • Last mile delivery services account for 41% of all supply chain costs worldwide. This means that half of the shipping and supply chain costs are spent on the final mile.
  •  The average last mile delivery cost incurred by organisations in 2018 was $10.10 USD, in an estimated last mile delivery market size of $30.2 billion.
  • If last mile delivery is not optimised, profits could potentially decline by 26% in three years. This is urging companies to search for new ways to increase efficiency and absorb the costs that are eroding their profit margins.

Last-mile Delivery Service Account For

Parameters that Drive Last mile Delivery Costs

If you are wondering what factors or parameters are contributing to the high cost of last mile delivery, here is a list!

No more mining reports to find the culprit!

1. Same-day delivery

Same day delivery is the new normal. It is challenging to meet the high standards of customers  due to fierce competition. The modern consumer demands same-day delivery and quick (and free) shipment. Businesses are under extreme pressure to streamline many operations and optimise delivery routes, which may result in extra expenses. Surging freight expenses and declining profit margins have put the businesses in a difficult situation.

2. Free shipping

According to studies, the majority of consumers want free delivery and are even more likely to cancel an order if it isn’t included in the price. As a result, many businesses have the difficult task of striking a compromise between cost optimisation and free shipping.

3. Failed or late deliveries

If customers’ expectations aren’t met, their unhappy customers will not think twice about leaving a company. In the unlikely event that same-day shipping is not possible, they are left unsatisfied and have no choice but to move their business elsewhere. Due to the abundance of options, customers will choose another retailer and add to their revenues.

Failed or late deliveries mess up customers’ plans for the day because they don’t know when the delivery agent is going to knock at their door. Delivery attempts fail if the customer is not home when the package arrives. When drivers have to make multiple stops along their route, a lot of time is lost, and delivery prices increase.

Effeciency and Saving in Delivery Operations

4. Ineffieint Routing

Lack of route optimisation is seriously costing companies money and deteriorating customer satisfaction. When inefficient routes are assigned to the drivers, the chances of delayed or second attempts go up. Additionally, companies depending on manual routing increase their last-mile costs as it results in 20-25% extra distance travelled.

5. Driver Shortage

Due to the lack of efficient utilisation or allocation of drivers, there can be chances of driver shortage. This will cause companies to hire more riders which adds heavily  to the operational costs.

Breaking Down Last Mile Delivery Costs

We have listed the cost-consuming components of last mile delivery brick by brick, or should we say penny by penny?

1. Labor Costs (50%)

The price of hiring drivers for delivery trucks is included in labour costs. According to US Bureau of Labour Statistics data, delivery truck drivers make between $9.43 and $29.39 an hour. Geography and delivery time are the only two variables that could affect this price. Compared to ordinary deliveries, the cost of expedited delivery is significantly higher. The price of recruiting the human resources needed for last mile delivery management is also included in labor costs.

2. Fuel Costs (20%)

Up to 25% of the entire cost of last-mile deliveries is attributed to fuel costs. Such costs often rise when you grow your network to serve new areas and clients. Fuel expenses rise along with the distance your delivery trucks travel. Furthermore, fuel costs are subject to change at any time.

It’s called Liquid Gold For a Reason!

3. Delivery Equipment Costs (10%)

The price of obtaining the tools and equipment needed to guarantee the security of goods during transit is another factor driving up the cost of last-mile deliveries. Aside from the expense of delivery equipment, some products medications, frozen foods, etc.—need special containers or must be kept at specific temperatures throughout storage. Transferring such time-sensitive goods requires the use of specialised cold chain vehicles, which can add to the last mile delivery costs.

Breaking Down Last Mile Delivery Costs

4. Last-Mile Delivery Software Costs (10%)

Conventional last-mile delivery management techniques make it impossible to satisfy consumer expectations and keep up with the most recent delivery trends. As a result, most firms use last-mile delivery software, which costs between 10% and 15% of total last-mile delivery expenses. Optimising end-to-end delivery management processes using last-mile delivery software can reduce expenses and enhance customer satisfaction.

5. Miscellaneous Costs (10%)

Unexpected or unanticipated events may also raise the total cost of last-mile delivery. This covers the expense of idling the car, rescheduling deliveries, maintaining the car, storing products, and more.

5 Proven Ways To Minimize Last Mile Delivery Costs

After seeing all those expenses and costs, you’re sure to feel stressed. But take a deep breath and chill because TrackoMile, a delivery management software, is solving the problem for you.

1. Offer Multiple Delivery Options

Provide your customers with the freedom to choose from different delivery options, such as PUDO, white glove delivery, threshold delivery, or slot selection. Let’s take an example to understand how this will reduce last-mile delivery costs.

A customer has placed an order for medicines. Now, it shows that the product will be delivered the next day; however, the customer is not available at his/her place that day. The delivery may fail (due to the customer’s unavailability), resulting in increased last-mile costs.

At this stage, it’s important to realise that speedy delivery—whether it be same-day, next-day, or just quick—isn’t always necessary. Offering the choice of an alternative delivery mode (PUDO) or a preferred time/slot is preferable in this situation. It will reduce last-mile delivery expenses and raise the likelihood of first-attempt delivery.

2. Optimize Delivery Routes

We cannot stress enough how crucial route optimization is in last-mile delivery. This one feature alone solves 20ish problems in one go.

Well-optimized delivery routes maximize the number of deliveries per vehicle by considering multiple constraints and completely utilizing a vehicle’s capacity. On the other hand, poor route optimization increases resource utilization and increases the overall last-mile delivery cost.

While planning delivery routes, TrackoMile’s efficient delivery management system considers 120+ parameters, like

  • Delivery location,
  • Delivery time window,
  • Weather condition
  • Nature, size, and weight of goods,
  • Type of vehicle,
  • Driver’s skill,
  • Real-time traffic

It designs a delivery route that ensures improved delivery productivity and minimizes empty miles.

Route planning and optimization also include dynamic route planning to accommodate any last-minute requests or changes in the delivery schedule, and design reroutes in seconds to save time, costs, and effort. Lesser number of vehicles on the road means low fuel consumption and CO2 emissions.

3. Minimize Manual Intervention

Order dispatching, rider and order tracking, route planning, selecting an appropriate delivery driver and vehicle, and other tasks can be exceedingly time and money-consuming. Additionally, there is a greater potential for error when last mile processes are managed manually.

A sophisticated delivery management software solution may significantly save labour costs and increase operational effectiveness by automating each of these tasks. Additionally, companies can guarantee jobs will be completed with precision or accuracy.

The software makes it easier to auto-dispatch, choose a driver and vehicle based on various factors, plan the best possible delivery route, and even assist in making data-driven decisions. In addition, it provides real-time tracking to monitor every shipment and get visibility across every stage of operations.

4. Keep Customers Informed

These days, customers are curious about the status of their orders. By giving them access to this information instantly, businesses can uphold openness, win over customers’ confidence, and cultivate a favourable brand image. When this level of transparency is maintained, customers are even prepared to wait for their order if it is delayed for legitimate reasons. Consequently, there would be fewer returns brought on by delayed delivery.

One way to accomplish this is to send consumers an email, Whatsapp, or SMS with real-time delivery tracking links. A smart last mile delivery solution allows consumers to track their orders, see the projected arrival time, and spot every event causing delays. Not only is it crucial to inform customers, but it’s also critical to get their input regarding the delivery process. It gives them a way to provide feedback to the delivery drivers.

ETA Sharing and Proof of delivery

5. Make Data-driven Decisions

Having access to real time data is like striking gold. Data analysis can assist a company in comprehending the state of its last-mile deliveries. You can monitor:

  • The number of tasks or deliveries finished by each rider
  • The average time required to complete a delivery
  • The overall distance travelled by the delivery fleet
  • The number of missed or failed deliveries and the reason behind it
  • The amount of time spent idling a vehicle

Data and insights can help dispatchers uncover inefficiencies that are halting businesses from reaching the pinnacle of last-mile success. This kind of knowledge may not make you feel like God, but it will certainly help you make all the right decisions for effective last-mile plans.

This, in turn, will improve your mile delivery management, which furtherwill mitigate problems or situations that negatively influence costs and customer satisfaction. The best part remains that all this is done in seconds with TrackoMile’s insightful and customisable reports and dashboard.

A Penny Saved is a Penny Earned

For businesses in any sector or industry, optimising their daily tasks or procedures is of prime importance because it can ensure that they operate within the set budget and maybe save a few bucks on the side. But saving money becomes even more critical when it comes to the most expensive supply chain leg—last-mile delivery. Last mile delivery costs are one of the main pain points of businesses, and curbing them can be challenging if you don’t know where to begin with.

This is where last mile delivery software comes in, as it helps companies implement strategies, reduce operational costs through automated solutions, and easily gain customer satisfaction.

TrackoMile, a delivery management software, has expertise in optimising and automating day-to-day planning and executing deliveries. It has solutions such as a dispatcher tool, capacity management, route optimisation, rider roster, and insightful reports which can help optimise operations and minimise last mile delivery costs to a great level.

Get your demo here now!

Decoding Last Mile Delivery Costs & Tips for Optimization

Tithi Agarwal

Tithi Agarwal is a content writer at TrackoBit. She enjoys writing blogs which are knowledgeable yet fun to read. And when she is not typing away to glory she has her nose buried in books.

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