Guides
Profitable local delivery: match the rate model to density
Choose how to charge for a profitable local delivery route: flat route rate, per-stop rate or a route minimum, matched to density and tested on cost per stop.
What to take away
- Pick the charge model before the rateroute rate, per-stop rate, route minimum plus per-stop, or per-parcel.
- Every model must clear your cost per stop at the stop count you can hold.
- Density decides which model is safe, because one rate earns different margins on different routes.
- Price the route, not the parcel, once you can predict stops per hour.
- Run the route for two weeks at your own cost before you sign.
Price the route, not the parcel
Once you know your cost per stop, price the route rather than the parcel. The charge model matters as much as the rate, because it decides who carries the risk when stop counts or miles shift away from the quote.
Four models are in common use: a flat route rate, a per-stop rate, a route minimum plus a per-stop rate above it, and a per-parcel rate. Each moves risk between you and the customer in a different place.
Most courier contracts use a route minimum plus a per-stop rate above it, so test that model first. The table shows what to check before you offer each one.
| Model | How the customer pays | Check before offering | Contract line to add |
|---|---|---|---|
| Flat route rate | One price per route run | Hours and miles stay close to the quote | A stop cap and an extra-stop fee |
| Per-stop rate | A price for each completed stop | The rate clears cost per stop at your slowest normal stop count | What counts as a completed stop |
| Route minimum plus per-stop | A floor per route, then a rate for each stop above it | The floor covers route costs when stops are few | Where the minimum ends |
| Per-parcel rate | A price for each parcel | Parcels per stop stay predictable | Whether many parcels at one stop count once |
The test every rate must pass
Whatever the model, compare the revenue per stop it produces with your cost per stop. If your cost is above the contracted rate per stop, the route loses money on every parcel, and more volume will not fix it.
Cost-per-stop variables
- Ddriver cost per hour
- Hpaid hours on route
- Vvehicle cost per mile
- Mmiles driven
In the formula, D is route costs per hour, H is route hours, V is route costs per mile, M is route miles and S is completed stops. Cost per stop is ((D × H) + (V × M)) / S.
A route minimum has to cover the route cost, (D × H) + (V × M), even when S is low. A per-stop rate has to clear cost per stop at the lowest stop count you can expect. Work out the result for the route as quoted, then again with a few stops fewer.
Vehicle cost per mile comes from your own records. The IRS publishes standard mileage rates for a tax deduction based on business mileage, which is a different figure from your own cost per mile, so use your own records for V.
Density decides which model is safe
One rate earns different margins on different routes, so test each model against route density. Density is stops per square mile, and it sets how many stops a driver can finish before the hours run out.
Dense route vs spread route
40 stops, 3 zips
- Stops
- 40
- Area
- 3 zip codes
- Finish time
- earlier
- Workload
- more
25 stops, metro
- Stops
- 25
- Area
- whole metro
- Finish time
- later
- Workload
- less
On the dense route, a per-stop rate can work because each stop takes little time. On the spread route, hours and miles dominate, so a route minimum covers your cost better than a rate that depends on the stop count alone.
Dense urban routes with pre-loaded vans commonly run 15 to 25 stops per hour, and suburban routes run 8 to 12. Your own number is the only one that matters for pricing, so measure it for two weeks before quoting.
Market density varies by city and neighborhood, so a rate that worked on one account may not carry over to the next. Re-run the formula for every new route instead of reusing the last quote.
Where driver pay enters the rate
Driver pay is a cost line inside D, not a separate decision. Hourly, per-stop and contractor pay all change your cost per stop, so work out your pay structures before you fix the customer rate.
A route that pays the driver by the stop and charges the customer by the route ties your costs to stop count while your income stays fixed. Match the pay model to the charge model where you can, or add a stop cap to the contract.
Prove the rate before you sign
A quoted rate is a prediction about stops per hour. Test it on real roads before a contract turns it into a promise.
- Run the route for two weeks at your own cost.
- Compare actual stops per hour against the quote.
- Check that stop locations, delivery windows and service requirements fit the planned sequence, using a route schedule built from the same stops.
- Re-run cost per stop with the real hours and miles, and adjust the model or the rate.
Then put the result in writing. The sample quotes show how a rate sits among the other quote fields, and the contract clauses decide who pays when a window is missed.
A delivery-time promise in the quote is also an advertising claim. Under the Federal Trade Commission Act, advertising must be truthful and non-deceptive, and advertisers must have evidence to back up their claims. Your two-week log is that evidence.
Common questions
Which charge model should I offer first?
Offer the one your records can test. If you can already predict stops per hour, price the route. If you cannot, run the route for two weeks first, then choose the model the numbers support.
Does a per-parcel rate work for a courier route?
Only when parcels per stop are predictable. Your cost follows stops and miles, not parcels, so check that the usual parcel pattern still clears cost per stop before you offer it. The guide to pricing local delivery services covers the margin side.
What if actual stops differ from the quote?
Name a stop cap and an extra-stop fee in the contract line, or re-run the two-week test with the new stop count. A rate that ignores the change leaves your margin to chance.
Should the quote show my cost per stop?
No. Show the model and the rate. Your cost per stop is the test you run before the quote goes out, not a number the customer needs.
