How to calculate cost per delivery in distribution

Cost per delivery is one of the most useful indicators for analysing a distribution operation.

It shows how much it really costs to deliver each order and helps identify whether a route, area, customer or delivery model is operating efficiently.

Many companies know their total transport cost, but do not always know how much each individual delivery costs. Without that information, it is difficult to assess whether planning is working well or whether hidden inefficiencies exist.

Calculating cost per delivery is not simply a matter of dividing total expenditure by the number of orders. That may be a useful first approximation, but real logistics operations require more factors to be considered.

What is cost per delivery?

Cost per delivery represents the average cost required to complete a delivery, collection or service.

It can be calculated generally for the whole operation or in greater detail by route, vehicle, area, customer, order type or period.

For example, a company may analyse:

• Average cost per daily delivery.
• Cost per delivery for each route.
• Cost per delivery by geographical area.
• Cost per delivery by customer.
• Cost per delivery by vehicle type.
• Cost per urgent delivery.

This indicator supports comparison and decision-making.

If an area has a very high cost per delivery, it may be necessary to review delivery frequency, vehicle allocation, order grouping or service conditions.

Basic formula

The simplest formula is:

Cost per delivery = total distribution cost / number of completed deliveries

For example, if a day of distribution costs €1,000 and 200 deliveries are completed, the average cost per delivery would be €5.

This formula is easy to understand, but it can hide important differences.

Not all deliveries consume the same resources. A nearby, quick delivery grouped with others does not have the same cost as a distant, urgent delivery with a long unloading time.

For this reason, it is useful to break total cost down into several components.

Fixed costs

Fixed costs are those that exist even when the vehicle travels only a few miles.

They may include:

• Vehicle cost.
• Depreciation.
• Insurance.
• Fixed maintenance.
• Driver salary.
• Administrative costs.
• Overhead costs.

These costs must be allocated across completed deliveries, but not necessarily evenly.

If a vehicle completes many deliveries on a compact route, the fixed cost per delivery will be lower. If it completes only a few deliveries in a dispersed area, the fixed cost per delivery will be higher.

For this reason, improving vehicle utilisation and productivity can significantly reduce cost per delivery.

Variable costs

Variable costs depend directly on the activity performed.

The most common are:

• Fuel.
• Tolls.
• Mileage travelled.
• Overtime.
• Usage-related maintenance.
• Allowances or additional expenses.
• Penalties for delays.
• Repeat deliveries.

These costs increase when routes are longer, less efficient or generate incidents.

Reducing mileage, waiting times and failed deliveries helps lower the variable cost per delivery.

Cost per mile and cost per hour

To calculate cost per delivery more accurately, it is useful to separate two components:

• Cost per mile.
• Cost per hour.

Cost per mile reflects the effect of distance: fuel, wear, variable maintenance and tolls.

Cost per hour reflects the use of the vehicle and driver: driving time, waiting, loading, unloading and working hours.

This distinction matters because a route may cover few miles but involve long waiting times. The opposite may also occur: a long route that runs smoothly with quick deliveries.

Looking only at distance can lead to incorrect conclusions.

Failed deliveries and repeat attempts

Failed deliveries have a significant effect on cost per delivery.

When an order cannot be delivered, the cost of that visit has already been incurred: the vehicle has travelled, the driver has spent time and the route has been affected.

If a second attempt is also required, the cost rises further.

For this reason, the real cost per delivery must include incidents such as:

• Customer absent.
• Incorrect time.
• Incorrect address.
• Goods not ready.
• Access problems.
• Delivery refused.

Reducing failed deliveries is one of the most direct ways to improve distribution efficiency.

Waiting and unloading times

Service time at each customer also affects cost.

Two deliveries over the same distance may have very different costs if one takes five minutes and the other takes half an hour.

Waiting, loading and unloading consume resources and can limit the number of deliveries a vehicle can complete during the working day.

For this reason, efficient planning must consider actual service times, not only distances.

When historical data is available, these times can be estimated more accurately and more precise costs calculated by customer, area or order type.

Cost per delivery and delivery density

Delivery density has a direct effect on cost per delivery.

An area with many orders close together usually has a lower cost per delivery because the vehicle can complete more deliveries with less relative travel.

By contrast, a dispersed area or an area with few orders can raise the average cost considerably.

This analysis supports decisions such as:

• Changing delivery frequencies.
• Grouping deliveries by day.
• Reviewing commercial terms.
• Changing distribution areas.
• Outsourcing certain routes.
• Adjusting minimum order values.

Cost per delivery is not only useful for measuring logistics performance. It can also provide commercial and strategic information.

How route optimisation helps

Route optimisation helps reduce cost per delivery by acting on several variables at the same time.

It can reduce unnecessary mileage, improve order grouping, avoid overlaps between vehicles, balance routes and make better use of fleet capacity.

It can also help meet time windows and reduce waiting times or incidents.

The key point is that cost per delivery does not depend on a single factor. It depends on how orders, vehicles, schedules, capacities and constraints are combined.

Optimisation software can analyse many alternatives and select the plan with the best balance between cost and service.

Complementary indicators

Cost per delivery is very useful, but it should be analysed alongside other indicators.

Useful complementary indicators include:

• Mileage per delivery.
• Deliveries per route.
• Deliveries per vehicle.
• Cost per mile.
• Cost per hour.
• Percentage of on-time deliveries.
• Failed deliveries.
• Average vehicle utilisation.
• Average service time.

These indicators help explain why cost per delivery rises or falls.

For example, an increase in cost may be caused by more mileage, longer waiting times, lower order density, more incidents or poorer fleet utilisation.

Conclusion

Calculating cost per delivery provides a clearer understanding of the real efficiency of a distribution operation.

It is not enough to look at total cost. It is necessary to analyse how that cost is distributed across orders, routes, vehicles, areas and customers.

To do this properly, fixed costs, variable costs, mileage, hours, service times, failed deliveries and delivery density should all be considered.

Good logistics planning can reduce cost per delivery without compromising service by optimising routes, grouping orders more effectively and making better use of available resources.

With LOGISPLAN, Evolution Algorithms' experience in logistics optimisation helps turn route, vehicle and cost data into decisions aimed at reducing the real cost per delivery.