10 Effective Strategies on How to Reduce Last-mile Delivery Costs

Are rising last-mile delivery costs eating into your profits and making it hard to meet customer expectations? You’re not alone.

For many logistics managers and eCommerce business owners, the final delivery stage is costly and complex, often accounting for up to 53% of total shipping expenses.

But don’t worry—there are proven strategies to help you cut these costs and streamline your operations. In this blog, we’ll explore effective methods for reducing last-mile delivery costs to optimize your routes and save money simultaneously.

Let’s dive into how you can turn the costly challenge of last-mile delivery into a competitive advantage.

What are Last-mile Delivery Costs?

Last-mile delivery costs cover the money spent transporting goods from distribution centers (warehouses) to end-users (customers). These costs involve various aspects, such as technology, transportation, labor, packaging, administration, returns, and customer service.

This part is super important because it affects how happy customers are and how much they like your brand. But if things aren’t done well, it can cost you money, hurt your reputation, and make customers unhappy.

Components of Last-mile delivery costs

These costs include a range of operational expenses incurred during the final stage of the delivery process, such as:

1. Transportation Costs: It includes expenses related to vehicles, fuel, maintenance, and insurance for deliveries, which can vary due to factors like fuel prices and maintenance needs. Additionally, companies may also need to upgrade their vehicle fleets to meet changing regulatory standards or handle more deliveries.

2. Labor Costs: This covers wages for delivery staff, along with training and benefits expenses. It can change because of turnover rates, seasonal demand shifts, and labor market conditions. Thus, offering good training can attract and keep skilled delivery staff, lowering turnover costs and improving overall delivery efficiency.

3. Technology Costs: These cover investments in software, tracking systems, and other tech to make deliveries smoother. While they may require a large initial investment, they can lead to long-term savings by improving efficiency, reducing fuel consumption, and minimizing errors.

4. Packaging Costs:  This covers costs related to materials like boxes, tape, and padding used to safely send goods to customers. Businesses might also invest in eco-friendly packaging to help the environment and save money. Plus, smart packaging design can cut waste and shipping costs by using space better and reducing extra charges.

5. Administrative Costs: These cover expenses for managing delivery logistics, like staff salaries and office bills. They include paying logistics coordinators, customer service reps, and other staff. Businesses also cover office expenses like rent, utilities, and last-mile delivery software.

6. Returns and Failed Deliveries: These are costs from returned or undelivered packages, like restocking fees and extra delivery attempts. They can lead to more transportation, labor, and administrative costs. Taking steps like verifying addresses and scheduling deliveries efficiently can lower these costs and make customers happier.

7. Customer Service Costs: These are expenses for handling customer inquiries and delivery complaints. They include paying staff, training them, and investing in technology like CRM systems. Moreover, using online tracking and chatbots can also reduce the workload for customer service staff.

Now that we are aware of the components of last-mile delivery costs, let’s explore how these components collectively impact last-mile delivery expenses.

Factors Contributing to High Last-Mile Delivery Costs

From increased urbanization to rising customer expectations, each factor significantly influences the dynamics of last mile deliveries. Here are some of the underlying factors that contribute to the rise in last-mile costs:

1. Same day delivery

In today’s cutthroat eCommerce, meeting the demand for same-day delivery puts pressure on logistics companies. Consumers now expect rapid shipping without extra charges, pushing businesses to optimize their delivery processes. However, this optimization often comes with increased costs, including overtime wages, additional transportation costs, and investments in efficient delivery networks.

2. Free shipping

Research indicates that most customers prioritize free shipping when shopping online. While this perk is enticing, it can heavily affect packaging, transportation, and handling costs. Thus, balancing the desire for free shipping with the need to manage costs poses a significant challenge for businesses.

3. Supply chain costs

Inefficient supply chain management, including inventory optimization, warehousing, and order fulfillment processes, can lead to higher last-mile delivery costs due to increased complexities and delays in the delivery process.

4. Failed or missed delivery

Missed or failed deliveries due to inaccurate addresses or recipient unavailability lead to additional costs for redelivery and customer service efforts. This not only wastes valuable time but also significantly increases operational expenses.

Thus, understanding these factors empowers businesses to deal with the challenge of last-mile delivery cost-effectively. 

Ten Ways to Optimize Last-Mile Delivery Costs

Let us find ten effective strategies to streamline last-mile delivery operations and minimize associated costs.

1. Route optimization

To optimize last-mile delivery logistics, businesses must utilize route optimization software. This software automates route planning and monitoring, ensuring efficient delivery routes are selected. By mapping the shortest route while considering various parameters, businesses can effectively meet the demands of higher order volumes.

By analyzing delivery routes, traffic patterns, and real-time updates, businesses can reduce fuel costs and delivery times and enhance the customer experience.

2. Real-time data

Utilizing real-time tracking and monitoring systems lets businesses stay updated on delivery progress. This allows for timely adjustments to routes and schedules to avoid delays and optimize efficiency. Plus, real-time data analytics offer insights into delivery performance, helping businesses identify and fix inefficiencies.

Additionally, real-time data helps businesses to forecast delivery demand accurately. This facilitates proactive resource allocation and route planning to meet customer expectations efficiently.

3. Efficient loading and unloading

Streamlining loading and unloading processes at delivery locations and distribution centers decreases idle time, boosts productivity, and saves operating expenses. This involves using technology such as automated sorting systems and conveyor belts to reduce the need for manual labor.

Additionally, the just-in-time inventory management system ensures that products are available for delivery when needed, saving money on storage and lowering the possibility of stockouts/overstocking.

4. Flexible delivery options

Offering flexible delivery windows empowers customers to choose delivery times that align with their schedules, optimizing route planning and minimizing delivery attempts. Moreover, offering a variety of delivery choices—such as scheduled, same-day, or next-day deliveries—satisfies a range of client preferences and improves convenience. 

Furthermore, offering expedited delivery options for a premium fee encourages customers to choose faster delivery times, generating additional revenue and offsetting delivery costs.

5. Automated customer notifications

Customers are kept updated about the status of their deliveries through automated alerts, which minimize the need for manual contact while decreasing consumer inquiries and improving customer satisfaction. Automatic updates are made possible by integration with delivery tracking systems at key delivery milestones, including order confirmation, dispatch, on-route, and delivery completion.

Furthermore, giving consumers advance notice of any delivery delays or problems enables them to modify their plans and lowers the possibility of complaints or dissatisfaction.

6. Charge a delivery fee

Setting reasonable delivery prices encourages consumers to combine purchases, lowering the number of individual deliveries and helping to balance last-mile expenses. Businesses may maximize income and recoup expenses by providing consumers with transparency and flexibility through tiered delivery rates dependent on order value, distance, or speed.

In addition, establishing a loyalty program that offers delivery cost waivers to loyal clients encourages customer retention and raises the average customer lifetime value.

7. Sustainability initiatives

Investing in eco-friendly delivery practices, such as electric vehicles and packaging materials, reduces environmental impact and long-term costs. Transitioning to electric or hybrid delivery vehicles reduces fuel consumption and maintenance costs while showing corporate social responsibility and environmental stewardship. 

Furthermore, implementing sustainability initiatives boosts brand reputation, attracts eco-conscious customers, and enhances brand loyalty.

8. Partnerships and collaborations

Collaborating with other businesses or forming partnerships can help share resources and costs, optimize delivery routes, and reduce overall expenses. Partnering with local businesses or third-party delivery providers offers extra delivery capacity and broader coverage without significant investment. 

Additionally, partnering with suppliers or vendors helps businesses streamline the supply chain, cut transportation costs, and maintain a healthy profit margin through joint planning and coordination.

9. Centralized transportation hub

Establishing a centralized transportation hub consolidates delivery operations, minimizes travel time, and improves efficiency. Centralizing delivery at one hub improves coordination, reduces duplication, and optimizes resource use. Moreover, strategically placing the transportation hub near major highways or population centers minimizes transit times and reduces fuel consumption. 

Additionally, order fulfillment processes are streamlined, and inventory holding expenses are decreased by centralizing inventory storage and distribution at the transportation hub.

10. Crowdsourced delivery

Exploring crowdsourced delivery choices increases delivery reach, lowers costs, and makes use of local resources. Businesses may access a flexible delivery workforce without incurring fleet expenses by partnering with local delivery partners and independent contractors. It enables businesses to offer on-demand or same-day delivery services, meeting customer demand for quick and easy deliveries.

In addition, implementing performance metrics and quality controls ensures consistency and reliability in crowdsourced delivery, maintaining service standards.

Thus, implementing these strategies empowers businesses to optimize final-mile delivery operations, reduce costs, and enhance overall efficiency.

Mastering Your Next Move for Delivery Excellence

Reducing last-mile delivery costs is essential for businesses that want to succeed in the competitive market. By using technology, forging strategic partnerships, and prioritizing sustainability, businesses can overcome the challenges of last-mile logistics and achieve significant cost savings while ensuring efficient operation of their delivery fleet.

Remember, optimizing the last mile isn’t just about cost savings—it’s about delighting customers with fast, affordable, and transparent delivery. So, to ensure long-term success and profitability, assess and improve your strategy to adjust to shifting client expectations and market dynamics.