What is Last-mile Delivery: Definition, Costs, Process, and Optimization Tips

Last-mile delivery refers to the final step of the delivery process, where goods move from a local distribution hub to the customer’s doorstep. While it may seem like a short distance, this stage is often the most complex, expensive, and critical part of the entire delivery journey. 

Delays, inefficient routes, and failed delivery attempts at this stage can directly impact customer satisfaction and operational costs.

The growing importance of last-mile delivery is reflected in its rapid market expansion. As per Lucintel, the global last-mile delivery market is expected to reach $183.9 billion by 2030, driven by the rise of e-commerce, on-demand services, and same-day delivery expectations. Businesses are under increasing pressure to deliver faster while keeping costs under control.

In this blog, we explain what last-mile delivery is, how it works, the key challenges businesses face, and how to improve it. You will also learn how using route optimization software can streamline route planning and achieve faster, more reliable last-mile deliveries.

What is Last-mile Delivery?

Last-mile delivery is the final leg of the supply chain where goods are transported from a local distribution center, fulfillment hub, or warehouse to the end customer’s doorstep.

This destination is typically a home address, business location, or retail store. Despite being called the “last-mile,” this stage can range from a few blocks in urban areas to several miles in rural regions.

The term “last-mile” originated in the telecommunications industry, where it described the difficulty of connecting end users’ homes and businesses to the main network infrastructure. 

The concept later transitioned to logistics as postal workers delivering parcels on foot or bicycles adopted similar terminology.

Example: For a pizza delivery company, the last mile begins when the driver leaves the restaurant with the order and travels to the customer’s address. Similarly, when you order a laptop online, the last-mile is the journey from the local distribution center to your home.

How Does Last-Mile Delivery Work?

The last-mile delivery process involves coordinated steps that move goods from a distribution hub to the customer’s location.

Understanding this workflow helps identify opportunities for optimization and cost reduction. Here’s how the process unfolds:

Step 1: Order Placement and Processing

The journey begins when a customer places an order through a website, mobile app, or other sales channel. The order is entered into a centralized system that captures delivery details, allocates inventory, and initiates the fulfillment process. Both the sender and recipient can monitor the order status through tracking systems at this stage.

Step 2: Order Reaches Distribution Hub

The package travels from the warehouse or fulfillment center to a local distribution hub, sometimes called a last-mile sorting center. Here, orders are organized and sorted based on delivery zones, geographic proximity, and scheduled delivery windows. This is where the last-mile journey officially begins.

Step 3: Route Planning and Driver Assignment

Orders are assigned to delivery drivers based on optimized routes that consider multiple factors: delivery addresses, time windows, traffic patterns, vehicle capacity, and driver availability. 

Last-mile delivery route optimization software calculates the most efficient paths to minimize travel time and maximize deliveries per route.

Step 4: Package Scanning and Loading

Before departure, each package is scanned and loaded onto delivery vehicles in a sequence that matches the planned route. 

This scanning updates the tracking system for both senders and recipients, triggering notifications that the package is out for delivery. Proper loading sequence is crucial because it allows drivers to access packages efficiently at each stop.

Step 5: Delivery and Proof of Delivery

The driver navigates to each delivery location and completes the handoff. Proof of delivery is captured through various methods: customer signatures, photographs of packages at the doorstep, or contactless delivery confirmation. 

This documentation updates the tracking status to “Delivered” and provides a record that protects both the business and customer in case of disputes. 

Learn more about last-mile carrier tracking to understand how visibility improves this process.

Last-Mile Delivery Benefits

Last-mile delivery has evolved from a logistics function into a strategic growth lever. As per SellersCommerce, over 33% of purchases now happen online. This highlights how businesses handle the final delivery step directly impacts customer loyalty, operating costs, and long-term competitiveness.

Faster Fulfillment & Delivery Speed

Efficient last-mile operations enable faster delivery options such as same-day and next-day shipping—now a baseline customer expectation. Optimized routing and smarter dispatching allow businesses to shorten delivery windows without overloading fleets or increasing costs.

Real-time tracking, accurate ETAs, and proactive notifications reduce uncertainty, lower “Where is my order?” inquiries, and significantly improve the post-purchase experience.

Increased Sales & Revenue Growth

Fast and reliable delivery directly drives repeat purchases. When customers trust a brand’s delivery performance, they’re more likely to buy again and recommend it. Businesses with consistent last-mile performance routinely outperform competitors in customer retention and lifetime value.

Improved Profitability & Cost Control

Last-mile delivery accounts for a major share of logistics costs. Without optimization, these costs steadily erode margins over time. 

Route optimization, smarter fleet utilization, and automation help reduce fuel spend, labor costs, and failed deliveries, protecting profitability even as free-shipping expectations rise.

Competitive Differentiation in Crowded Markets

When products and pricing are similar, delivery experience becomes the deciding factor. 

Customers now expect deliveries within 24 hours, and many will switch brands if orders arrive late. Businesses that offer faster shipping, flexible delivery options, and transparent tracking stand out in markets shaped by Amazon-level expectations.

Expanded Market Reach

Optimized last-mile capabilities allow businesses to serve remote and rural customers more efficiently. Strategic hub placement, intelligent routing, and carrier partnerships make it possible to expand coverage without a proportional increase in delivery costs.

Greater Operational Efficiency

Streamlined last-mile processes reduce waste across the operation. Optimized routes mean fewer miles driven, lower fuel consumption, reduced labor hours per delivery, and better asset utilization, efficiencies that compound over time while maintaining service quality.

Last-mile Delivery Challenges and Solutions

Last-mile delivery presents significant operational hurdles that can erode margins and frustrate customers. Understanding these last-mile delivery challenges is the first step toward implementing effective solutions.

High Operational Costs

• Challenge: Rising fuel prices, driver wages, and vehicle maintenance costs put constant pressure on delivery margins. Labor alone can represent a significant portion of the overall total last-mile expenses, while fuel costs fluctuate unpredictably based on market conditions.
• Solution: Implement route optimization software to reduce mileage and idle time, cutting fuel costs by up to 48%. Leverage distributed fulfillment centers to shorten delivery distances and reduce per-stop costs. Learn more about how to reduce last-mile delivery costs effectively.

Traffic and Urban Complexity

• Challenge: Dense urban areas introduce congestion, limited parking, one-way streets, and frequent delays. Each stop requires time for finding parking, walking to the delivery location, and navigating building access, all of which reduce deliveries per hour.
• Solution: Use real-time traffic intelligence and dynamic rerouting to avoid congestion and bottlenecks. Software that adjusts routes based on current conditions helps drivers maintain on-time performance even when traffic patterns change unexpectedly.

Rural Deliveries

• Challenge: Deliveries to rural areas involve longer routes, limited infrastructure, inaccurately mapped locations, and higher per-stop costs. Drivers may spend significant time and fuel reaching just a few delivery points.
• Solution: Strategic hub placement positions inventory closer to rural customers. Partnering with regional carriers who specialize in specific geographic areas improves coverage and reduces travel inefficiencies.

Failed Deliveries

• Challenge: Failed delivery attempts create cascading problems. About 5% of deliveries fail on the first attempt, and the majority of customers who experience a failed delivery won’t return to that retailer.
• Solution: Enable proactive customer communication with accurate ETAs and delivery windows. Offer flexible scheduling options, smart locker alternatives, and two-way messaging between drivers and customers. Capture proof of delivery to reduce disputes and confirm successful handoffs.

Rising Customer Expectations

• Challenge: Customers now expect same-day delivery options, real-time tracking, and full transparency throughout the delivery journey. Meeting these expectations requires technology investments and operational capabilities that many businesses lack.
• Solution: Invest in last-mile delivery tracking that provides live visibility, proactive notifications, and accurate ETA updates. Self-service tracking portals reduce customer service inquiries while improving satisfaction.

Environmental Concerns

• Challenge: Last-mile delivery is one of the most carbon-intensive stages of shipping due to frequent stops, urban driving patterns, and vehicle idling. Businesses face increasing pressure from customers and regulators to reduce their environmental footprint.
• Solution: Adopt electric or low-emission vehicles for urban deliveries. Optimize routes to eliminate unnecessary mileage, reducing fuel consumption by 20% or more. Use eco-friendly packaging and consolidate deliveries when possible to minimize trips.

Top 5 Last-mile Delivery Carriers

Several major carriers dominate the last-mile delivery landscape, each with distinct strengths and service models. Understanding these options helps businesses choose the right partners for their delivery needs.

FedEx

FedEx has been a leader in parcel delivery for decades, with a strong focus on time-sensitive and residential shipments. 

The company supports e-commerce growth through multiple service tiers, including FedEx Ground for cost-efficient shipping and FedEx Express for urgent deliveries. 

FedEx Home Delivery is designed specifically for residential addresses, offering flexible delivery windows such as evenings and weekends.

UPS

UPS provides end-to-end last-mile services backed by reliable tracking and operational scale. 

Customer-facing tools like UPS My Choice allow recipients to control delivery timing and location, while UPS Access Points offer convenient pickup alternatives. UPS continues to invest in route optimization and automation to improve delivery efficiency as e-commerce demand increases.

USPS

USPS has a unique advantage in last-mile delivery through its nationwide route network, reaching every U.S. address six days a week. This built-in coverage makes USPS a cost-effective choice for residential and lightweight package deliveries. 

Programs like Informed Delivery improve visibility for customers, while partnerships such as UPS SurePost and FedEx SmartPost allow USPS to handle the final mile for other major carriers.

Amazon Logistics

Amazon Logistics operates an extensive in-house delivery network to maintain control over speed and customer experience. Through Amazon Flex, independent contractors deliver packages using personal vehicles, while the Delivery Service Partner (DSP) program supports thousands of small delivery businesses. 

Amazon also offers same-day and next-day grocery delivery through Amazon Fresh and continues to develop drone-based delivery through Prime Air.

Regional Carriers

Regional carriers such as LaserShip, OnTrac, and Spee-Dee Delivery specialize in specific geographic markets. 

These providers often deliver faster and at lower costs within their regions compared to national carriers. Regional partnerships are especially valuable for businesses with dense customer clusters or recurring local deliveries.

Key Last-mile Delivery KPIs to Track

Measuring performance is essential for continuous improvement in last-mile operations. These last-mile delivery metrics help identify bottlenecks, benchmark against industry standards, and track progress toward operational goals.

On-Time Delivery Rate

This metric measures the percentage of deliveries completed within the promised time window. Industry leaders target on-time rates above 95%. Customers find even a one-day delay unacceptable, making this KPI critical for customer satisfaction and retention.

Cost Per Delivery

Calculate total delivery costs divided by the number of completed deliveries to understand your unit economics. The industry average is approximately $10.10 per delivery. Tracking this metric over time reveals whether optimization efforts are producing results and helps identify cost drivers that need attention.

Failed Delivery Rate

Monitor the percentage of deliveries requiring multiple attempts or returns. With each failed delivery costing approximately $17.78, reducing this rate directly improves profitability. Track reasons for failures (customer not home, incorrect address, access issues) to address root causes systematically.

Delivery Time Variability

Consistency matters as much as speed. This metric measures how much delivery times vary from the promised window. Lower variability indicates more reliable service and better route planning. Customers value predictability, so reducing variability can improve satisfaction even without reducing average delivery times.

Customer Satisfaction Score

Collect direct feedback through post-delivery surveys, Net Promoter Score (NPS) questions, and review monitoring. This qualitative data complements operational metrics and reveals aspects of the delivery experience that numbers alone don’t capture.

First Attempt Delivery Rate

Track the percentage of successful deliveries completed on the first attempt. Higher first-attempt rates mean lower costs, happier customers, and more efficient use of driver time. This metric improves through better customer communication, accurate ETAs, and flexible delivery options. Use last-mile analytics to identify patterns and opportunities for improvement.

Optimize Last-mile Delivery Routes With Upper

Managing last-mile delivery efficiently requires more than spreadsheets and manual planning. Upper is a route optimization software designed to help delivery businesses reduce costs, save time, and improve customer satisfaction through intelligent automation.

Upper’s route optimization engine analyzes multiple variables simultaneously, including delivery addresses, time windows, vehicle capacity, traffic patterns, and driver availability, to create the most efficient routes possible. 

What takes hours of manual planning happens in seconds, freeing your team to focus on execution rather than logistics.

Key Capabilities of Upper

• Multi-stop route optimization: Create efficient routes for hundreds of stops with a single click, considering real-world constraints like delivery windows and vehicle capacity.
• Real-time tracking and adjustments: Monitor driver locations, track delivery progress, and make dynamic route changes when conditions change.
• Proof of delivery capture: Document successful deliveries with photos, signatures, and timestamps to eliminate disputes.
• Customer notifications: Keep customers informed with automated ETA updates and delivery confirmations.
• Analytics and reporting: Track performance metrics, identify trends, and make data-driven decisions to continuously improve operations.

Results Businesses Achieve With Upper

• 28% more stops completed per day
• 48% reduction in fuel costs through optimized routes
• 11+ hours saved weekly by automating route planning
• 99% fewer routing errors compared to manual planning
• 76% fewer last-minute delays with real-time adjustments
• 95% customer satisfaction score

Whether you’re managing a small delivery team or scaling operations across multiple locations, Upper provides the tools to streamline your last-mile delivery process. 

Book a demo to see how Upper can transform your last-mile delivery operations.