#AskPS
E-Commerce
Why profit remains the biggest challenge for Delivery companies?
Rajesh Garg .

Why does running an e-commerce delivery hardly profitable?👀

I notice delivery companies come and go!

Their drivers have a high attrition rate. Margins are quite abysmal.

Despite having lower operating costs such as no expensive real estate investment in big warehouses or malls,

Why profitability remains the biggest challenge among delivery companies?

Originally Posted Here
11 Comments

Paras Shah

Scale makes them profitable.

Rajesh Garg

Can you please elaborate on this?

Paras Shah

For example if say a firm has say 100 delivery personnel in Mumbai. The cost of ops is roughly 30 to 40 lakhs. So they will break even around that. If cost per delivery is 40 they need 100k deliveries per month. Post that whatever deliveries they do is profit. Considering bigger firms have scale they will easily do 4 to 5 times more deliveries so anything post 100k is profit.

Priyank Dhyani

I feel for a small delivery company, you need to focus on particular area and make long term deal with major e-commerce companies and integration with other major delivery networks.
Also choosing location is a key because only growth location will need newer delivery services

Neeraj Tiwari

The profitability math lies in how many and how much delivery can be done. Agree delivery firms have high attriation rate if the delivery boys earn less.

The other thing is getting regular contracts of delivery and by passing the agencies and directly getting the contract from the customer or eCom companies.

I was closing a deal for a firm from one of the largest deliver company in India and their offer per package was very low...I helped them to directly approach this eCom company and guess what they recived 100% jump in the delivery rate, shooting up margins.

1: Scale (More delivery packages per person...motivates them, help delivery company in more income)

2: Direct contact and no middle agencies.

Defines profitability for a delivery company.

The Delivery Company model can be made profitable but with proper planning and maths. Else huge burn.

Missed one more point

A proper pickup and drop agreement with the client. Do not agree to their locations always. See the delivery radius and plan.

Rajesh Garg

But don't you think this would result in more products being returned?

Neeraj Tiwari

The more a deliver person travel the less will be the profit margins. Typically companies do not give a damn about deliver company profitability and just ask to cover more radius...and the catch starts here. Pickup of packages and then dropping it....the distance between these two should not be more as it will lead to more round by delivery person, more fuel wastage, less delivery per person per day. Defining pickup points and allocating resources create a huge difference being good profitable or low profit or no profit.

Devendra Sarda

Rajesh Garg
It's not as simple as visible.
Even if you manage a separate warehouse, maintaining and managing inventory is a huge cost.And after that delivery from one point to multiple points is also a huge cost.
Most of the Companies depend only on huge margin in procurement, without realising the remaining cost of last mile delivery.

Shivakumar Valadi

All the above is part of an old Operations Research concept called the Network Routing problem or the Travelling Salesman problem... The complexities of routes, time, cost, package complexity etc...

Surender T Natarajan

With the price points, we in India operate, the scale needs to be really large. In the end for the last mile, there will be 2 to 3 companies only which will make to enough scale to work on profitability. Till the companies reach the scale part, they cant think of profitability.

Manish Chauhan

https://www.linkedin.com/pulse/grofers-diethe-maths-behind-food-delivery-startups-manish-chauhan/?fbclid=IwAR0CNxZi-NmMQvs1Raep6IxP94MkmeASijF3tge-YsLbkCmwQ8FSlEFLsek

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