How to calculate price for delivery service

[fabian]

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Hey FS-Folks,

I’m about to start a professional “Man with a Van” company.

My aim is to provide quick logistic solutions for small sized deliveries.
Overnight delivery, weekend delivery, pick and packing etc.

Also it can and should function as a relocation assistance.
For example: Someone wants to move and get his furniture and other stuff transferred to his new place.
We come and dismantle the furniture, transport it safely and also mount the furniture back together.

What is the best way to calculate my costs?
Should I calculate a hourly rate, a rate per kilometer drive, or a flat charge?

Let me know your thoughts about it.

Thanks!

[IanMac]

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Hi Fabian

It is best to consider this in two parts –

1. Estimate the cost of providing the service (variable costs and fixed costs)
2. Set a price for the service that gives you the necessary sales margin

The objective of course is to ensure that you make a good profit after factoring in the number of jobs, kms and hours performed.

I would approach it by setting up a spreadsheet model to try out various scenarios for different levels of activity and then establish the pricing from the outcomes.

This pricing could be based on hours, kms, flat rate, or of course a combination of flat and variable, no one approach is right or wrong. It will depend on how accurately you can estimate your costs and the level of activity and of course appeal from a marketing point of view.

I hope that’s a useful start.

Cheers
Ian

[16k_zx81]

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Hi Fabian

Dont forget your market research. As you are ‘entering’ a market, its very important to know how you fit against your competition, and to do that, you need to know exactly how your competition operate.Their strategies may influence how you choose to position yourself, and will also inform your own strengths and weaknesses of service provision. All of this is important information for formulating an effective business plan.

Jim

[fabian]

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Thanks IanMac and 16k_zx81, I will have some further looks into this and may get back to you in more detail

[bb1]

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I have helped out a similar business with the relocation assistance (removalist) component of your proposal.

We did the market research and now she has 2 pricing models,

1. Fixed price quote where she goes and inspects the job first and estimates how long the pack up, load, un pack and travel will take. And based on that estimate puts together a fixed price quote, generally allowing a minimum 10% contingency factor. Plus I must admit as in my own business if estimating a job we estimate on the high side anyhow, because one thing is you don’t want to effectively earning less then your minimum hourly rate. If doing this approach you need to be very clear in your written quote on what is and what isn’t included in the service, or else suddenly you are also responsible for packing the cat as well!!!

2. Hourly rate, where it is hard to define or estimate how long she determines a job will take, she offers a hourly rate. But this does vary based on the amount of travel distance and expected fuel costs. What do I mean by this, if it’s a local job with low fuel costs she may say $XX per hour, but if its a long haul, and the majority of the time is also using fuel it would be $XX plus Y, Y being the estimated fuel usage per hour.

In either case if the work is local she estimates the time based from arrival at the first pickup point, to return to depot. On longer hauls, its depot to depot timing.

[Author]

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