How do companies standardize delivery fee rates?
We are in the Retail Construction Supply business and we accommodate deliveries and add this fee to the customers invoice. Sometimes it is hard for us to estimate delivery fees since we have to consider distance, weight of load and how hard the delivery will be (elevated area, cramp space, traffic, whether we will be the ones to unload or not which will require more people) How do we standardize our delivery fee so that it will not become too expensive for the customers, but will be able to cover all of these facets instead of having to decide on our rates of whatever we choose? We have a third party operators who we pay for their services and don't actually gain anything from this delivery charge and they sometimes are choosy of the ones they want to deliver.
Someone calculates by the old method - manually on a calculator. This is long and does not exclude a large percentage of the logistician's error in the calculation. Someone creates a calculator in an Excel spreadsheet. This option is better than manually. But there are downsides here, too. It does not take into account the flexibility of pricing, based on all the necessary parameters to calculate the tariff. Someone creates an online calculator on the website. A new and modern approach to calculating freight delivery tariffs is to use an automatic software-based tariff calculator. I saw a great solution from the delivery service Caribou.
Robin, Great question, There are a number of ways to look at this.
1) How do your competitors handle this situation?
2) Is this a common service that your customers expect from you?
3) How important is the freight cost in regard to winning the order.
4) Is the freight cost a strong customer requirement or is getting the goods on time more important.
5) If you charged more, but had a more reliable service would this make a difference.
The business you are in is not the freight business.
why not get a few transport companies in and talk to them about how they can best help you out. Even have different companies for different types of loads. and or for different delivery zones.
I can understand that construction jobs are all over the place,
Likewise delivery times are at times critical.
You could even have 2 levels of service. fast and faster.
You may also like to consider applying an add on % based on the value of the order. However you will need to do some homework against past deliveries to see if this works. You may find a suitable % range, Some will be up and others down, just work on the 3/4 range that way you will be covered.
Small trucks by hr rate.
Large truck by distance.
There are 2 main things.
a) Deliveries should not cost you.
b) Deliveries have to be on time, if the transport company is picky, don't use them.
Good luck with this.
I had to review freight costs for product that where light, bulky, and heavy but compact. it's more an art than a science, however we found that using a standard % of sales value covered us in most cases.
Plus we added and additional % for faster service.
In the end it's up to the customer, they can always arrange their own transport.
Win some, lose some.
Find a different third party- even if that means setting your cousin up as an independent contractor.
We have a business in your area as well and standardizing delivery fees can be difficult but it's very customer-friendly.
What we have done is to use our experience of the various costs over time to "standardize" our prices.
For the most part we don't cheat ourselves or our customers but occasionally we get a job which is more than the "standard" price but there are some that are below the price, so one is technically netted against the other.
Tracking it over a 3-year period, we are still a little ahead.
Hope this helps...
Figure out your prices FOB the customers place, and FOB your place and quote the prices separately.... If your load allows you to make money you desire with the freight added then quote based upon quantity AND EASE OF DELIVERY..... If not quote FOB your organization or you can give them a discount for picking up...
This may sound simplistic, but assuming you have historical information on delivery fees, couldn't you average the fees over a year or two? I would bet that the flatter your rates the easier it will be for customers to swallow. I also agree with Mr. Badger, a flatter rate model means you'll make a little more on some deliveries and a little less on others. It all comes out in the wash.
There is no way you can standardize a delivery fee and cover all of the situations you may encounter. It is going to be a situation where you are going to lose a little on one order and make a little on another.
I would suggest to make things simple you set up either delivery zones or mileage rates. In other words you might have one set fee for deliveries within 15 miles and a little higher fee for those that are within 25 miles. Then I would add an unloading fee which might be a percentage of the sales price but this would only apply to those who don't unload themselves. You could also just make it a flat fee. People do have the option of unloading rather than paying the fee.
When someone has a really big order the delivery fee may not be enough but since the order is larger you should make more money on the sale to offset this.
I would suggest just reviewing the fees your delivery people have charged for deliveries of various distances and coming up with an average to set your fee. Factors like traffic and difficult deliveries are better off ignored or if one is especially bad you could put a surcharge on.
You really need to have standard prices which will help both you and the buyer.