What is last-mile delivery?
Last-mile delivery is the final step in the supply chain: moving an order from the last transport hub or warehouse to the customer’s door or collection point. The “mile” is a metaphor. It can be a few streets or many kilometres in rural areas.
Why is last-mile delivery so expensive?
- Low drop density: every stop serves one customer, so costs are not spread across a full load.
- Failed deliveries: a missed attempt means paying for the same parcel twice.
- Time windows: narrow delivery slots limit route efficiency.
- Labour and vehicle costs: driver time, fuel, and vehicle upkeep are incurred whether or not the van is full.
- Urban and rural challenges: congestion, parking, long distances, and poor addressing all add time.
How do you calculate cost per delivery?
Cost per delivery = total route cost ÷ successful deliveries. Total route cost includes driver wages, vehicle costs, fuel, insurance, and any software or admin overhead assigned to the route.
Worked example: the effect of failed deliveries
A van route costs $180 a day and attempts 60 stops.
| Scenario | Successful drops | Cost per delivery | Change |
|---|---|---|---|
| 10% failed first attempts | 54 | $3.33 | Baseline |
| 4% failed first attempts | 57.6 (avg.) | $3.13 | About 6% lower |
Worked example: the effect of route density
The same $180 route with no failed deliveries:
| Scenario | Stops per day | Cost per delivery | Change |
|---|---|---|---|
| Spread-out route | 60 | $3.00 | Baseline |
| Dense, well-planned route | 80 | $2.25 | 25% lower |
These figures are illustrative. Use your own route costs to build a baseline.
What are the best ways to reduce last-mile delivery costs?
- Plan routes with software. Route optimisation reduces distance and adds stops per shift.
- Cut failed deliveries. Send tracking and delivery-window notifications, and let customers confirm or reschedule.
- Batch by zone. Group orders by area and assign delivery days to neighbourhoods.
- Offer pickup points or lockers. One drop serves many customers and removes missed-delivery risk.
- Right-size packaging. Smaller parcels fit more per vehicle and avoid dimensional-weight surcharges (see our guide on how to calculate dimensional weight).
- Validate addresses at checkout. Bad addresses are a major cause of failed attempts and delays.
- Set free-shipping thresholds. Encourage larger baskets so each delivery earns more.
- Compare carriers and negotiate. Rates, zone structures, and fuel surcharges differ. Review them at least yearly.
Should you use a 3PL or courier for last-mile delivery?
A 3PL or courier makes sense when your volume per area is too low to run efficient routes yourself. Running your own vehicles can pay off when you have high drop density in a small area, such as local food, furniture, or same-day services. If you are unsure, compare your own cost per delivery, calculated as above, with a courier quote for the same postcodes. See our article on when a small business should use a 3PL.
Key takeaway: Last-mile cost is mostly about density and success rate. More stops per route and fewer failed attempts cut cost per delivery faster than almost any other lever.
FAQ
Why is the last mile the most expensive part of delivery? Each stop serves a single customer, so costs are not shared across a full load. Failed attempts and traffic add extra time and cost.
What is a good cost per delivery? It varies widely by region, parcel size, and density. Calculate your own baseline and track it monthly.
Do lockers really save money? They often help by consolidating many deliveries into one stop and reducing failed attempts, but results depend on locker availability and customer adoption.
Does free shipping increase last-mile costs? It can, because the business absorbs the cost. Minimum order thresholds help offset it.
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