Optimize Deliveries in 2024 by Calculating Cost per Mile

Knowing your cost per mile is crucial to optimizing delivery efficiency and reducing operational expenses. Cost per mile calculations allow you to break down the direct and indirect expenses of each delivery, helping businesses make informed decisions, reduce overhead, and ultimately boost profitability. In this guide, we’ll walk through a clear, step-by-step approach to calculating delivery costs per mile, so you can improve your business’s delivery strategy and keep expenses under control.

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Table of Contents

1. Why Calculate Cost per Mile?
2. Fixed vs. Variable Costs
3. Collecting the Data You Need
4. Calculating Fuel Costs
5. Estimating Maintenance Costs
6. Depreciation and Insurance Expenses
7. Understanding Labor Costs
8. Totaling Your Expenses
9. Dividing by Total Mileage
10. Reducing Delivery Costs per Mile

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1. Why Calculate Cost per Mile?

Calculating the cost per mile isn’t just about knowing how much fuel you use or paying drivers; it’s about understanding the bigger picture of operational costs. Knowing these numbers helps businesses avoid unnecessary expenses and increase efficiency. Companies such as Illuminate Food leverage this approach to optimize their delivery strategy, using data-driven insights to allocate resources effectively and meet customer expectations.

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2. Fixed vs. Variable Costs

A solid cost-per-mile calculation requires separating fixed and variable costs. Fixed costs remain constant regardless of how many miles are driven; these include vehicle depreciation, insurance, and licenses. Variable costs fluctuate depending on the miles driven and include fuel, maintenance, and tires. Identifying and categorizing these costs is essential for an accurate calculation. For example, delivery businesses in the meal kit industry benefit from tracking these costs closely, given the high frequency and consistency of deliveries in this sector.

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3. Collecting the Data You Need

To accurately calculate costs, gather data from all expenses that contribute to your deliveries. Track mileage logs, fuel receipts, maintenance invoices, and driver labor costs. Some companies use route optimization tools, which help reduce unnecessary mileage, cut fuel costs, and improve efficiency. By keeping precise records, you can accurately estimate the overall cost of each delivery and improve budget forecasts.

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4. Calculating Fuel Costs

Fuel costs are one of the most variable expenses in delivery operations. Begin by tracking fuel receipts or using a fuel-tracking app to record each fill-up. Divide the total fuel expense by the miles driven to get a cost-per-mile estimate. With fuel prices constantly fluctuating, businesses that handle high-frequency deliveries, such as grocery delivery, benefit from monitoring these costs closely to adjust budgets as needed.

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5. Estimating Maintenance Costs

Maintenance includes regular oil changes, tire replacements, and other vehicle upkeep necessary for safe operations. Calculating maintenance cost per mile means tracking these expenses over a set period, such as a month or a quarter. Divide the total maintenance expenses by the miles driven in that period. This calculation helps businesses like Velasquez Family Coffee plan for anticipated maintenance costs and maintain high service standards.

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6. Depreciation and Insurance Expenses

Depreciation accounts for the reduction in a vehicle’s value over time, while insurance is an essential fixed cost. Both should be factored into your cost per mile. Divide the annual insurance premium by total miles driven to find the insurance cost per mile. Depreciation can be calculated by subtracting the resale value from the original cost and dividing it by the expected lifespan in miles. This helps businesses assess the long-term value of each vehicle in their fleet.

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7. Understanding Labor Costs

Labor costs go beyond hourly wages. They also include taxes, benefits, and additional incentives. To calculate labor costs per mile, add up all labor expenses for a specific period and divide by the total miles driven. Businesses in high-touch industries, like bakery delivery, can benefit from this calculation, as it helps them gauge fair wages and optimize scheduling, ensuring high service quality without breaking the bank.

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8. Totaling Your Expenses

Once you’ve calculated each expense category, total them up. This comprehensive figure represents your total delivery costs over the period analyzed. Understanding this figure helps you identify where you may be overspending and informs strategic adjustments. For instance, many businesses are surprised to find that delivery driver wages make up a smaller portion of expenses compared to other categories like vehicle maintenance and fuel.

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9. Dividing by Total Mileage

Now, divide your total expenses by the total miles driven. This calculation provides a straightforward cost per mile, revealing the true cost of each delivery mile. For businesses seeking to reduce last-mile delivery expenses, this data is invaluable. Last-mile delivery is known for being one of the most resource-intensive parts of the delivery process, so optimizing it can lead to substantial savings.

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10. Reducing Delivery Costs per Mile

Once you know your cost per mile, reducing it becomes the next logical step. Here are a few strategies:

• Optimize Routes: Using EasyRoutes can help you identify the most efficient paths, reducing fuel and time costs.
• Fuel-Efficient Driving: Train drivers in fuel-efficient driving habits, like reducing idling and maintaining steady speeds.
• Vehicle Maintenance: Regular vehicle checks prevent costly repairs and improve efficiency, prolonging each vehicle's lifespan and reducing costs.

Another way to reduce delivery costs is by using fuel-efficient vehicles or even electric vehicles (EVs). For businesses with predictable, high-frequency delivery schedules, such as pet supply delivery, the initial investment in EVs can pay off in reduced fuel expenses and lower maintenance costs over time.

With a clear understanding of your cost per mile, you gain insight into the actual expense of each delivery mile, enabling strategic decisions that save money while maintaining high service standards. For businesses aiming to optimize their delivery operations, Roundtrip.ai offers innovative solutions to streamline logistics and lower delivery expenses.