Activity Based Costing for Delivery Is The Fix When Average Costs Are Killing Your Profit

Activity Based Costing (ABC) is a way to find out the real cost of each delivery you make.

Are you working long hours but your profits are still paper-thin? This often happens when you use an “average cost” for every job. This simple mistake hides your unprofitable clients and can cause a serious cash crisis.

This guide gives you a 4-step plan to find the true cost of serving each client. It will help you protect your profits and gain control over your business.

Key Takeaways On How to Find and Fix Unprofitable Deliveries

• Step 1: Run a 3D Cost Analysis. Track the 5 busiest routes for one week while measuring costs at the Depot, during the Drive and at Drop-off to understand true delivery costs.
• Step 2: Score the Bottom 20% of Clients. Use a scorecard to rank clients based on True Margin, Operational Drag and Admin Drain as part of an operational analysis.
• Step 3: Make the Hard Call. Move any low scoring client to a new rate card that reflects their actual cost. If they refuse then you’ll let them go to protect profits.
• Step 4: Isolate Financial Risk. Never use the same bank for home and company loans to avoid cross collateralisation which puts personal assets at risk.

On This Page

• Step 1: Using Activity Based Costing to Find True Delivery Costs
• Step 2: Make the Hard Call on Unprofitable Clients
• Step 3: Understand the Hidden Impact of High Driver Turnover

Step 1: Use Activity Based Costing to Find True Delivery Costs

To get honest numbers, you need to look closely at your costs. A simple and powerful way to do this is with the 3D Cost Analysis: Depot, Drive, and Drop-off.

Here’s how to get started. Create a spreadsheet and track your five busiest delivery routes for one full week. Log these three types of costs to find where your profit is hiding.

1. Depot Costs: The Load-Up

• What to do: Use a timer to see how long it takes your staff to sort and load products for different clients. Some clients will take much more time than others.
• Why it matters: You will quickly see that some clients are expensive before their delivery even leaves your depot.

2. Drive Costs: The Journey

• What to do: Use Google Maps to check the real travel time for each delivery. A trip during peak-hour traffic costs you more in wages and fuel than a trip in the middle of the day. The route itself is one of the main cost drivers which makes route optimisation and cost savings a critical focus.
• Why it matters: This simple check puts a dollar value on traffic. It proves that some routes are far more expensive to service than others.

3. Drop-off Costs: The Final Metre

• What to do: Ask your driver to log the time from when they arrive at a client’s site to when they leave. This is called Dwell Time.
• Insider Tip: If your driver waits 30 minutes for a client to be ready, that’s a direct loss. For example, if your operational cost is $50 per hour, a 30-minute wait costs you $25.
• Why it matters: Dwell time is a huge profit killer in the delivery business. If a driver waits longer than 15 minutes, you are paying for your client’s inefficiency.

Once you have this data, you will no longer have to guess your costs. You will know the real-world cost for every single client. This leads to the next question: what do you do with this information?

Step 2: Make the Hard Call on Unprofitable Clients

Your data will clearly show you that some clients are costing you money.

It can be hard to let a client go. You may have invested a lot of time in the relationship. But that time and money are already gone. The only thing that matters now is what you do next.

The real problem with keeping bad clients is that they take time and energy away from your great clients. Every hour your team spends on a problem account is an hour they could have spent serving a profitable one.

The Solution: Use a Scorecard

Here is what you need to do. Score your bottom 20% of clients using these three simple metrics.

Any client with a low score needs a new price. Show them the data you collected. Explain that their new rate reflects the true cost of the service you provide. If they refuse, you need to protect your business and let them go. You are not losing a client; you are plugging a huge financial leak.