Surging demand creates the need for more supply
Food delivery demand has skyrocketed in the past few years. Even post-pandemic, consumers are keeping the habit of ordering in. As a result, foodservice delivery in the UK reached £14.4 billion in 2023, and projections forecast it will rise to £17 billion by 2026.
The consumer's literal and figurative hunger drives demand, meaning supply must grow to meet it.
Keeping pace requires more couriers, which leads to growing cost. Thus, the accurate way to reduce this overall expense is by focusing on efficiency.
Then here comes the question: how efficient is your last-mile delivery business, and are you measuring it? How well you perform here either propels growth or becomes a barrier to it. Your biggest cost is the couriers who deliver, and they are the most valuable resource in the last mile. It’s also an expense that doesn’t benefit from economies of scale.
So, how can you gain efficiency in this complex delivery model?
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Higher efficiency, lower CPO
In last-mile delivery, efficiency represents the number of orders a courier can complete within an hour. Many things impact it—traffic, distance, speed of the restaurant to complete the orders, and more.
Some factors don’t seem to be in your control. So, you must focus on what you can because efficiency is the metric that supports greater profitability. The greater it is, the lower your CPO is.
Here’s an example.
Let's say the rate per hour for the courier is €10. If completing one order per hour, the CPO stays at €10. If the efficiency rate moves to three an hour, the CPO is now €3.33. With a lower CPO, you have higher margins, and the additional overhead and marketing costs don’t cause you to be in the red.
Efficiency in last-mile delivery helps you assess profitability. Another calculation, earnings per hour (EPH), assists with ensuring and optimizing supply. By considering these measures, you can meet the goal of paying couriers more than minimum wage while also optimizing CPO and engagement.
The levers to improving efficiency in last-mile delivery
Achieving greater efficiency results from the improvement of many different levers. Some are under the control of the couriers, and others fall under the company. Let’s start with those associated with the worker.
More knowledgeable supply (couriers) generates greater efficiency
Logistics are a pain point for couriers. Knowing where to park, waiting for the order, and dropping off aren’t as simple as they seem. Many couriers haven’t been doing the job for long, so their knowledge varies. When it’s low, efficiency slips.
The same is valid with traffic patterns. The inexperienced courier will struggle with optimizing routes. It will be tricky for them to avoid traffic and have a good feel for peak and valley hours.
Currently, technology and communication are in place to resolve this, but they often don’t impact the metrics that matter here—delivery, pick-up, and idle time.
A better solution for last-mile delivery is to reduce the churn rate. Decreasing churn allows you to keep your more experienced couriers longer, thus increasing their lifetime value (LTV).
Greater engagement in the platform
A more engaged courier is usually a more efficient one. At least 30 to 40% of couriers struggle with this. It’s challenging because workers do so in isolation, making creating a culture difficult. Communication, in general, may be inconsistent, decentralized, and irrelevant.
For greater courier engagement in your app, you’ll need to be able to take data and turn it into meaningful recognition and rewards for success. Gamification can keep them on your app rather than multiple ones.
How companies can improve efficiency
The second part of this equation is what you can do, which includes the following:
Planning and forecasting: What you project regarding demand is crucial to stabilizing supply. Relying on historical data to do this and manually allocating slots isn’t efficient. Instead, a more connected experience that includes gamification and recognition lowers churn, minimizing the need to keep renewing supply.
Consistency in efficiency: Most strategies use a city-level model, global approach, and reliance on time-consuming data dives. An individualized approach boosts efficiency with virtual assistants, manager rewards, and recognition.
Other considerations to meet efficiency goals
The path to greater efficiency has other obstacles. You need to decrease cancellations by incentivizing drivers to make more remote deliveries and reward them for streaks of no cancellations.
You also want to see bad feedback dwindle, which occurs most often because of non-delivery or mistakes at the restaurant level. A courier app that sets goals toward this and progress tracking can boost morale. Also important here is the verification promotion at pick-up and drop-off.
City welfare is also a consideration in last-mile delivery. Safety is paramount, and you can enhance this with challenges and rewards in your platform.
Cash collection presents another concern. Many couriers are unbanked and want payment in cash. Most apps block this at a certain level, and fraud is rampant in some areas. More experienced couriers would resolve much of this, and you can further motivate them by rewarding their correct behavior.
Transform last-mile delivery with Tradler
All the efficiency tools described above are available within our platform. We keep couriers motivated and engaged so they gain more experience and knowledge. With gamification, recognition, and a centralized communication spot, you’ll see efficiency and productivity rise while churn decreases.
Connect with our team today to get started.
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