Understanding Local Multi-Stop Delivery Pricing for Small Businesses

When you run a retail small business, offering local delivery can be a game-changer for your customers. If you outsource local deliveries, figuring out if you are getting the best price for these deliveries—especially multi-stop deliveries—can feel like navigating a maze. Each business and delivery market has different requirements. Sometimes deliveries are end-to-end, sometimes spread equally all over the delivery area, and sometimes clustered in various pockets within the delivery area. And to add to the confusion these delivery models change on a monthly, weekly, or daily basis.  So should you be charged based on the distance to the delivery point, or perhaps how many stops there are along the way? There are several pricing models you can use, each with its pros and cons, depending on your business type and delivery needs.

In this article, we’ll break down the three main approaches to local multi-stop delivery pricing: route-based, radius-based, and zone-based. Each model serves different purposes and works better for certain industries. Let’s explore how they work, which businesses benefit from them, and what you should consider when choosing the right pricing structure.

Route-Based Pricing

Route-based pricing calculates delivery costs based on a per-stop fee plus the distance between each stop. It’s one of the more detailed and precise methods but comes with its own set of challenges.

Pros:

• Accurate pricing: Since this method accounts for both the number of stops and the actual distance traveled, it reflects the real costs of delivery. If you’ve ever driven through heavy traffic or windy suburban roads, you know how much distance can affect delivery times and fuel consumption.
• Encourages efficient routing: Being charged based on the distance between stops, services have an incentive to plan their routes more efficiently. Tools like route optimization software are used to minimize travel time and reduce fuel costs.
• Flexible for varying distances: This method is particularly helpful if your delivery areas span both close and far-away destinations.

Cons:

• Complex to calculate: The downside of such accuracy is that it can get tricky to find a balance between shortest distance and shortest time. Does the service take the shortest route and risk not finishing all deliveries for that day or minimize delivery distance.  It is a tricky predicament.  In working on a project where we tried to explain route-based pricing to clients, their eyes would glaze over at the mention of mileage-based fees.
• Higher costs for distant deliveries: If a delivery is far from your store, it may lead to a higher delivery fee compared to a flat-rate system, but if there are other deliveries “on-the-way” then you may be safe.
• Requires routing software: While planning efficient routes is a great benefit, it usually requires specialized routing software to avoid making it a manual headache, which may increase costs as well.

Best Industries for Route-Based Pricing:

• Furniture stores: If you’re delivering large, bulky items like couches or dining tables, customers are used to paying based on distance and delivery difficulty.
• Appliance retailers: These deliveries are often heavier and require careful handling, which makes detailed pricing for each stop worth the effort.
• Home improvement stores: Like furniture and appliances, deliveries from these stores often involve heavy or odd-sized items that justify precise pricing.
• Medical and Dental labs: Often medical and dental labs have fixed routes so the lack of fluctuation in distance makes route-based pricing advantageous for these industries.

Radius-Based Pricing

Radius-based pricing charges delivery fees based on how far the customer’s location is from the business. It’s one of the most common and straightforward models and is easiest to understand.  This pricing usually involves distance radii around the pickup location. This could be in increments of 5, 10, or 20 miles. If a delivery falls into a specific radius then the price for that drop is fixed to that range.

Pros:

• Simple to understand: Everyone gets the concept of a radius. You set different prices for deliveries within a certain number of miles from your business, and that’s it.
• Encourages orders: Businesses can incentivize customers to order more frequently if they’re within a certain radius. Customers might be more likely to purchase from a business that makes deliveries to areas that are further away.
• Less ambiguity: Just looking at a map can determine the distance radius from the pickup and therefore the cost.  No question of if the driver took the shortest route or took the long way to avoid traffic.

Cons:

• Inaccurate for multi-stop deliveries: While great for one-off deliveries, radius-based pricing can be inefficient for multiple stops. It doesn’t account for the distance between deliveries so even though two deliveries are 10 miles from the pickup but are only 1 mile away from each other, you are paying for two 10 mile deliveries.
• Less profitable for outliers: Orders near the outer edge of your radius might get charged the same as those much closer, which can reduce your profit margins if you have more orders closer to the in edge of the radius.
• Discourages some orders: Depending on if you pass on delivery costs fully or partially to the consumer, a customer just outside the radius might be less likely to order if the next price tier bumps up dramatically.

Best Industries for Radius-Based Pricing:

• Restaurants: Food delivery thrives on simplicity and speed. This industry usually has single pickup orders at short distances. Therefore ideal for the restaurant industry since customers just want their meal hot and fresh.
• Grocery stores: Similar to restaurants, same-day or next-day grocery delivery works well with a clear radius model since customers tend to order frequently and expect a fast turnaround.
• Florists: Delivering flowers has to be quick to keep arrangements fresh, and a simple radius pricing model is easy for both the florist and the customer.

Zone-Based Pricing

Zone-based pricing divides the delivery area into different geographic zones, with fees that vary based on the zone and the number of deliveries within that zone.  This is similar to what the traditional carriers like, USPS, UPS, and FedEx have for their deliveries on a national scale, but is new to the local delivery industry.

Pros:

• Balances distance and density: This model takes into account both how far the delivery is and how many deliveries you’re making in a particular area. It can be very efficient if you have lots of orders clustered in certain neighborhoods.
• Incentivizes group orders: Businesses can focus their marketing efforts to certain areas to grow delivery volume to a specific zone making delivery costs more manageable.
• Easy to understand: When zones are based on counties, cities, or zip codes it is easy to understand pricing and volume within that zone without any ambiguous distances or routes to consider.

Cons:

• Not viable for single or low volume businesses: The nature of zoned deliveries is more practical for businesses that have 30 or more deliveries on a daily or single pickup day.
• Zone definitions: The zones defined by the delivery service may not fit where the customers of the business are located. These zones might be too large or not accurately represent where the bulk of a business’s customers are located.
• Lower volumes per zone: Zone pricing is based on delivery volume within a zone so the more volume in each zone the better the pricing. If one zone has high volume and another lower volume this may cause price inflation.

Best Industries for Zone-Based Pricing:

• Pharmacies: For regular, recurring deliveries of medication, independent pharmacies  appreciate consistent pricing based on delivery zones.
• Office supply stores: Large businesses that regularly need office supplies may be spread across different zones, making this pricing model work well for them.
• Specialty food retailers: Think of high-end groceries or meal kit services. Zone-based pricing works when you need to balance distance with the density of your deliveries.
• Gift basket and Corporate gifts: These two industries may have orders that are concentrated in certain areas or buildings.

Comparing the Pricing Methods

Here’s a side-by-side look at how each pricing model measures up:

Conclusion

When deciding on the right local multi-stop delivery pricing for your small business, consider the nature of your products, your delivery zones, and your delivery density.

• If accuracy and fairness are your priorities, route-based pricing is likely your best option, though it may require more effort to manage.
• If simplicity is key, especially for short-distance deliveries like food or flowers, radius-based pricing is a great fit.
• For businesses juggling urban and suburban deliveries, or for those looking to maximize efficiency with clustered orders, zone-based pricing is the way to go.

Ultimately, choosing the right pricing method can make a huge difference in your delivery operations and customer satisfaction. From my experience, when you find the balance between what works for your business and what makes sense for your customers, the results are worth the effort.

In addition to understanding the different pricing models, it's important to choose a delivery partner that can adapt to your business's specific needs. deliv offers flexibility for businesses that currently outsource or are considering outsourcing their deliveries. Whether you prefer route-based, radius-based, or zone-based pricing, deliv can implement and manage any of these models seamlessly. What's more, if your delivery needs change, deliv has the unique ability to switch between pricing models, ensuring you have the right option for different seasons, delivery patterns, or customer bases. This adaptability gives small businesses greater control and efficiency, all while maintaining transparency.