Understanding the true cost of bad deliveries

There are plenty of different factors to consider when finding the right delivery service for your business (we wrote a blog post on all of them). However, the big one is inevitably always cost.

As it so often does, money talks. And when comparing one delivery service to another, it’s impossible to not compare base pricing – we get it. But, and it’s a big but, a delivery service doesn’t just cost you however much you’re charged per pack.

In a time when so many of the leading couriers do such a poor job, it’s crucial to consider the impact quality of service has on your business – in the short, medium and long term. From redeliveries and refunds, to churned customers and a damaged brand, a bad delivery service can seriously cost your business, no matter how cheap it is.

Let’s talk about failure rate

We regularly hear horror stories of parcels being delivered to wheelie bins and random neighbours, but none are as bad for your business as parcels that aren’t delivered at all.

Failure rate is the big one – the metric that delivery services should live and die by (except the worst culprits will never share theirs). It’s so important because so many bad things can and do happen when it’s high.

For every failed delivery, a redelivery is scheduled and a refund is often issued – not cheap, straight off the bat. On top of that, the issue demands valuable time from your customer support team (a team you’ll have to grow if they have to deal with lots of similar issues).

If the customer is really peeved about it all, you could lose their custom and any future sales you’d hope to receive from them. Your brand is tarnished to them, and if they tell other people about their experience, that issue compounds itself.

All that from one failed delivery.

Granted we’ve given you the truly worst case scenario, but make no mistake, failed deliveries create an expensive ripple effect.

Is cheaper actually cheaper?

If cheaper, low quality delivery services aren’t actually that cheap, how do they compare against more expensive couriers that do a much better job?

Let’s quickly explore the cost of failed deliveries with some nice round-ish numbers.

Your business ships 100,000 packs to 20,000 customers in a year. Delivery service A quotes your business £3.50 for every pack delivered; delivery service B quotes £4. However, delivery service A has a failure rate of 0.7%, while delivery service B has a 0.07% failure rate.

Sidenote: These failure rates aren’t technically made up – they’re how we performed against the leading traditional UK courier in January 2023.

So, with A you have 700 failed deliveries every year vs 70 with B, but because they have cheaper base pricing you’re saving £50,000 a year. However, in both cases you have to pay for the failed deliveries to be redelivered – at the £3.50 and £4 fees respectively – which costs you £2,450 with A and £280 with B.

On top of that, you issue a refund for every failed delivery. Your average order cost is £40, so with delivery service A you pay out £28,000 and with B you pay £2,800.

Then you have to cover your customer support costs. You pay £25 per hour for a customer support team member, and they spend an average of 15 minutes resolving every failed delivery. So, that’s an additional £4,375 for A and £437.50 for B.

Next we have to think about the cost of losing customers that didn’t receive their deliveries. Let’s say your average lifetime customer value is £300, and you lose 50% of the customers impacted by failed deliveries. Customer churn therefore costs you £21,000 with A and £2,100 with B.

Lots of numbers are flying around here, so let’s work out the sums. Delivery service A initially cost your business £350,000, but we’ve calculated that a higher volume of failed deliveries add an additional £55,825. Delivery service B, on the other hand, cost an initial £400,000, but only incurred £5,617.50 in further costs. All in all, you’re paying £405,825 for A and £405,617.50 for B.

This specific example clearly gives us small margins, but we’ve calculated it without probably the biggest cost to your business: damage to its brand. A business's reputation is one of its most valuable assets, and consistent delivery failures can erode trust and goodwill earned over years of hard work.

Our message to merchants is this: don't be fooled by the sticker price of a delivery service – the real cost goes way beyond that.

Next time you're comparing delivery services, remember: cheap can turn out to be pretty expensive.