Many SME owners treat delivery pricing as a secondary concern, often adopting the rates of the nearest competitor or picking a round number that feels fair.
This approach is a commercial risk. When you guess your delivery fees, you often end up paying the customer to take your product.
Underpricing logistics erodes your gross margins and drains cash flow, meaning that as your order volume grows, your actual losses increase.
Identify your true cost base
Accurate pricing requires a shift from guessing to calculating. You must separate your delivery costs into fixed and variable expenses.
Fixed costs are those you pay regardless of whether a delivery is made. These include vehicle insurance, annual permits, and the monthly salary of a dedicated driver.
Variable costs fluctuate based on the number of trips. These include fuel, tolls, and wear-and-tear maintenance per kilometre.
For example, a boutique bakery in Lagos delivering cakes must account for the fuel spent idling in traffic, not just the distance from the shop to the customer.
The calculation should follow a simple logic: Total Variable Cost per Trip + (Fixed Costs ÷ Monthly Trips) + Desired Profit Margin = Delivery Price.
Avoid common pricing traps
A frequent mistake is ignoring the return journey. A delivery is not a one-way trip; the vehicle must return to the base or move to the next pickup point.
Failure to price for the return leg effectively cuts your delivery revenue in half.
Other SMEs fail to account for packaging costs specific to transit. If a product requires specialized thermal bags or extra padding to survive a motorbike trip, these are delivery costs, not production costs.
Flat-rate pricing across a whole city is another risk. A delivery to a nearby suburb has a different cost profile than a delivery to a distant district with heavier traffic and higher fuel consumption.
Impact on cash flow and resilience
Precise delivery pricing directly affects your business resilience. In markets with volatile fuel prices, a guessed price becomes obsolete overnight.
If your delivery fee is a guess, a sudden spike in petrol prices will immediately eat into your net profit.
When pricing is calculated, you can implement a fuel surcharge or adjust rates based on a known cost increase without guessing how it affects your bottom line.
This discipline prevents the common SME trap of scaling revenue while simultaneously shrinking profit margins.
Audit your last 20 deliveries. List the actual fuel spent, time taken, and packaging used for each, then compare those totals to what you charged the customers.
