DISTRIBUTION COSTS
17/06/2019
A question I have often encountered during my carrier was – whether delivery to a particular location is profitable. And not in the understanding of a transport company, but for a seller. That seller usually wants to be sure that deliveries to particular locations are profitable. If the cost of transport is not too high in relation to the value of delivered goods. One route, several delivery points, and how to define which drop has what share in the cost of a given route?
I personally prefer the method below.
Let’s assume that our company is based in Gdańsk. We have following drop points to visit:
- Pruszcz Gdański
- Nowy Dwór Gdański
- Elbląg
- Malbork
- Kwidzyń
- Sztum
And the way back to our base in Gdańsk.
We will organize any
transport in 45 minutes
or less
Our employee will quickly prepare a specific offer, and after its acceptance, they will personally ensure that nothing will prevent the delivery at the agreed time.
Unexpected orders do not surprise us because we are well-prepared.
Send your inquirySource: google.pl/maps
The whole distance to go is 248km. To calculate the percentage of a given delivery point in costs we must check what is the distance between starting point and each delivery point. In this case it looks like this:
- Gdańsk – Pruszcz Gdański = 10 km
- Gdańsk – Nowy Dwór Gdański = 39 km
- Gdańsk – Elbląg = 61 km
- Gdańsk – Malbork = 62 km
- Gdańsk – Kwidzyn = 126 km
- Gdańsk – Sztum = 75 km
Next we sum up the distances, which equals 373km. The next step is to calculate percentage share of each point in total distance – 373km.
- Pruszcz Gdański – 10 / 373 = 2,7%
- Nowy Dwór Gdański – 39 / 373 = 10,5%
- Elbląg – 61 / 373 = 16,4%
- Malbork – 62 / 373 = 16,6%
- Kwidzyń – 126 / 373 = 33,8%
- Sztum – 75 / 373 = 1%
Having already calculated the percentage share, we move to checking what the costs details are. Assuming that cost of the truck which we use for that delivery is 0,47 EUR per kilometre, the rate for entire route is 115,35 EUR (248km* 0,47 EUR= 115,35 EUR). Now we substitute the cost of our route to percentage share:
- Pruszcz Gdański – 2,7% * 115,35 EUR = 3,09 EUR
- Nowy Dwór Gdański – 10,5% * 115,35 EUR = 12,06 EUR
- Elbląg – 16,4% * 115,35 EUR = 18,86 EUR
- Malbork – 16,6% * 115,35 EUR = 19,17 EUR
- Kwidzyń – 33,8% * 115,35 EUR = 38,96 EUR
- Sztum – 21.1% * 115,35 EUR = 23,19 EUR
For better understanding of that mechanism and sense of its use let us analyse another day of work on the same route. This time, not all locations placed an order. So we have to deliver only to:
- Pruszcz Gdański
- Elbląg
- Malbork
- Sztum
Source: google.pl/maps
We proceed in the same way: the whole distance is 194 kilometre, and it’s cost is 90,23 EUR.
Percentage share in the costs of individual points:
We will organize any
transport in 45 minutes
or less
Our employee will quickly prepare a specific offer, and after its acceptance, they will personally ensure that nothing will prevent the delivery at the agreed time.
Unexpected orders do not surprise us because we are well-prepared.
- Pruszcz Gdański – 10 / 208 = 4,8%
- Elbląg – 61 / 208 = 29,3%
- Malbork – 62 / 208 = 29,8%
- Sztum – 75 / 208 = 36,1%
Cost of delivery to each point:
- Pruszcz Gdański – 4,8% * 90,23 EUR = 4,38 EUR
- Elbląg – 29,3% * 90,23 EUR = 26,46 EUR
- Malbork – 29,8% * 90,23 EUR = 26,89 EUR
- Sztum – 36,1% * 90,23 EUR = 32,53 EUR
Having already the data from two days, we add them:
- Pruszcz Gdański – 3,09 EUR + 4,38 EUR = 7,47 EUR
- Nowy Dwór Gdański – 12,06 EUR
- Elbląg – 18,86 EUR + 26,46 EUR = 45,32 EUR
- Malbork – 19,17 EUR + 26,89 EUR = 46,06 EUR
- Kwidzyń – 38,96 EUR
- Sztum – 23,19 EUR + 32,53 EUR = 55,72 EUR
Based on this method we are aware of costs of particular points. It will help us make decisions about changing the route or negotiating business terms with a customer.
