Why start from your costs?
Because the market rate tells you what customers will pay, not whether you make money at it. Many small courier firms set prices by copying a competitor and only find out months later that a big customer’s work loses money on every drop. Knowing your own cost per drop lets you decide, deliberately, which work to take at which price.
How do you work out your cost per drop?
Add up everything one working day costs, then divide it by the drops you actually complete that day:
- Driver: wages plus employer costs such as National Insurance, pension contributions and holiday pay, or the day rate you pay a self-employed driver.
- Vehicle: lease or finance payments, or depreciation if you own it, plus insurance, tax, servicing, tyres and repairs, divided by working days.
- Fuel: miles per day divided by miles per gallon, converted to litres, multiplied by the price per litre.
- Everything else: phones, software, parking, congestion and clean-air charges, and a share of your overheads.
For example, if a day costs £185 in total and the driver completes 25 drops, the cost per drop is £7.40. That is your break-even price: charge less and each drop loses money. Our free cost per drop calculator does the arithmetic and shows the formulas.
Use completed drops, not attempted ones. A failed attempt costs almost as much as a completed drop but earns nothing, so failed attempts quietly raise your real cost per drop.
Which pricing model should you use?
| Model | Works well for | Watch out for |
|---|---|---|
| Per drop | Dense local rounds, regular customers | Long gaps between drops eat the margin |
| Per mile | Long or one-off journeys | Customers find it hard to predict |
| Zone-based | Mixed local work; easy to quote | Drops at the edge of a zone cost more than the middle |
| Day or half-day rate | Dedicated vehicles for one customer | Idle time is the customer’s gain, not yours |
| Weight or size bands | Mixed parcels and bulky items | Needs measuring at booking |
Most couriers combine two: a per-drop or zone price for routine work and a per-mile or dedicated rate for anything outside it.
Which surcharges should you add?
Surcharges keep a simple base price honest when a job is not simple:
- Waiting time: after a free period at collection or delivery.
- Urgency: same-day, timed or out-of-hours delivery.
- Extra handling: two-person lifts, stairs without a lift, assembly.
- Failed delivery: a charge for a second attempt when the recipient was not available.
- Fuel: a surcharge or index-linked rate, so fuel price rises do not wipe out your margin.
State every surcharge in your terms before the customer books.
How much margin should you add?
Enough to cover the things your cost per drop leaves out (quiet days, bad debts, vehicle breakdowns) and still leave a profit. Remember that margin is calculated on the price, not on cost.
A 20% margin on a £7.40 cost needs a price of £7.40 ÷ 0.8 = £9.25, not £7.40 × 1.2 = £8.88.
How do you quote a new customer?
- Ask about the work, not just the price. How many drops a day or week, where to, what size, what times, and what proof they need.
- Map it onto a round. Will the work fill gaps in an existing round, or need a vehicle of its own? The same drop can cost very different amounts depending on the answer.
- Work out the cost per drop for that pattern, including waiting time and the failed attempts you expect.
- Choose the pricing model that matches how they think. A shop understands a price per drop; a business with a dedicated van understands a day rate.
- Add surcharges and margin, then sanity-check against the market. If your price is far above what others charge, look again at your costs; if it is far below, you may be leaving money on the table.
- Put it in writing, with what is included, what triggers a surcharge and when prices are reviewed.
Should you have a minimum charge?
Yes, for one-off and same-day jobs. Every booking has fixed costs that do not shrink with distance: taking the call, assigning a driver, the drive to collection and the paperwork. A minimum charge makes sure short jobs cover them.
How do you check each customer pays its way?
Run your cost per drop separately for each regular customer or round. A customer whose drops are spread across the county, who keeps drivers waiting at collection, or whose recipients are rarely in can cost far more per drop than the average. Either price that in, or change how the work is done, for example by agreeing delivery windows so recipients are in.
Track your failed attempts and waiting time per customer. If you use a tracking system, the records already exist: times at pickup and drop, failed attempts with reasons, and the route taken.
What about VAT?
If you are VAT-registered, you charge VAT on taxable supplies. Quote business customers prices excluding VAT and show it separately; quote consumers prices including VAT. GOV.UK explains when you must register and how VAT works.
Where does software fit in the price?
Delivery software is a cost like any other, so include it in your daily costs. Pricing per delivery, rather than per driver, means the cost scales with the work you do. Track That Ride’s pricing shows the per-delivery price on each plan.