Cost per kilometre hides where the money actually goes.
A blended cost per kilometre treats every drop the same. It is not. The expensive part of a delivery is not the distance, it is the stop: the loading, the waiting, the liftgate, the paperwork, the cash handling. Industry research shows last mile alone is 40 to 53 percent of total logistics cost. Time-driven costing puts a number on each of those minutes.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Cost to serve in logistics varies 5 to 10 times between customers, because cost is driven by stops, handling and access, not by distance, and last mile alone is 40 to 53 percent of total logistics cost. Averaging cost per kilometre or per parcel hides this. TDABC assigns the real minutes of each delivery to the customer that caused them, so a low-volume, high-touch account stops being subsidised by an efficient one.
Same distance, opposite economics.
Cost per kilometre assumes the road is the cost. It is not. Loading, the number of stops, a liftgate, returns, paperwork and cash handling are all time, and time is cost. Two customers exactly the same distance from the depot can cost wildly different amounts to serve, and a blended rate charges them the same. The efficient, full-pallet account quietly pays for the awkward, multi-drop one, and nobody on the pricing side can see it happening.
SAME DISTANCE, DIFFERENT COST
Illustrative. Both customers are 40 km from the depot. The driving cost is identical; everything that makes Customer B expensive happens at the stop, where the average refuses to look.
Cost follows cause, minute by minute.
A delivery cost is built, not averaged. Base loading, a rate per kilometre, minutes per stop, and conditional terms that switch on only when the delivery demands them: a liftgate, extra paperwork, a cash payment. Each term carries the capacity cost rate of the resource it uses, so the cost lands on the customer that caused it.
Delivery cost = 15 min loading + 0.85 / km x distance + 8 min per stop + 25 min if liftgate required + 10 min paperwork & cash
Illustrative time equation. The conditional terms are where two same-distance deliveries diverge.
From a blended rate to a served-cost decision.
Cost each delivery
Run the time equation per drop, loaded with the real capacity cost rate of driver, vehicle and depot.
Roll up to the customer
Sum deliveries to the account. The 5 to 10 times spread between customers becomes visible.
Find the subsidy
See which efficient accounts are paying for which high-touch ones, and by how much.
Reprice or redesign
Adjust minimums, frequency or surcharge, or change the service, so price meets real cost.
Frequently asked questions
- What is cost to serve in logistics?
- The true cost of serving a route, stop or customer once stop time, handling, access and paperwork are loaded, not a blended cost per kilometre. Cost to serve varies 5 to 10 times between customers because cost is driven by the stop, not the distance, and last mile alone is 40 to 53 percent of total logistics cost.
- Why does cost per kilometre mislead?
- It assumes distance drives cost. It does not. Two customers the same distance away can cost very different amounts once you load loading time, the number of stops, a liftgate, returns and cash handling. Averaging cost per kilometre or per parcel spreads those minutes evenly, so a low-volume, high-touch account is silently subsidised by an efficient one.
- How do you measure cost to serve per delivery?
- With a delivery time equation: base minutes plus a rate per kilometre plus minutes per stop, plus conditional terms for liftgate, paperwork and cash. Multiply each by the capacity cost rate of the resource it consumes, and the cost lands on the customer that caused it rather than on the network average.
Find the delivery cost the average is hiding.
The Profit Check takes five minutes and no data upload. It points to where your cost to serve and your pricing are most likely out of line, and what closing the gap is worth.