7 Proven Ways to Reduce Delivery Costs for Small Businesses

For small businesses—especially restaurants and retail shops that have adopted delivery services in recent years—managing delivery expenses efficiently is crucial for survival. When every dollar counts, trimming delivery costs directly improves your bottom line while maintaining the service your customers expect.

In this guide, I'll share seven strategies to reduce your delivery costs without sacrificing your brand quality. These techniques come from conversations with successful business owners and industry experts who've mastered the delivery game, as well as my own experience managing small businesses and vehicle fleets.

In this article, we’ll explore how: 

• Route optimization can reduce fuel costs and labor hours
• Smart packaging choices reduce costs and drive future business
• A hybrid delivery model gives you the best of both worlds
• Consolidating deliveries dramatically decreases cost-per-order 
• Strategic vendor negotiations can lower baseline costs
• Reducing delivery errors prevents costly returns and remakes
• Driver incentives improve efficiency and reduce turnover

1. Optimize Delivery Routes

Inefficient delivery routes waste three precious resources: time, fuel, and labor. Route optimization is often the most effective first step for businesses looking to cut delivery costs. Its 

Modern route optimization software doesn't just map the shortest distance between points—it factors in traffic patterns, delivery windows, vehicle capacity, driver schedules, and sometimes even driver performance. The results of route optimization can be dramatic: businesses typically see a 20-30% reduction in mileage and hours of dispatch labor saved each week. 

Need a quick win? Test drive a delivery management system like Shipday. The free baseline version includes basic dispatch functions. For $39 per month (and no long-term contract), you can use the route-optimization tools on up to 300 deliveries. 

2. Make smart packaging decisions

Your packaging choices influence your delivery costs and customer perception of your brand. Take the time to right-size your packaging by using appropriately sized containers that minimize excess space. Right-sizing maintains the quality of your products by reducing movement in the package. It can also reduce the amount of protective packaging you need. 

Consider these packaging strategies to reduce costs:

• Standardize packaging sizes: Use a limited range of packaging sizes to simplify inventory and speed order packing. 
• Use lightweight materials: Switching to lighter materials can allow your drivers to carry more packages. If you do a high volume of deliveries, it may also reduce fuel costs. 
• Sustainable options: While eco-friendly packaging sometimes costs more upfront, it can lead to cost savings through improved brand reputation and customer loyalty. 
• Brand your packaging: Packaging is a blank slate for your brand. Take the time to add brand logos and contact information to your packaging to drive future sales. Adding branding can be as simple as affixing branded stickers to boxes and bags, or as elaborate as custom 

Your packaging protects your products, but it can also drive user generated content in the form of un-boxing videos. TikTok, Youtube, and Instagram influencers love a good unboxing. In 2023, Youtube videos with “unboxing” in the title were viewed more than 25 billion times. 

Research has shown that 62% of people viewing un-boxing videos watch them when they are planning to buy a specific product. Whether you deliver takeout food or retail items, consider how your packaging is ready for a social media close-up. 

3. Use a hybrid delivery model

A hybrid delivery operation uses both in-house staff and third-party delivery platforms. This combination gives you the greatest flexibility to control costs on the fly, while ensuring you have the bandwidth to handle service rushes. Most third-party delivery platforms do not require that you use their platform exclusively. And most popular platforms like Doordash and UberEats allow enrolled businesses to hail their third-party drivers on demand. This on-demand system can cover your delivery needs if your staff driver needs a sick day or if you need additional delivery support on busy days, but don’t want the added expense of hiring another employee. 

In-house delivery advantages:

• Complete control over the customer experience
• No commission fees to third parties (which can range from 15-30% of order value)
• Data ownership and direct customer relationships
• Ability to customize delivery zones and fees

Outsourced delivery advantages:

• No upfront investment in vehicles and equipment
• Flexible capacity without fixed labor costs
• Built-in technology and insurance coverage
• Broader potential delivery range

A hybrid delivery model gives you the best of both worlds. And it isn’t complicated to manage. Delivery management software like Shipday routes in-house and third-party orders to the same central dashboard, allowing you to track staff and third-party drivers in real time. Shipday client restaurant brand Lady Lee’s experienced 14% faster delivery times and a 20% higher customer satisfaction rating when they centralized their hybrid delivery through the Shipday platform. 

4. Consolidate deliveries

Every delivery has fixed costs—vehicle expenses, driver time, and administrative overhead. Consolidating multiple orders into single delivery runs dramatically decreases your per-order cost. Some form of order consolidation works for most delivery businesses, even food delivery where orders can arrive sporadically throughout the day. 

Effective batching strategies include:

• Time-based batching: Group orders that come in during the same time window, loading up your drivers and getting them out the door quickly. 
• Geographic batching: Assign deliveries in the same neighborhood to a single driver. 
• Schedule orders: Reward customers for placing orders 24 to 48 hours in advance, giving you lead time to efficiently plan consolidation routes.  

If you're worried about customer pushback, communicate the environmental benefits of consolidated delivery, like fewer vehicles on the road means reduced emissions. Consider offering small incentives for placing their orders in advance. This could be a small discount or a fun extra— like a free balloon with an advance floral order, or a complimentary cookie with a lunch order placed ahead of time. 

5. Negotiate better rates 

Whether you manage a team of in-house drivers, partner with third-party platforms, or both, any business that offers deliveries has a lot of supporting relationships. There are the insurers that cover your vehicles, vendors that supply your packaging, payment processors that handle your card and online payments, and third-party delivery platforms. All of these partnerships come with costs. The good news is, many of those costs are negotiable. 

Try these angles to negotiate lower your delivery costs: 

• Volume commitments: Many packaging suppliers can offer you a lower per-item rate if you place a large enough bulk order. Alternatively, you may consider committing to ordering all your food and beverage packaging from a single supplier. Talk to your sales repo and ask them what the options are. 
• Long-term contracts: Many suppliers and service providers offer reduced monthly rates in exchange for longer commitments.
• Training and safety initiatives: If you insure a fleet of delivery vehicles, ask your auto insurer about available discounts if you can show proof of safety training for your drivers. 
• Bundle services: Does your bookkeeper offer marketing services? Does your online ordering system offer payment processing? Bundling services (where it makes sense) can save you money in the long term. 
• Go local: Local businesses tend to be smaller than national brands. Get bids from local suppliers, insurers, or other service providers before committing to a partner with a big brand. 
• Leverage existing order volume:  If you’ve been working with third-party platforms for over a year and can demonstrate a high delivery volume and low refund rate, you may be able to negotiate a lower commission rate. This is especially true if you’re willing to commit to using one third party platform exclusively. 

6. Minimize delivery errors and returns

Delivery mistakes aren't just customer service problems—they're profit killers. More than half of US customers (63% have experienced errors with deliveries. And when a mistake happens, the overwhelming majority (66%) of customers blame the business, not the driver. Only about 20% of consumers blame the third-party platform (if one was involved in the order). 

Delivery errors erode confidence in your brand and product, causing customers to spend their money elsewhere. Besides the potential of future lost revenue, delivery errors have additional costs:  

• Wasted product: Most mis-delivered items go to waste. Flowers wilt, food spoils. Businesses practically always need to remake the order to correct the error. 
• Administrative time resolving issues: For every incorrectly delivered order, you need staff to handle customer complaints, issue refunds, and potentially resend multiple correct orders to correct the mistake.  
• Potential customer loss: Customers don’t have a lot of patience for delivery errors. They are likely to try a different business for their next order rather than risk another incorrect order. 

Delivery mistakes are a headache, but here's a simple fix: have a solid system for double-checking orders before they head out the door. A quick checklist can seriously cut down on mix-ups if your team applies it consistently.  There are a few other smart things you can do, like: 

• Require delivery verification: Require your drivers to collect customer signatures or take a photo of delivered packages. This helps identify where an error might have occurred and gives you evidence if a dispute arises with the customer or their credit card company. 
• Track in real-time: Use an app— like Shipday— that shows real-time order tracking. This helps your staff dispatchers identify potential issues before they become irreversible. 
• Add a delivery instruction field: Provide a section on your order forms for customers to leave detailed delivery information, such as the correct location for contactless deliveries, a specific person to contact, or any necessary gate codes. 
• Have consistent packaging procedures: Label your delivery orders clearly and consistently, making it easy for drivers to identify orders and see when they are complete. 
• Audit third-party platform reports: If you partner with third-party services, you’ll get a  “delivery error” report. Check that report at least monthly (but ideally weekly) and dispute any errors that are incorrect. Provide evidence like order tickets or receipts to back up your claims. Most businesses find they win these disputes 30% or more of the time. 

Reducing errors is worth the effort. When KFC Barbados started managing their delivery service with Shipday, they noticed an immediate savings of $1000 per day across six locations. A major chunk of those savings came from a reduction in delivery errors. 

7. Incentivize driver performance

Your delivery team has enormous influence over your delivery costs and customer satisfaction. Customers who order frequent deliveries interact with your drivers more than your brick and mortar staff. So it makes sense to offer performance incentives to your drivers in the same way you might run contests or offer rewards to your on-site staff. 

Some effective driver incentive ideas include:

• Efficiency bonuses: Reward drivers for completing ascertain  number of deliveries under a target time (while maintaining safety standards).
• Error-free incentives: Offer a weekly or monthly recognition bonus to the driver with the fewest delivery errors or resulting refund requests. 
• Safety rewards: Acknowledge drivers who drive safely, route around traffic accidents, report vehicle issues, and adhere to traffic laws. 
• Customer satisfaction metrics: Recognize drivers who earn high praise from customers.  

The rewards for any of these could be free product from your business or a partner brand, a cash bonus, or a public thank you. With any performance incentive program for drivers, it's important to keep safety as a top priority. Otherwise, drivers may neglect safety in the quest for speed. Keep safety as a constant part of the delivery conversation. Partner with outside safety groups if needed. 

When I managed the fleet for a field service business, we ran a driver incentive program. One day one of my drivers sped through a train crossing, narrowly escaping an oncoming train. I learned about it when we received images of our truck in the crossing from the Department of Transportation. I scheduled a local nonprofit to educate our drivers on train crossing safety. We all learned something, and it actually earned us a bit of a break on our vehicle insurance. 

Putting it all together

Implementing these cost-saving strategies doesn't require a complete overhaul of your delivery operations. Start with one or two changes that feel manageable and address your specific pain points. Starting small is fine, the important step to simply start reducing delivery costs where you can. The busier your delivery program becomes, the more you’ll save in the long run. 

Delivery isn't just a cost of doing business—it's an extension of your brand. The most successful businesses view delivery optimization as an ongoing process of refinement rather than a one-time fix.  Applying one or more of these strategies can transform your delivery operation from a costly burden to a genuine revenue driver that keeps your customers coming back.

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