Calculating Delivery Charges

Woodworkers discuss how to set rates for delivering and installing products at a distance from the shop. August 12, 2014

Question (WOODWEB Member) :
We deliver and install our products in our local area. Installation typically takes about 1.5-2 hours. Drive time varies, of course. We list a flat-rate delivery/installation charge for this service. This makes it very easy for both the customer and the sales person to understand. Typically our service area is within about an hour's drive time. We pay our delivery/install crew by the hour, including the drive time. There are usually only two visits to the customer's jobsite during the entire process. First, we visit the jobsite, measure and evaluate the site, and collect a deposit check for the job. Second, we deliver and install our product and collect the final check. Lately orders have been coming in further and further out of our local area. The last order was about 3.5 hours drive time one way. The project is certainly worth doing financially. However, the longer distance cuts into the profit both in labor and vehicle costs.

We need to establish some type of rate/policy to handle the variances. And, we want it to be simple for all involved. Additionally, we list this service on our website. Prospects can select their product, including a fair amount of options, and the webpage calculates the total price for them instantly. We include the delivery and installation charge as part of this calculation. (We have found that many of our customers really like this feature and have purchased from us instead of our competition because of this feature.)

We are considering some type of distance calculator where the prospective customer enters either their address, or their zipcode, and the computer figures out the delivery cost for them, and us, automatically. (We would probably list this as an estimated delivery cost, just in case the computer gave a wrong answer.) How have others handled this varying rate? How to implement this on our website is a secondary question. We need to establish a policy first.

Forum Responses
(Business and Management Forum)
From contributor K:
If you deliver your work make sure your insurance company that knows you’re doing this, and that your business policy covers you adequately. This is also a good time to talk to your auto insurance provider as well. In terms of calculating delivery charges you need to cover both time, and vehicle expenses. Figure what it costs you to operate whatever vehicle you are using and either build it into your hourly rate or charge based on mileage. Gas, insurance, wear/tear, preventative maintenance, and depreciation are all critical costs that you should be accounting for. If you don't own a truck/van consider renting. I find that it is less expensive for me to get a U-Haul for a day than it is to use my personal vehicles to pull a trailer.

Finally, make sure you are making profit off of delivery charges. You essentially become a professional mover for a couple of hours, if you really think about it. Nobody would go into the moving business to break even. You are taking substantial risk by offering this service, and providing additional value to your clients as they don't have to pick up the work, or deal with a third party. My point is to not short change yourself on delivery. Figure out all your expenses, and make sure you are doing it profitably. If you can't do this, I would sub delivery out to a third party.

From contributor K:
To cover variances, I explain to customers that I am going to be charging by milage plus hourly rate, and I will provide a written estimate based on both. On that estimate I will state very clearly what additional costs I may bill for, and what those rates will be. In addition, I will discuss this verbally with the customer and make sure that they understand that the initial quote is an estimate, and that it may take more or less time to deliver the product. If we get stuck in traffic I will have to be paid for that.

From the original questioner:
We do need to be sure that all costs are included, as well as profit. I am looking for a simple method that anyone of my staff can easily understand and execute, and one that our customers can understand and believe is fair as well. Think of our product as a furniture delivery, with some installation/setup labor involved. If you were shopping at a furniture store and were ready to purchase, what would you expect the store to tell you regarding the price? Would you expect them to say "well, the furniture will cost you exactly $X, but we will only give you an estimate on the delivery cost of $Y because our driver might be stuck in traffic and we would have to charge you more than $Y if that happens"? Would you sign that deal?

Maybe I asked the original question the wrong way? How would a furniture store charge for delivery? Do they run to Google Maps or Mapquest every time they need to quote a customer? How do the on-line stores handle the delivery charges? I have seen some on-line stores quote the same exact price no matter where the customer is located in the 48 contiguous states. Maybe they have a great deal with a shipping company? In our case, we are paying our own installers to travel to the jobsite. So, the flat rate doesn't work for us.

How do the brick-and-mortar stores handle the delivery charges? Do they only sell to local customers? That's great if they only sell to the local community. Maybe their franchise agreement, if applicable, only allows them a local, exclusive territory, so having a single flat-rate works. Interest for our product is coming from beyond our local area and sales from out of the area are increasing as well. As we want to increase sales and expand our operation, we need to determine what is fair and profitable to us and fair to our customers. Not doing both, I am afraid, will lead to overall failure both locally and beyond.

From contributor F:
You need to set up delivery zones. Zone 1 is 30 minutes or less away (1 hour travel time). Zone 2 is 60 minutes or less away (2 hours travel time). The charge is based on which zone they are in plus the driver /installer travel time.

I suggest you break your pricing out as:
Sales tax
Installation (or if you want them to install).
Will call with setup instructions fee
Sales tax (Most areas sales tax isn't charged on installation).

I paid Sears $69 to deliver a freezer last week. The appliance store wanted $45 to deliver a freezer but the same freezer was $100 more than sears. The appliance store wanted $125 to deliver and install a dishwasher and haul the old one away, this week Best buy has dishwashers on sale and if I buy in the store delivery and install is $19, the appliance store dishwasher price was $100 less than sears. Go figure.

From the original questioner:
Ok, I am starting to figure out what/how to do this. Currently we have the pricing itemized for the customer: product (including line item pricing) and delivery/installation. There is no sales tax on this in our state since we are installing the product and it becomes part of the structure of the home. (We do pay sales tax on all of the materials when we purchase them, so the state is getting sales tax.)

Using Contributor F's suggestion, we could break this into product pricing, installation and delivery charge. The installation pricing is based on the number and type of pieces being installed. The delivery would then be based on mileage/time. If, in the future, we sold these items for customer-installation, we could simply remove the appropriate fees, then add sales tax. If we install it, the customer does not see a sales tax line item. If we sell it without installation, the customer pays tax on the full purchase price. I am still trying to figure out how to convey the zones or delivery fee to both our customers and our staff in a very easy way. How does a customer determine their zone? A map? Zip-code distance? Run to Google Maps or Mapquest every time? There has to be a simple way to do that.

From contributor F:
You need to base you map on time to travel, not distance. If someone is 10 miles away and it takes less than 30 minutes they are in zone 1. If someone is 10 miles away and it takes an hour through traffic to get to that area then they are in zone 2.

From Contributor C:
I build custom furniture, not rooms full of cabinets. I normally provide "free" delivery locally (if it fits in my van and is too big for your car). But if you are outside the local area, I charge $1 per one-way mile for delivery (subsidized because it would have been free if it was local). If you want a house call to discuss your project, it is $2 per one-way mile, which includes my time, but nothing if you come to me.