How to Calculate Cost per Mile (CPM) and Use It to Reduce Delivery Costs

Updated on June 21, 2023 by Alina Kostukova

Calculating cost per mile (CPM) in delivery operations is vital for optimizing efficiency and managing expenses.

Understanding your cost per mile is essential for growth, no matter the size of your business. This could range from a large logistics operation to a small local business.

CPM metric indicates whether your logistics workflow is efficient, and what kind of optimization is necessary.

With the help of last-mile logistics software and advanced algorithms, you can not only calculate your cost per mile but also act on it.

This guide will explain the step-by-step process for calculating your CPM (or you can download a free spreadsheet, the Cost per Mile Calculator, here). Yet, the cost per mile calculator may produce higher-than-expected results. If that's the case, keep reading to find more strategies to lower delivery costs.

Why is CPM important?

How to calculate cost per mile?

How to cut delivery costs?

Why is CPM important?

CPM is a fundamental benchmark for logistics operations of any size. It gives a clear and simple estimate of mile-by-mile expenses, enabling informed decision-making. 

Cost per mile makes it easier to evaluate performance, make sense of fluctuations in expenses, and put in place measures to lower last-mile logistics costs.

The CPM metric helps delivery operations improve profitability and stay competitive by focusing on efficiency and cost management.

How to calculate cost per mile?

To calculate your cost per mile, you need to consider all the various expenses involved in the delivery process. Below are the 3 key steps to calculating your actual CPM.

1. Outline expenses

Add up all the costs associated with last-mile logistics and home delivery.

• Fuel costs include the costs of buying and using fuel like gasoline or diesel for delivery vehicles.
• Driver wages cover the compensation paid to the individuals involved in the delivery process, including couriers and other delivery personnel.
• Vehicle maintenance includes the costs of servicing, repairing, and maintaining the delivery vehicles.
• Packaging materials encompass the expenses for boxes, envelopes, and cushioning to ensure secure transportation of goods.
• Insurance involves the premiums paid to protect against potential risks and damages during deliveries.
• Licensing fees cover the costs of obtaining the necessary permits and licenses for operating the delivery business.
• Administrative expenses comprise overhead costs like office rent, utilities, customer support, and other administrative functions.
• Technology/software costs include expenses related to last-mile delivery software, GPS tracking systems, IoT devices, and other technological solutions.
• Reverse logistics costs involve expenses associated with handling returned goods, including transportation, restocking fees, and refurbishment.
• Any other relevant expenses may include handling and loading/unloading expenses and any additional services requested by customers.

2. Determine total mileage

The next step in calculating your cost per mile is taking into account the total mileage driven by your delivery vehicles over a certain period, such as a month or quarter.

You can obtain this information from vehicle logs, ELD devices, GPS tracking systems, or delivery management software that uses delivery driver apps.

Because your mileage will fluctuate week to week or even month to month, it's important to look at it in perspective for CPM calculation.

Track-POD offers advanced analytics with quick insights into your planned vs actual mileage, total mileage by driver, and other insights over a 24-month period.

3. Calculate cost per mile

Check this video on how to calculate cost per mile, and understand all the variables that are included in those calculations:

 

The formula required to calculate the cost per mile is as follows.

COST PER MILE (CPM) = TOTAL DELIVERY EXPENSES / TOTAL MILEAGE

Simply put, you should divide the total logistics expenses (from Step 1) by the total number of miles covered over a period of time (from Step 2).

For example, let's say your total monthly expenses for last-mile delivery are $5,000. Your vehicles cover a total of 2,000 miles.

This means the cost per mile would be:

$5,000 / 2,000 miles = $2.50 per mile

This means that, on average, it costs you $2.50 to complete each mile in your delivery process.

Be aware that this is just a basic calculation. It may not consider all the details and unique factors of your last-mile delivery operations. You should never forget to include any extra expenses that occur during home delivery.

How to reduce last mile delivery costs?

It takes strategic actions and the effective use of technology to cut CPM in delivery operations.

Let's review the most effective strategies that will help you reduce costs and cut delivery times. Even if your cost per mile is satisfactory, your business will gain from taking those steps.

1. Automate route optimization

You can use route optimization algorithms to build the most efficient multi-stop routes in seconds.

No amount of manual route planning, even with local knowledge applied, is worth the imperfection and human error eliminated with route optimization algorithms.

Not to mention your couriers will spend less time on the road and use less fuel if your route is shorter. Smart route planning will ultimately lead to a lower CPM.

2. Optimize vehicle load

Optimizing the load capacity of delivery vehicles will increase your logistics efficiency.

Less money is spent on gas thanks to fewer journeys when packages are distributed evenly across trucks. Parcels are less likely to get damaged during transportation if the vehicle load is optimized.

The load check and barcode scanner tools in Track-POD ensure that all packages loaded into the vehicle belong to the orders on the route. They also help to load packages in the correct sequence and quantity.

3. Monitor driver behavior

Use telematics and tools for tracking driver performance (such as delivery driver apps) to monitor things like planned vs actual mileage, speeding, idling, and hard braking.

Encourage safer and more fuel-efficient driving. This will reduce the amount of fuel used by delivery drivers and will also lower repair costs.

4. Use local partners

Collaborate with local delivery companies or use crowdsourced delivery services to use their existing networks and decrease the distance traveled for specific deliveries.

You can also consider using micro warehouses strategically located in densely populated areas - to reduce the distance that needs to be covered for last-mile delivery.

Using a local distribution network has the potential to result in considerable cost savings.

5. Go paperless

Embrace digitalization and electronic proof of delivery (ePOD) by adopting last-mile delivery software and proof of delivery apps.

Going paperless allows you to decrease administrative burdens, cut costs, and improve customer experience. You won't have to spend money on extra printing or equipment upkeep. Using ePOD may save time to sign order papers and speed up the delivery process.

Couriers can collect e-signatures and take photo proof which will populate custom proof of delivery notes created in Track-POD.

6. Optimize inventory management

Invest in efficient inventory management tools to cut storage expenses and prevent overstocking.

This ensures the proper items are in the right places, minimizing the need for extra journeys or expensive accelerated delivery.

Better inventory management reduces extra stock, streamlines routes, and lowers transportation expenses, therefore reducing CPM.

7. Never stop optimizing

Regularly analyze performance metrics and critical cost indicators to identify areas for improvement. Leverage data from last-mile delivery software to make informed decisions, refine strategies, and drive ongoing cost-reduction efforts.

Advanced delivery management solutions can help you find the pain points and issues that need to be addressed straight away.

You can input your cost per mile, hour, and base fare in your Track-POD settings. This will help the system generate accurate "Cost savings" and "Route costs" reports to streamline your logistics operations.

Wrapping up

Now that we've delved into the cost per mile calculation and explored ways to trim delivery expenses let's take a moment to recap the key takeaways.

1. Regardless of company size, the calculation of cost per mile (CPM) is essential for delivery efficiency and cost control.
2. CPM helps analyze performance, identify trends, and minimize expenses, improving profitability.
3. Consider fuel costs, driver wages, vehicle maintenance, packaging supplies, insurance, license fees, administrative costs, technology/software, and reverse logistics costs to determine your total delivery expenses.
4. Calculate the distance your delivery vehicles cover over a specific period using vehicle logs, GPS tracking systems, or delivery management software.
5. Use the formula: Cost per mile = Total Expenses / Total Miles Covered to determine the CPM.
6. Remember that this calculation may include only some of the unique factors in your delivery operations. Consider additional expenses, such as vehicle repairs or specific delivery requirements.
7. Strategies to reduce last-mile delivery costs include: implementing route optimization software, optimizing vehicle load capacity, and analyzing performance metrics.
8. Some additional measures to cut CPM are: collaborating with local delivery partners, embracing paperless operations, optimizing inventory management, and monitoring driver behavior.
9. Last-mile delivery analytics reports can reveal new cost-saving and route optimization opportunities for your business.

We hope these practical tools will keep your CPM in check and empower you to stay firmly in the driver's seat of your delivery operations.