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Not to rain on your parade, but I'm having a hard to understanding how you'll undercut shipping companies. Their prices are so low because they rely on economie
by nkohari 17y ago
Not to rain on your parade, but I'm having a hard to understanding how you'll undercut shipping companies. Their prices are so low because they rely on economies of scale (large trucks and a very sophisticated supply chain) and complex algorithms that determine the optimal route for delivery.
First, there's the problem of paying the couriers. I can't speak for others, but I would never carry a package in my car for $5 -- it's not worth the hassle. I might carry 10 at once for $50, but even that payout is very low for my time... not to mention that the likelihood that my route intersects with 10 different packages being shipped on the same day is extremely low. Drivers working for shipping companies make a relatively low wage, and they ship lots of packages. You'd have to pay couriers per-package, and at a much higher marginal rate than shipping companies pay. That means additional overhead, which means your prices will go up.
Then you'll have extremely high overhead with respect to fraud, insurance, etc. UPS/FedEx packages are handled by professional drivers, and I'm certain that their insurance costs are still astronomical. This means more overhead, which again means higher prices still. In fact, I'm willing to bet that even if you could find an insurance agency willing to underwrite your operation, the cost to insure each package would be higher than the overall cost UPS/FedEx charges their customers to ship.
Finally, you're going to have a hard time convincing customers that your service is reliable and safe. That means even for the customers you will get, your cost per acquisition will be much higher than UPS/FedEx. That won't hurt you too much right now, but it will be a major barrier to scaling -- and scaling is the only way you're going to compete with the shipping companies.
Maybe you can compete on some other way than price?