Designing Pricing, Pay, and Operations to Work Together

How strategic are you with your last-mile pricing and are you charging what you and your drivers are worth? The hard truth is probably not very and no...so what are you going to do about it?

Most last-mile courier companies don’t have a pricing problem. They have an alignment and structural problem.

Client pricing is usually related to what will “win” the business. 

Independent contractor commissions are a “plug” that will achieve targeted gross margins.

Operational execution sits in the middle trying to survive the contradictions.

That’s where expected margin goes to die.

Client pricing is a strategy that must be built from the curb up—not the spreadsheet down.

If your pricing assumes: 

• Ideal density 

• Zero wait time – no traffic 

• Perfect pickups & drop offs

• Contractors who “just hustle harder”

• And every other perfect costing input

 …you’re not pricing delivery. You’re preparing for unpleasant conversations.

Best-in-class couriers price units based on: 

• Actual stop and wait time 

• True route complexity, miles, and traffic delays 

• Regional competing hourly wage estimates 

• After-hours, weekends, holidays, peak times, weight, pieces, vehicle premiums.

• Actual vehicle MPG and repairs with real fuel costs

• Other actual incremental costs…of the driver or imposed by the company

Accurate costs might not win you every account, but they respect the capacity that represents your company and the average margins you need to survive variable demand!

Pricing governance protects relationships, not just margin. 

Minimums, accessorials, volume tiers, fuel logic, annual adjustments, cancellation fees, SLAs, contract management, renewals, etc. 

Not because you’re greedy—because reality changes

When contracts and client agreements lack governors from the start, every operational surprise turns into a pricing argument.

That’s how good clients become frustrated clients.

Good client behavior should cost less. Bad behavior should cost more. 

Accurate forecasts, clean cargo, consistent volume, bigger delivery windows = cheaper to serve. 

Chaos, rushes, cancelations, and constant changes = higher cost.

If your pricing doesn’t differentiate, you’re training clients to marginalize your value. 

Now the part everyone avoids…

Independent contractor commissions must reflect economic truth. 

If a contractor gets paid the same for: 

• Easy stops vs. brutal stops 

• Tight routes vs. scattered routes 

• Clean pickups vs. disaster zones

…you’ve built a system that rewards cherry-picking and punishes reliability.

Best-practice IC pay models: 

• Pay for time, complexity, and density—not just stops 

• Include route minimums to stabilize supply 

• After hours work needs pricing that buys interest 

• Make “bad freight” expensive on purpose

• Pay commissions weekly and offer advance options

You don’t fix contractor churn with more low margin volume. You fix it with math and policies that respect reality.

The hard truth: Last-mile businesses don’t fail because prices are too high. They fail because pricing, contractor pay, and operations were never designed to work together.

Volume hides this problem. Until it doesn’t.

If this made you uncomfortable… You’re probably closer to the truth than you think.

There is hope! 

FedEx and UPS have passed along compounded annual general price increases of 39.71% since 2020 and that does not even include higher fuel, residential or over-dimensional surcharges.

Imagine if you built this type of rate escalation language into your client relationships and even if you got 50% of what FedEx and UPS got….how many problems would it solve…..how much more could you pay drivers to lower turnover….how many more FTEs or technology could you afford to improve service?  How much healthier would your business be?

Many will say clients won’t accept it……the companies that survive and prosper will take the chance and reap the reward of their value proposition and the realization that clients will pay for it IF YOU ASK!

What changes are you planning to your pricing and commission structures in order to better extract the value you deliver to your clients? If you're unsure, let's talk.