#SmallBusinessTalk: How to build and grow a local delivery business in 2018

Team Shadowfax

Everyday, more than 10,00,000 consumer products are bought over e-commerce platforms. Almost as many food orders are being delivered everyday as well. Both Amazon and Walmart are now keen to sell groceries online as it emerges as a new e-commerce segment. The fact of the matter is — consumers want everything at the door. Or let’s put it this way, they have always wanted things at the door. The only difference is that now the technology, and new business models built using technology, allow these home deliveries to happen.

Online shopping has grown rapidly in the country and is expected to continue that growth. There simply hasn’t been a better time to run a delivery business. India needs local entrepreneurs in the logistics industry more than ever. After all, local deliveries and logistics are yins to e-commerce’s yang. There is no one without the other. We started speaking with local delivery companies a few months back. Some common questions kept coming back to us, from starting a local delivery business to running it successfully in 2018. We decided to put together this long guide to answer those questions and then some. It’s a long read. You might want to bookmark this post to keep coming back to it later.

Getting Started

When you look at intra-city logistics, the fact is — of all the money that retailers and brands spend on shipping their products to consumers, close to 30% goes in covering the last mile to the customer’s doors. We have written extensively on how broken exactly is that last mile in India. The city streets are crowded, it’s difficult to locate addresses in closely placed localities, and the commercial vehicles are filled with goods rather inefficiently.

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The point here is that the industry has its fair share of challenges and delivery business is no different than any other business for that matter. To assume that you can simply start a delivery business and walk out a Lakhpati or Crorepati (millionaire) is stretching possibilities a bit too far. The first piece of advice, therefore, is to move carefully. In case you haven’t worked in the logistics industry earlier, it’s always a better idea to spend some time doing deliveries yourself.

You can see examples of this all around you. Ritesh, who started Oyo Rooms, slept in hotels and bed-and-breakfasts for a long time before he started building a business. The nitty gritties expose you to real on-ground problems in the industry and help you prepare accordingly.On the other hand, in case you have worked in the industry for some time and are comfortable starting a local delivery business, we’d recommend you to start by taking up a franchise first. This should help you understand how larger brands and retailer manage their deliveries before you make a larger bet. Whether you choose to be a delivery partner or pick up a franchise, there are 5 steps that can help you start and grow the delivery business.

Step 1: Decide the Location and Category

It is important to decide what you want to deliver and to whom. It helps to pick a small area to service, especially when you are just starting out. Working on a smaller scale will help you understand the locality better and establish deep relationships with your customers. This is a significant value you can bring to any delivery network that you join. At Shadowfax, we see delivery partners covering approximately 85 km every day. A WINGS franchise partner, on the other hand, typically has 20 odd drivers working for him who can together serve a 500 square kilometer area, roughly the size of a city like Indore or Ahmedabad.

Look closely around you. What are people around you ordering the most? Be self-aware and pick areas and categories you understand and can be good at.

Step 2: Secure financing, licenses, equipment and insurance

If you have decided an area you want to deliver in, and the category of items you will be moving, it’s time to make some purchases. Each delivery person requires a vehicle, a smartphone and a working internet connection to do his or her job well. Think about the delivery vehicle you or your team plan to use. You need either a bike or a Light Commercial Vehicle (LCV) to start delivering. You can expect to pay Rs. 50,000–70,000 for a bike and Rs. 3,00,000 to 5,00,000 for an LCV. Among bikes, a 110cc bike is usually best for the purpose of making deliveries. At 85 kilometers per liter or more, a 110cc bike can help you keep the cost of each delivery as low as Rs. 1 per km. TVS, Honda, Hero and Suzuki are the most popular brands for 110cc bikes in the market.

The light commercial vehicles used most commonly in the industry can carry a Gross Combination Weight (GCW) of 3.5 tonnes or below. Tata, Mahindra, Force and Ashok Leyland all offer multiple models in this category. Tata ACE (छोटा हाथी) is the most popular LCV in the segment, closely followed by Mahindra.

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With an LCV, you might want to invest in a hand-truck or dolly as well. It is immensely helpful to lift and move heavy goods like furniture, or electronic appliances. Now, if you are doing deliveries yourself, this is pretty much what you’d need. For a delivery business, however, you need to secure a few more things. Registering the delivery business with the Ministry of Corporate Affairs is a first step in this direction. Sole proprietorship is a simple and inexpensive business structure. In case you are doing this business with a friend and want to protect your liabilities, LLP is another option for you. Then, you’ll need to register the business for Goods and Service Tax. You may need to register for Employee State Insurance and Provident Fund, depending upon your team size and your business structure. In case you don’t know this already, you can look for a Chartered Accountant (CA) who can help.

It is also advisable to get a business insurance. Serious liability issues may arise from cargo damage, theft, injury, environment damage etc. When buying insurance, make sure that you have a minimum cover of Rs. 25,000 for the goods in transit and another cover for Rs. 50,00,000 on motor fleet insurance and public liability each.

Step 3: Register with a large 3PL logistics company to get orders and start earning

Once you have everything above in place, the next step focuses on building a system to get orders. Conventionally, you can sign up new clients by using emails, cold-calls and local advertisements. Most large brands in every category, also sign up local entrepreneurs for franchises regularly. In 2018, however, a local delivery business should consider a new emerging channel — third-party logistics, or 3PL, companies. This is the reason why step 3 focuses almost exclusively on this channel.

A third-party logistics company has a ready roster of clients to serve. This saves valuable time and money that your delivery business might otherwise spend on acquiring customers. Often the 3PL companies use technology that helps collect orders from customers, assigns them to individual delivery boy or girl, and plans delivery routes automagically. By partnering with such a firm, your business can access the same technology without any significant investments. Delivery Partners at Shadowfax, delivering groceries for BigBasket

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Sometimes a third-party logistics company may also work across industries. By partnering with such a company, a delivery business can dramatically improve its earnings and find consistent work for its delivery team. Shadowfax is a third-party logistics company that is building an on-demand platform for instant deliveries in India. An on-demand platform for delivery works just like the same way as on-demand platforms everywhere else. It connects businesses with delivery partners in much the same way as uber connects riders to drivers. 7,000+ delivery partners already complete more than 1 lakh deliveries everyday using Shadowfax’s on-demand platform. Individual delivery partners working with Shadowfax can make up to 45,000 a month which is twice the industry average. Along with the technology tools mentioned above, Shadowfax also helps you in training and managing you delivery team. These sessions helps delivery partners understand and adopt best practices when it comes to managing communication with customers or managing crises situations. You can start as a delivery partner, or a driver-cum-owner yourself, OR pick up a franchise for your area.

Step 4: Learn the tricks tools of the trade to be more efficient

Customers appreciate a fast and seamless delivery experience. The fact that more than 1 crore people in India have subscribed to Amazon Prime is enough proof. Technology can make life really easy for these customers as well as the delivery partners and your delivery business as well. The Real-time tracking system allows you to take decisions in near real-time thus improving accuracy.

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GPS helps your riders navigate routes easily. Using this information, you can also keep your customers updated on the delivery status with corresponding notification and alerts. Real-time location and traffic data also help a delivery business plan routes more effectively. This can further help their drivers avoid traffic disruptions and delivery maximum shipments on their route. The clients may ask the local delivery company for proof of delivery in certain cases. It is often important when delivering documents. Using technology, the delivery business can easily capture the proof in an electronic format, complete with customer’s signatures as well, if needed.

Step 5: Grow your business and earn better.

Speed and efficiency are two key performance indicators in the logistics sector. They grow even more important at the last mile, also referred to as ‘The Moment That Matters’ Those are also the two primary directions in which one can grow a delivery business. Let’s call them vertical growth and horizontal growth. When growing vertically, you add more vehicles and more drivers to your team with the goal of improving the speed of delivery. The larger team can reach deeper into areas that you are already delivering in, or it can help you expand to new geography altogether.

Growing horizontally, on the other hand, focuses on efficiency. Say, if you are delivering only food, you would notice that the delivery team sits idle for long period of times between the morning and evening peaks. The team can successfully handle e-commerce goods during these non-peak hours to improve their own earnings, growing your delivery business along. We know this through months of experimenting with cross-utilisation at Shadowfax ourselves. The efficiency of the delivery network typically goes up 65% and an individual delivery partner on average makes 40% more money.

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You can also adapt your business to the online-to-offline (O2O) model to bring in more growth. You’ll need storage space, a micro-warehouse of sort. Reliance recently announced tying up with local Kirana stores to fulfill online orders. The fact is, every major e-commerce platform is betting big on this model in India, especially when it has proven widely successful in China.

Shadowfax helped build the O2O model for PayTM earlier and we regularly complete 800 deliveries everyday on this particular model. It is still early days for the model in India and the first-movers definitely stand to gain from the trend.

Shadowfax tracks news and trends related to future of last mile logistics. You can check out the latest issue of the newsletter, ‘Future is here’. Hit the subscribe button on the top left if you’d like to receive the next issue in your inbox.

That’s all, folks!

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At Shadowfax, we fundamentally believe in an entrepreneur-led ecosystem for local deliveries in India. Our mission is to connect the next million local entrepreneurs to Shadowfax’s on-demand platform and help them take advantage of the e-commerce revolution in the country. Download our partner app if you are a delivery partner yourself. For franchise enquiries, you can drop us a line here.

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