Package delivery businesses have become extremely popular over the past five years especially as companies like Amazon have taken to using third-party contractors to provide package delivery. The vast majority of package delivery services typically have low startup costs given the fact that the largest expense in developing these businesses is specific for the acquisition of delivery vehicles. In most cases, entrepreneurs and start new package delivery services typically seek to lease these vehicles in order to reduce their upfront expenditures.
As of most types of vehicle leases, a capital cost reduction is applied at the onset of operations, but this is usually a fraction of the cost that is normally associated with a down payment for a new vehicle. The gross margins that are generated by package delivery services are very high. One of the things that concerns most people when developing these types of businesses is that automation will eventually take over this industry, but this is not anticipated for at least another 15 to 20 years. Autonomous vehicles have begun to enter the market, but they are still very much in their nascent stage, and as such, this is a very limited risk at this time. Many package delivery services will continue to be extremely profitable and very lucrative for their owners moving forward.
There are numerous considerations that must be taken into account when an individual is learning how to start a package delivery service. For most, a qualified certified public accountant as well as an attorney should be hired in order to ensure that the business is able to appropriately secure all the necessary license to operate in this capacity. The US Department of Transportation as well as state-based departments of transportation always require that a numerous licenses are issued not only to the owner of the business but also to the delivery drivers. Each vehicle must be also be properly registered with federal and state government agencies especially if the business is going to be conducting a substantial amount of interstate commerce. However, these licenses are pretty straightforward to get in the paperwork required is considered a moderate. Most attorneys can assist an individual entrepreneur that is looking to start a new package delivery service with acquiring the necessary paperwork, filing the necessary documentation, and paying the requisite fees associated with launching this type of business.
As it relates to corporate structure, the vast majority of small businesses these days are started did by individual entrepreneurs that usually use a single-member limited liability company or S corporation. As always, a qualified certified public accountant should be retained in order to determine which corporate structure is most appropriate for this type of business. Each type of corporate organization whether it’s an S corporation, limited liability company, regular corporation, limited partnership, or related entity has its advantages and disadvantages. Additionally, each industry has its own issues as it pertains to overall legal liability and as such a qualified attorney in conjunction with a certified public accountant can ensure that the business is properly structured so that any issues down the road will be mitigated. The cost associated with developing a new corporation vary state to state but usually it’s in the $150 to $500 range. It should be also noted that unless the owner intends to use their address as their principal place of business than a registered agent may be hired in order to collect any official notices and documentation from state and federal government agencies. The cost on an annualized basis for registered agent typically range anywhere from $50 to $100.
Package delivery services always require significant number of employees to render services to businesses and the general public. These employees typically have a cost of anywhere from $20,000 to $50,000 a year depending on how much driving there doing. Usually, package delivery services that operate in a standard capacity can expect that they will have to pay an annual salary of $30,000 to $40,000 a year in order to have competent drivers on staff. Beyond just the driving staff, a package delivery service also requires administrative assistants, package management staff, logistics management, and a bookkeeper. Generally, these employees typically also cost around $25,000 to $50,000 per year. Many package delivery services, in some cases, will have their drivers treated as independent contractors rather than as direct employees. This can save a significant amount of money as a relates to the payroll taxes associated with having an employee on staff. However, a CPA should be hired in order to determine whether or not an individual can be considered as an independent contractor. There have been instances where income is reclassified as W-2 income rather than than independently contracted income. This is in a gray area and only a qualified accountant should be used to make this determination.
Returning to the capital structure of a business, package delivery services are again able to be started with a investment ranging anywhere from $20,000 to $100,000 depending on whether or not the vehicles are going to be leased or purchased. Expansion capital is readily available to most package delivery services once they achieve profitability. One of the nice things about this industry is that they are able to always generate income from the onset of operations. Companies like Amazon, UPS, FedEx, and the post office have all taken outsourcing certain portions of their ongoing delivery needs.
As such, the contracts that can be acquired to render the services immediately once a vehicle is acquired and licenses are required is significant. These businesses can readily expand by simply acquiring additional vehicles as well as hiring additional drivers. Banks, financial institutions, and private investors are all keen to provide the necessary capital in order to get these businesses off the ground. The return on investment is substantial from a capital expenditure standpoint. The marketing costs associated with these types of businesses usually considered to be minimal. Most banks will require that a business plan is developed in order to showcase with the anticipated revenues of the business will be and that the company can satisfy all underlying debt obligations or lease obligations.
As it pertains to the marketing, this can be done somewhat on the minimal basis. The vast majority of these businesses are able to secure contracts even before they begin revenue-generating operations by enrolling themselves in standardized programs that instantaneously dispatch packages to be picked up and delivered to third parties. However, some package delivery services will maintain ongoing relationships with area courier services and moving companies in order to provide these services on ancillary basis. This can help with smoothing out revenues during times when the package delivery service moves a little bit more slowly such as summer. In busy holiday seasons, especially around Christmas, package delivery services operate near 100% capacity at all times. Most package delivery services will maintain a small website just to have a legitimize presence when people look up the business’s name.
It is also expected within this industry the companies like Uber, Lyft, and related ride sharing platforms will eventually integrate package delivery services into their operations. There are now numerous companies that all so provide food delivery services as part of their overall operation. This can be another one of the ways in which a package delivery service maximizes its return on investment. Again, one of the great things about the logistics industry is that there is a readily them large amount of business available that can be service at the onset of operations. This trend is expected to continue in perpetuity as more and more people to man on demand services like ride sharing, package delivery, and food delivery. Companies like GrubHub have dominated the market with the specialized types of services, and this presents a substantial opportunity for an entrepreneur that knows how to maximize the return on capital investments like delivery vehicles.
This is an exciting industry, and package delivery services are going to have a substantial resurgence over the next 20 years. As more and more people demand products and services immediately, these applications and services have become very popular. The access the capital is substantial, the gross margins are moderately high, the barriers to entry are low, and for seasoned entrepreneur this can be a very lucrative opportunity. As always, it is imperative that any entrepreneur that starts any business – whether it’s a package delivery service or related company – keeps a close eye on all cash flow given the fact that there can be a lag between the time the invoices are paid and the underlying expenses occur.