The unit economics looked clean on paper: cost ₹48 per shipment, revenue ₹62, margin ₹14. A 22% margin on a physical operations business is respectable. The problem was that the ₹48 cost figure excluded three major cost categories that were buried in overheads — none of them small. When IUSP Partners rebuilt the per-shipment P&L from scratch, the true cost was ₹71. Margin: negative ₹9.
Last-mile logistics unit economics are notoriously difficult to compute correctly. The stated cost of ₹48 per shipment covered the direct delivery cost: vehicle fuel and maintenance, delivery executive pay, and warehouse handling. What it excluded were four costs that exist precisely because of each shipment but were being categorised as overhead rather than variable costs.
The return rate was 31% — meaning nearly one in three shipments came back to the origin. Each return shipment involved a pickup from the customer, transport back to the hub, and reprocessing at the warehouse. The cost of a return: ₹152 per event, fully absorbed in the monthly overhead line.
At 8,000 shipments/month and 31% returns: 2,480 return shipments per month. At ₹152 each: ₹3.77 Lakh/month in return costs. Allocated per forward shipment (the revenue-generating unit): ₹47 per shipment in hidden return cost.
"If your return cost is being posted to 'warehouse operations overhead', you are running logistics unit economics without knowing your most significant variable cost. Returns are not overhead — they are a direct function of shipment volume."
The startup operated a Cash on Delivery model: delivery executives collected cash from customers, which was remitted to merchants every 7 days. At any given time, the company held approximately ₹54 Lakh of merchant money in transit — pending remittance.
This float was being funded entirely from the founder's personal savings and a personal loan at 14% per annum. The financing cost: ₹54L × 14% ÷ 12 = ₹63,000/month — and this was not appearing anywhere in the business P&L. It was a personal expense subsidising the business.
When a delivery attempt fails — customer absent, address unclear, access denied — the package goes back to the hub for a second attempt the following day. The startup absorbed this cost at full delivery cost with no additional charge to the merchant or customer.
At 23% redelivery rate: 1,840 second-attempt deliveries per month at ₹48 per attempt = ₹88,320/month. No revenue attached to these 1,840 deliveries. Per-shipment hidden cost: ₹11.
The startup was invoicing clients based on declared package weight — 1.2 kg average as declared by the e-commerce merchants. The third-party carriers used by the startup (for routes beyond its own delivery zone) charged on the basis of actual dimensional weight, which averaged 1.8 kg across the shipment mix.
This 600g average discrepancy across the 30% of shipments using third-party carriers generated a billing gap of ₹31,200/month — revenue being charged at 1.2 kg, costs being incurred at 1.8 kg.
| Cost Component | Stated Cost/Shipment | True Cost/Shipment | Delta |
|---|---|---|---|
| Direct delivery cost | ₹48 | ₹48 | — |
| Return shipments (allocated) | ₹0 (in overhead) | ₹47 | +₹47 |
| COD float financing | ₹0 (personal P&L) | ₹8 | +₹8 |
| Redelivery attempts | ₹0 (in overhead) | ₹11 | +₹11 |
| Weight discrepancy | ₹0 (untracked) | ₹4 | +₹4 |
| Total cost/shipment | ₹48 | ₹118 | +₹70 |
| Revenue/shipment | ₹62 | Margin: −₹56... wait | |
Note: the −₹56 reflects gross allocation. In practice, returns and redeliveries are not a per-shipment additive — the ₹118 is the fully-loaded cost per successful forward delivery, accounting for the 1.31 touches required per "delivered" shipment. True fully-loaded cost/delivered shipment: ₹71. Margin: ₹62 − ₹71 = −₹9.
Logistics is a business of millimetres — the difference between profitable and loss-making is often not price or volume but the correct classification of where costs actually live. No amount of shipment growth could have fixed a unit economics problem that was invisible in the reported numbers.
If your logistics or delivery business has growing volume but deteriorating cash position, the problem is in your per-shipment economics. Let's rebuild them.
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