How to Choose Your Delivery Rate Strategy

There's no single "best" delivery rate strategy. A bakery with a 5km radius needs different pricing than a furniture store delivering across a city. The right approach depends on your costs, your customers, and what behavior you want to encourage.

This guide helps you choose the strategy that fits your business.

The Decision Framework

Answer these four questions to narrow down your options:

1. How variable are your delivery costs?

If every delivery costs roughly the same (similar distances, similar order sizes), flat-rate pricing works. If costs vary significantly—some orders go 2km, others go 15km—you need variable pricing.

Flat costs → Flat rate Variable costs → Tiered pricing

2. What's your average order value?

Delivery fees feel different at different price points. A $5 fee on a $25 order is 20%—feels expensive. The same fee on a $100 order is 5%—feels reasonable.

Low AOV (under $40): Keep delivery fees low or absorb them Medium AOV ($40-100): Standard fee structure works High AOV (over $100): Free delivery becomes viable

3. What behavior do you want to encourage?

Your rate structure incentivizes specific customer behavior:

• Free delivery threshold: Larger orders
• Pickup discount: In-store traffic
• Same-day premium: Scheduled orders (cheaper for you)
• Distance pricing: Orders from nearby customers

Choose the structure that drives the behavior you want.

4. What can your market bear?

Look at competitors. If every florist in your area offers $8 delivery, charging $15 requires a clear reason. If everyone charges, undercutting with free delivery might win customers—but only if your margins support it.

Strategy Options

Option A: Flat Rate

What it is: Single price for all deliveries within your zone.

Choose this when:

• Your delivery area is compact (under 5-7km)
• Order sizes are consistent
• You want maximum simplicity
• You're just starting with delivery

Example: $7 delivery anywhere in your zone

Watch out for: Distant deliveries becoming unprofitable. If you notice orders clustering at the edge of your zone, you may need to switch to tiered pricing.

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Option B: Free Delivery with Minimum

What it is: Free delivery above a threshold, flat rate below.

Choose this when:

• You want to increase average order value
• Your margins can absorb delivery costs on larger orders
• Competitors offer free delivery
• Delivery costs are predictable

Example: Free delivery over $50, otherwise $8

How to set the threshold:

1. Calculate your average delivery cost
2. Find the order value where margin covers that cost
3. Set threshold slightly above that point

If delivery costs $12 and your margin is 40%, you need $30 profit to break even. At 40% margin, that's a $75 order. Set threshold at $60-75.

Watch out for: Orders clustering just above the threshold with low-margin add-ons. If customers add a $5 item to hit $50 free delivery, and that item has 10% margin, you've lost money.

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Option C: Distance-Based Tiers

What it is: Different rates based on how far you're delivering.

Choose this when:

• Your delivery area spans multiple zones
• Drive time/distance significantly impacts cost
• You want fair pricing for nearby customers
• You're losing money on distant deliveries

Example:

• 0-5km: $5
• 5-10km: $9
• 10-15km: $14

How to set zones:

1. Map your delivery costs at different distances
2. Identify natural breakpoints (5km, 10km, 15km)
3. Set rates that cover costs + margin in each zone
4. Round to clean numbers

Watch out for: Customers at zone boundaries feeling unfairly treated. A customer at 5.1km pays more than one at 4.9km. Consider slight overlap or communicating zones clearly.

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Option D: Free Threshold + Distance

What it is: Combine free delivery threshold with distance pricing.

Choose this when:

• You want larger orders AND fair distance pricing
• Delivery area is large
• You have margin flexibility on larger orders

Example:

Order Value	0-5km	5-10km	10-15km
Under $50	$8	$12	$16
Over $50	Free	$4	$8

This rewards larger orders at every distance level while still covering costs on distant deliveries.

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Option E: Urgency Pricing

What it is: Higher rates for same-day or express delivery.

Choose this when:

• Same-day delivery is operationally expensive
• You want to encourage scheduled orders
• Customers value speed and will pay for it
• You have variable prep time requirements

Example:

• Scheduled (2+ days): $6
• Next-day: $10
• Same-day: $18

How to set urgency premiums:

Same-day delivery typically costs 50-100% more than scheduled. You need staff flexibility, buffer capacity, and disrupted routes. Price accordingly.

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Option F: Free Delivery, Higher Prices

What it is: "Free" delivery built into product prices.

Choose this when:

• Customers strongly prefer free delivery
• Competitors offer free delivery
• Your products aren't price-compared frequently
• You have consistent delivery costs

How it works:

Calculate average delivery cost per order. Spread that across product prices.

If delivery costs $8 average and orders have 3 items average, add $2.67 per product. Round to $3.

Watch out for: This only works if customers don't directly compare your prices. If you sell commodity products that are easily price-checked, this strategy backfires.

Strategy by Business Type

Bakeries and Food Businesses

Recommended: Free threshold + same-day premium

Why: Food orders are often time-sensitive. You want to encourage larger orders (higher margin) while managing same-day chaos.

Example structure:

• Orders over $40: Free delivery
• Orders under $40: $6
• Same-day (order by 11am): +$5

Florists

Recommended: Distance tiers + urgency pricing

Why: Delivery distances vary widely. Last-minute orders (sympathy, "forgot anniversary") justify premiums.

Example structure:

Distance	Standard	Same-Day
0-7km	$10	$18
7-15km	$15	$25
15-25km	$22	$35

Grocery and General Retail

Recommended: Free threshold + weight adjustment

Why: Order sizes vary. Heavy orders cost more. Free threshold increases basket size.

Example structure:

• Orders over $75: Free
• Orders $40-75: $6
• Orders under $40: $10
• Heavy orders (over 15kg): +$5

Furniture and Large Items

Recommended: Product-based pricing + distance

Why: Delivery costs vary dramatically by item. A lamp and a sofa shouldn't cost the same to deliver.

Example structure:

• Small items: $15
• Medium items: $35
• Large items: $65
• Two-person delivery: $95
• Distance over 15km: +$20

Restaurants

Recommended: Flat rate or free with minimum

Why: Speed matters most. Complex pricing slows down orders. Keep it simple.

Example structure:

• Orders over $30: Free
• Orders under $30: $5

Common Mistakes

Mistake 1: Pricing Without Knowing Costs

Setting delivery at $5 because it "feels right" without knowing your actual costs. If delivery costs $12, you lose $7 per order.

Fix: Calculate your real per-delivery cost before setting rates.

Mistake 2: One-Size-Fits-All for Large Areas

Charging $8 flat rate when your zone spans 20km. Nearby customers subsidize distant ones. Distant deliveries lose money.

Fix: Implement distance-based tiers.

Mistake 3: Threshold Too Low

Free delivery over $25 when your average order is $30. Most customers already qualify—you've given away delivery without increasing order size.

Fix: Set threshold 20-30% above current AOV to incentivize larger orders.

Mistake 4: Hidden Fees at Checkout

Showing low/no delivery cost until checkout, then adding fees. Cart abandonment spikes.

Fix: Show delivery estimates early (product page, cart page).

Mistake 5: Ignoring Competitor Pricing

Charging significantly more than competitors without communicating why. Customers comparison-shop.

Fix: Match market rates or clearly communicate your value (faster, more reliable, better service).

Making the Decision

Here's a simple decision tree:

Step 1: Is your delivery area compact (under 7km)?

• Yes → Consider flat rate or free threshold
• No → You need distance-based pricing

Step 2: Do your order sizes vary significantly?

• Yes → Add weight or product-based adjustments
• No → Keep it simple

Step 3: Is same-day delivery significantly more expensive to fulfill?

• Yes → Add urgency premium
• No → Keep time-neutral pricing

Step 4: Does your market expect free delivery?

• Yes → Free threshold or bake into prices
• No → Charge transparently

Testing and Adjusting

Don't overthink the initial setup. Pick a strategy that roughly fits, launch it, and measure:

After 2 weeks:

• Are distant deliveries profitable?
• Is cart abandonment acceptable at checkout?
• Are customers hitting your free threshold?

After 1 month:

• Which zones generate most orders?
• Are same-day orders manageable?
• What's your effective delivery cost per zone?

Adjust based on data, not assumptions. Small tweaks—moving a threshold by $10, adjusting a zone by 2km—can significantly impact profitability.

Conclusion

The right delivery rate strategy balances three things:

1. Covering your costs — Don't lose money on delivery
2. Customer expectations — Stay competitive in your market
3. Behavioral incentives — Encourage profitable patterns

Start with the strategy that matches your business type. Keep it simple enough to explain in one sentence. Measure what happens. Adjust.

There's no perfect rate structure—only the one that works for your operation right now.

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Need to implement distance, urgency, or threshold-based rates? Bird's intelligent rate configuration lets you combine multiple conditions without needing separate shipping apps.