Courier companies deliver items between two different parties – most of the market is taken up by business clients, although there are still a number of domestic clients that may, for example, sell bulky or valuable eBay items that they want delivered. Understanding the market, and where your new company will fit, is key to success in this industry. Jamie Lawrence discusses the options available, and the key decisions you’ll need to make.

Courier companies deliver items between two different parties – most of the market is taken up by business clients, although there are still a number of domestic clients that may, for example, sell bulky or valuable eBay items that they want delivered. Understanding the market, and where your new company will fit, is key to success in this industry. Jamie Lawrence discusses the options available, and the decisions you’ll need to make.

What does the market look like?

The courier market delivers items and information that can’t be distributed electronically, which generally means products. This is a fundamental shift from previous years when things we send over the internet many times a day – voice recordings, documents – were sent by courier. However, email and broadband have made these courier services redundant.

The diversification of delivery companies has also weakened the courier market, with parcel delivery and pallet companies offering courier services as a side-line, often piggybacking on parcel deliveries to keep costs lower.

As such, the courier market is more restricted than in the past, and there’s more competition, but many companies remain profitable.

What services will you provide?

You’re likely to offer basic services, such as same-day packet and important document delivery, as standard, but you may wish to provide additional services to increase your target market. Do bear in mind that specialist services, such as delivery of scientific samples or hazardous substances, require very strict handling procedures and adherence to legislation. This can be extremely expensive, so make sure there’s a demand before you choose to go down this route.

Developing a USP

With so much competition in the marketplace, courier services must explicitly say something that appeals to business owners. One company may offer a guaranteed pick-up time, which can be useful for urgent deliveries, while another might provide comprehensive insurance as standard which would benefit deliveries of valuable goods.

New companies are at a disadvantage in any industry – they don’t benefit from economies of scale or established customer bases. Finding a USP that sets you apart from the competition is an important first step to cutting into the market, but it should always be tailored to your market.

Creating a distribution network

Before the internet, if you wanted to provide courier services in Perth you needed to have a physical location in Perth, and a local fleet of vehicles. This meant that apart from a few very big courier companies that had national coverage, courier services were typically provided by local firms that had a limited area of operation.

The internet has changed this – now courier companies can virtually extend their coverage by piggy backing onto another courier’s fleet (while sharing profits). In return, the company offers up their own fleet to be used by other courier companies. By doing this, not only do courier firms have access to a wider pool of potential clients but they can provide a greater variety of services. Not to mention, they can appear bigger than they actually are, which is always an advantage for start-ups and smaller businesses.

Putting together a fleet

Vehicles are obviously essential when starting a courier business, but there are many decisions to make. How many vans should you buy? Should you buy new or second-hand? Should they be energy-efficient?

These questions all depend on the type of business you’ll run, and your business model. As the business world becomes more carbon-conscious, fuel-guzzling vehicles will become less and less acceptable. Eco-friendly vehicles are more expensive – you’ll need to decide whether your brand requires a blatant commitment to protecting the environment, or whether you can make the switch when your business is profitable.

With regard to the number of vans, it’s always best to start small and work upwards – buying too many vehicles, particularly on credit, is a bad move. Because of internet courier exchanges, you can start with a small fleet and work your way up to a larger fleet as demand increases. Make sure you do get your vehicles branded – it helps maintain a professional image and is essentially free advertising.

Staying competitive

While internet sites have allowed you to extend your coverage, they have also made the industry very competitive. Companies can search a variety of sites until they find the lowest price and go with that company, and because couriers across the country can service most if not all of the mainland, you’re competing against a huge number of other businesses.

Of course, not all businesses go on price (that’s why a decent USP will really help you), but it’s a big factor for most clients. You need to keep your prices competitive, which means you need to keep costs low to turn a profit. Organisational skills are key, to reduce the number of miles your vehicles are on the road while maintaining the maximum number of deliveries. Good technology can also help, such as satellite navigation to help identify the quickest route.

Unlike many industries, larger businesses do not automatically dominate the courier market. Larger companies typically have significant costs such as running regional offices, buying the best vehicles to maintain their image and the staffing costs of maintaining a corporate infrastructure. With the internet, smaller companies can leverage the benefits of having a large network – national coverage – without the associated costs.

Of course, the profits must be shared, but with such a lower cost base this is a small price to pay. So focus on keeping costs low and prices competitive, and don’t be afraid to take on the larger firms with the services you offer. Find a USP and you could soon find your market share increasing.

Start-up costs

There’s a sliding scale of start-up costs in this business – the bigger your initial operation, the more it’ll cost you. You should start small and grow when you can, to avoid getting into cash flow difficulties or finding out that demand does not quite match your business plan. As said above, the internet allows you to appear far bigger than you are, and cover a far greater area, so don’t be pressured into buying many vehicles and the latest equipment.

Even so, it’ll be hard to start a courier company for under £10,000, because customers tend to have certain expectations of all firms that are expensive, such as professionalism (i.e. decent uniforms, rapid communication), the ability to track shipments, a decent quality – though not necessarily new – vehicle, and good branding. You will also need to spend an initial budget on marketing to get the word out to local businesses and potential domestic clients.

Insurance and compliance

A good insurance policy is essential because of the risks of damage to valuable property, and the innate risks of drivers being on the road. Employer’s liability insurance is important when you first take on staff, and it’s worth checking your policy to make sure what you are covered for. Driving long distances is high-risk, and you want to ensure the excess/amount you’re insured for is suitable for your business. If in doubt, talk to a specialist insurer.

You should also take on public liability insurance and professional indemnity insurance to protect your business in the event of third-party legal action being taken against you.

With regard to the products you deliver, you’ll need to arrange suitable insurance if your clients request it, and depending on the price and level of service you’re offering. You may find some goods are covered under your basic insurance policy, but high-value and breakable items may require a more comprehensive policy.