Define a comparable operating contract
Inputs and assumptions to record
- Failure cohort and reason code. (not complete)
- Original pick/pack, dispatch and failed-stop cost. (not complete)
- Redelivery, return, restock and support path. (not complete)
- Product condition, write-off and recovery. (not complete)
- Customer/carrier recovery and collection cost. (not complete)
net failed-delivery cost = original consumed cost + repeat/return cost + product/payment loss - customer or carrier recovery
- original consumed cost
- Pick, pack, dispatch and failed-stop resources already used (CU per failed delivery) — order and route record
- repeat/return cost
- Redelivery, return-to-origin, restock, support and administration (CU per failed delivery) — fulfilment and support record
- recovery
- Actually collected customer/carrier amount or supportable scenario (CU per failed delivery) — payment, claim or scenario record
Use one currency, indirect-tax basis, attribution rule and time horizon. All numbers below are invented currency units (CU), not forecasts or benchmarks.
Worked example: Failed Delivery Cost
Invented cohort: 30 failures; 14 CU original consumed cost, 9 CU repeat/return, 5 CU product/payment loss and 6 CU recovery per failure.
| Line | Calculation | Result |
|---|---|---|
| Net cost per failure | 14 + 9 + 5 - 6 | 22 CU |
| Cohort failure cost | 30 × 22 | 660 CU |
| Intervention cost | entered cohort cost | (240 CU) |
| Needed failures avoided | 240 ÷ 22 | 11 after rounding up |
| Case | Changed input | Result |
|---|---|---|
| 8 avoided | 8 × 22 - 240 | (64 CU) |
| 11 avoided | 11 × 22 - 240 | 2 CU |
| 15 avoided | 15 × 22 - 240 | 90 CU |
Use the result without hiding uncertainty
- Define failure reasons and cohort.
- Reconcile each outcome path.
- Calculate net cost by reason.
- Rank avoidable cost, not count alone.
- Model intervention cost and reduction cases.
- Pilot and compare to an aligned baseline.
- Counting only extra postage.
- Mixing failed attempts, returns and cancellations.
- Crediting recovery not actually collected.
- Ignoring product condition and support time.
- Claiming the intervention caused the observed change.
Questions before committing
- Should lost revenue be included in failed-delivery cost?
- Use lost contribution only when the sale is genuinely lost and avoid double counting product/payment loss.
- What if a carrier reimburses the business?
- Record actual or supportable recovery separately from claim handling and timing cost.
- Which rate should be tracked?
- Track counts and cost by defined reason on both attempted and completed denominators where useful.
Sources and methodology
- Failed Delivery Cost: primary calculation methodology — Margin101: Owns editable calculation, units, assumptions and validation boundaries.
- Manage your finances — U.S. Small Business Administration: General cost-record context; failure inputs remain the business cohort record.
Model the next decision
- Cash-on-delivery Profit Impact Planner
Measure cash-on-delivery success and failed-delivery loss
- Refund Cash & Profit Impact Planner
Plan refund cash exposure and recoverable value
- Shipping Profitability Planner
Choose a shipping charge after weighted delivery costs