How profitable is delivery service business?

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Moving from the financial institution to a start-up company in the mobility space, the frequent investment vehicles that I was conversant with were treasury bills, shares, bonds, fixed deposits and collective investment schemes. Most of these vehicles could give you an annual return of 14% – 30% or more on your investment.

In recent times, there has been a surge in the number of delivery companies in Accra on the back of an impressive growth in the e-commerce space in Ghana, which can be dominantly attributed to the outbreak of COVID-19. In this article, we will discuss a basic but important question every business man asks himself before venturing into a delivery business using motorbikes: ‘Is the delivery business a profitable venture in Ghana?’

Imagine investing GH¢54,000 into a treasury bill for a year at a rate of 14%. After the investment period, you would be making a return of GH¢61,560. Using the same amount into a fixed income security at a rate of 22%, the investor would otherwise be making a return of GH¢65,880 at the end of the same period without any stress. Unlike investing in financial securities, investing in a business is like “eating glass” as rightly described by Elon Musk. To reach your goal, such elements as patience, determination, and a can-do attitude are essential.

So then, what is involved in investing in a delivery business in Ghana? Well the first requisite an investor needs to meet is to have his business duly registered at the Registrar General Department.

Next, he would have it licensed at the Postal and Courier Services Regulatory Commission. After the legalities, he may begin operations from any location; even from his home or back yard if he is looking to cut down on the overhead cost. He can also employ one or more persons (depending on the fleet size) to manage dispatch riders that will help him meet his expected return on his investment.

Imagine the investor uses the same initial investment of GH¢54,000 (figure mentioned at the outset in examples 1 and 2) to acquire 10 fuel bikes (say, the Bajaj Boxer brand) for his operations. A breakdown of the expenses would be as follows:

  1. Unit cost of bike – GH¢4,350;
  2. Registration at the Drivers’ and Licensing Authority (DVLA) – GH¢350;
  3. Insulated backpack/courier box – GH¢450;
  4. Comprehensive insurance – GH¢250

Adding up the figures above, the cost of acquiring a fully functional motorbike for delivery services would total GH¢5,400 – thus for 10 bikes we are looking at an initial total investment of GH¢54,000.

After acquiring the bikes, the investor is obliged to contract dispatch riders as these would be the front-liners in the delivery operations. They will either make or break the business, hence, of key importance is the need to treat them with dignity.

This would include giving them good and fair incentives such as fuel for their bikes, rewards for excellent or exceptional performance, and so on. Also, it is necessary to have someone in charge of administration in terms of handling delivery requests and attending to challenges that the riders might encounter in their line of duty.

The next critical aspect of the business will be to get traffic or clients to serve. It is important to note that unlike financial securities where your money works for you from the very moment that you lock your money in the investment till you get your returns, investing in a business works differently. In the case of a delivery business, the investor will not get returns on his investment if the bikes are not in use. Hence to make returns on the investment, the investor has to complete the cycle by getting traffic or clients for the motor bikes right from the get-go.

In terms of profitability, assuming the investor does a percentage sharing of 45% (of the revenue) to the investor, 45% (of the revenue) to rider and 10% (of the revenue) to employed staff, he would be making a monthly revenue of GH¢7,200 assuming he rents a bike and a rider for a daily rate of GH¢80 (market price), where the rider buys their own fuel and get to work for 20 working days (Monday-Friday) in a month. Within one financial year, he will be making a total of GH¢86,400 for the 10 bikes (all things being equal). This represents an annual return of 60% on the initial investment of GH¢54,000.

In comparison, the rate of return for investing in a delivery business is three times the rate of return for investing in a fixed income security at a safe financial institution. Even though the delivery business shows an impressive growth rate, it is not cast in stone as other factors like maintenance cost, damage to the bike, accident and other unforeseen circumstances can pose as impediments to the growth of the business.

>>>the writer is an Investment Analyst and a Growth Associate at SolarTaxi Limited. [SolarTaxi is a company that harnesses the energy of the sun to provide clean and affordable transport]. He holds an MBA in Finance from Coventry University in the UK and also a certificate from the Ghana Stock Exchange. E-mail: [email protected]

 

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