[swengw]

If you assume a driver’s wage is at least the Seattle minimum wage of $15 per hour, add nominal fulfillment and delivery costs of $5 per order (the contractor’s fuel, car etc.) and nominal sales and marketing and general administration costs of $5 per order, Amazon needs to fulfill close to eight minimum order ($35) deliveries per hour to breakeven just on the variable costs

Across 25 associates, the average number of orders was only 3.

There's a third option for how this service survives: increase adoption so that:

- variable SG&A drops from $5 per order

- stops are closer so delivery costs drop from $5 per order

- drivers can deliver more orders per hour

[gringoDan]

It seems like the person who wrote this analysis assumed unchanging variable costs, rather than recognizing that they will decrease over time.

1) Where did they get a $5 marginal SG&A number? This seems high to me and no source is given.

2) There is no way that, at scale, delivery costs are as high as $5/order.

The IRS standard rate for mileage in 2018 is 54.5 cents/mile. (Maybe not the most accurate metric to use, but a decent rule of thumb.) So this analysis assumes that, at scale, for the average order a driver travels 9.17 miles. This routing would be incredibly inefficient - Amazon should "batch" deliveries so that in a 10-mile "loop" a driver can drop off 3+ orders.

Furthermore, I'm not sure if Amazon drivers are employees or 1099 workers. If they're independent contractors, the delivery costs are irrelevant to Amazon, since they're passed through to the drivers.

3) Naturally, drivers utilization rates will increase as demand increases.

[stratelogical]

Yes, you are right. But increasing adoption across different zipcodes won't help that much (although, yes, it’ll bring SG&A per order down). The adoption has to increase in the exact same area (your point #2 has to be true, i.e. stops should be so close, like an apartment building) for drivers to make more orders per hour, and for this service to be profitable in the long run.

[dahdum]

Also critical is the that customer tips reduce the wages Amazon pays to the driver.