What are the costs to start and maintain a delivery service?

In order to start a delivery service, you will need to: Purchase or lease suitable vehicles Hire delivery drivers (depending on the size of your delivery service) Acquire business insurance Purchase a business website When it comes to maintenance, your largest cost will likely be insurance and fuel. Visit our How to Start a Delivery Service guide to learn more about the costs of starting and maintaining this business.

Should I Start an LLC for My Delivery Service?

Starting a limited liability company (LLC) for your delivery service can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a delivery service, lawsuits can arise from things like a customer claiming that a delivery did not arrive and demanding a refund or from one of your drivers getting into a car accident while completing a delivery.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your delivery service seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Delivery Service?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Delivery Service

By starting an LLC for your delivery service, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Delivery services will benefit from liability protection because of the risk of property damage, workplace accidents, and financial data breaches.

Example 1: When your delivery rider loses two packages, your client asks you to reimburse him. You refuse, but let him know that you will be terminating your driver’s employment contract immediately. If a compensation lawsuit were to be filed against your LLC, limited liability would prevent you from having to personally compensate the claimant.

Example 2: After being involved in a car crash whilst delivering several products, one of your drivers fractures his kneecap, leaving him unable to work for several weeks. When you refuse to offer any sort of compensation, he threatens to file a loss of income lawsuit against your LLC. Here, your personal assets would remain protected, regardless of the validity of the claim or how it progresses in court.

Example 3: After partnering with several clients, you acquire a large business loan in order to lease additional delivery vans and hire more full-time drivers. Since you didn’t personally guarantee the loan, the creditor will not be able to sue you in order to recoup their investment if your business is unable to pay them back.

Example 4: A forklift driver in your warehouse is hurrying to move a pallet of goods slated for delivery when he loses control of the forklift and drops the pallet to the ground, breaking the order of expensive computer hardware. The client asks you to cover the damages.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Delivery Service

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a delivery service owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Delivery services rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a trusted LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

Yes. LLCs need business insurance in order to protect their business assets (e.g., delivery vans, packaging equipment, etc.). This is because limited liability provided by this business structure protects the owners’ personal assets only, not the business’s.

Common Situations Business Insurance May Cover for a Delivery Service

Example 1: A potential client pays a visit to your office to talk to you about a contract for deliveries. He goes to use the restroom but fails to notice a change in the level of the floor and trips and falls. He sustains a broken wrist. Your general liability insurance policy would likely cover the cost of treating his injuries.

Example 2: One of your delivery drivers is in a rush to meet a deadline. He is moving so quickly through your warehouse that he fails to see a visitor and runs into her, knocking her backward to the ground. She requires an ambulance and sues your business for her injuries. The general liability insurance policy you carry will pay for the costs of your legal defense, including the cost of a settlement if you wind up settling the case out of court.

Example 3: A forklift driver in your warehouse is hurrying to move a pallet of goods slated for delivery when he loses control of the forklift and drops the pallet to the ground. The entire order of expensive computer hardware is smashed. Your general liability insurance policy will likely pay for the cost of replacing your customer’s property.

Other Types of Coverage Delivery Services Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all delivery businesses should obtain:

Workers’ Compensation Insurance

As an employer, your state likely mandates that you carry workers’ compensation insurance. Your policy will pay for the medical care required to treat work-related injuries sustained by your employees. It will also pay for some of the wages they lose out on when they are unable to work due to work-related injuries.

Commercial Auto Insurance

Your delivery vehicles should be covered by a commercial auto insurance policy. Much like a personal auto insurance policy, the commercial insurance policy you carry will pay for the repair or replacement of a work vehicle involved in an accident caused by you or your employees. The policy will also pay for medical treatment for injuries sustained in the accident and for any damages you or your employees are liable for due to the accident.

Commercial Umbrella Insurance

In the event that your company is required to pay extensive damages — like if you lose a big lawsuit — the limits of your general liability insurance policy may be exceeded. A commercial umbrella insurance policy is designed to pick up where your general liability insurance leaves off so you don’t have to pay the costs out of pocket.

Data Breach Insurance

Data breach insurance, also called cyberattack insurance, is designed to protect your business if you are the victim of a cyberattack. For instance, if your customer information is compromised by a cybercriminal and one or more of your customers takes legal action against your business due to the security breach, your data breach insurance would pay for your legal costs — including the cost of paying settlements, if necessary.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance and commercial auto insurance.

Read our Delivery Service Insurance article for more info.

In order to start a delivery service, you will need to:

Purchase or lease suitable vehicles
Hire delivery drivers (depending on the size of your delivery service)
Acquire business insurance
Purchase a business website

When it comes to maintenance, your largest cost will likely be insurance and fuel.

Visit our How to Start a Delivery Service guide to learn more about the costs of starting and maintaining this business.

The primary operating costs for a delivery service are vehicle maintenance and depreciation, fuel, and insurance.

Learn more about running a delivery service business.

Delivery services make money by charging customers for making deliveries. This can be done at a flat rate or per mile.

Learn more about starting a delivery service.

While most people think of big companies when they think about delivery services, there are also opportunities for smaller companies. Startup costs can be kept relatively low, which is one big advantage for this type of business.

One key to starting a successful delivery service is finding the right niche. This can include quick, same-day delivery within a certain area as well as specializing in delivering a particular type of item or for a specific industry.

On average, a delivery driver makes about $34 per hour. Owning a business with a fleet of drivers could increase your profit potential.

Learn more about starting a delivery service.