The verdict in three sentences
In Nairobi, e-commerce margin is not decided by product price but by delivery cost structure. Last-mile costs KES 200 to 500 against a typical gross margin of 20 to 35 %: mishandled, delivery wipes out the profit. The key decision: bill delivery, offer it above a threshold (profitable around KES 3,000 basket), or bring it in-house.
Cost structure: where margin goes
Let's break down a typical Nairobi order to see where profit evaporates.
| Line item | Share of sale price | On a KES 2,000 basket |
|---|---|---|
| Cost of goods | 60 – 75 % | KES 1,400 |
| Last-mile delivery | 10 – 25 % | KES 200 – 500 |
| Payment fees | 1 – 2 % | KES 20 – 40 |
| Packaging | 1 – 3 % | KES 20 – 60 |
| Net margin left | 8 – 25 % | KES 160 – 500 |
Delivery often weighs as much as the net margin. One point of uncontrolled delivery cost and the order slips into loss.
Three delivery-billing strategies
| Strategy | Effect on AOV | Effect on margin | When to use |
|---|---|---|---|
| Bill delivery to buyer | Neutral to negative (abandonment) | Protects margin | Small baskets, thin margin |
| Free above KES 3,000 | +15 to 25 % AOV | Diluted below, gained above | Product margin > 30 % |
| Always free | Stable basket | Erodes margin on small baskets | Margin > 40 % only |
The free-delivery threshold is the best compromise in Nairobi: it pushes buyers to add an item to reach KES 3,000, lifting AOV 15 to 25 % and diluting the fixed cost of the trip.
Bill, in-house or outsource
Below a certain volume, outsourcing to boda-boda or Sendy/Glovo avoids fixed cost. Once you pass 20 to 25 orders/day, in-house riders drop the cost per drop and secure lead times. The tipping point depends on order density per neighbourhood: the more clustered, the earlier in-house pays off.
Mini case study
Wanjiru runs an online deli in Nairobi. Average basket KES 2,100, product margin 30 %, outsourced delivery KES 400.
- No threshold, free delivery: net margin ~KES 230/order.
- With KES 3,000 threshold: AOV rises to KES 2,650 (+26 %), product margin KES 795, delivery still KES 400 → net margin ~KES 395/order.
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Gain: KES 165/order. At 30 orders/day over 26 days, that is meaningful monthly margin (equivalent order of magnitude to ~1 000 000 FCFA/month) purely from changing the delivery rule.
FAQ
Should I bill delivery to the buyer in Nairobi?
For small, thin-margin baskets, yes. Otherwise a free-delivery threshold near KES 3,000 captures more value by raising AOV.
What product margin should I target?
In Nairobi a healthy margin sits between 20 and 35 %. Below 20 %, delivery can erase all profit.
When should I bring delivery in-house?
When you pass 20 to 25 orders/day with good density. Below that, outsourcing avoids fixed cost.
Does a free-delivery threshold really lift the basket?
Yes, a 15 to 25 % AOV uplift is common: buyers add an item to reach free shipping.
How do I cut cost per drop?
Cluster deliveries by zone, go in-house at the right volume, and push prepay to avoid costly failures.
Let's talk about your project. We'll model your margins and delivery threshold for Nairobi together. WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
