With the increase in demand for drone delivery in the logistics sector, there have been significant advancements, particularly in B2C and B2B drone delivery services. However, the industry is still facing challenges in continuing its trajectory to reach its milestones, especially when it comes to optimising unit economic costs for businesses to scale effectively and gain profitability.
This article looks at drone delivery unit economics using sources from a recent episode of the podcast The Vertical Space titled “Unveiling the unit economics behind profitable drone delivery,” featuring Bobby Healy and 2 exclusive interviews taken by Murzilli Consulting’s content team with Tim Fischer and Cem Uyanik. The 3 drone industry CEO’s share their overviews, which include market dynamics, drone delivery scalability, and the regulatory challenges to overcome in order to optimise costs in drone delivery from both B2C and B2C perspectives.
The Potential of Drone Delivery Market Opportunities
According to Fortune Business Insights, the global drone package delivery market is projected to grow from USD 472.2 million in 2024 to USD 5,764.5 million by 2032. Traditional delivery methods rely on road-based logistics, which can be easily affected by traffic, labour availability, and high costs. Drones have the advantage that, particularly in suburban areas where demand density is inconsistent, and distances make road delivery less efficient, deliveries can meet their expected timelines.
Statista published that, in 2020, the German public alone spent €4 billion on delivery services. Utilising drones for deliveries could push this number even higher. For businesses looking to optimise their logistics strategy, drone delivery integration could expand their market, particularly in areas that are underserved by road-based delivery networks.
Understanding Unit Economics: Costs and Planning
Optimising unit economics requires research into the details of what truly drives profitability in drone delivery. This can be quite varied depending on the use case.
Some of the major factors in unit economics for drone delivery include:
For Manna, the Irish B2C aviation-grade drone solution, the biggest economic breakthrough was achieving profitable unit costs for each delivery. According to Bobby Healy, the organisation’s founder, the company managed to lower the initial cost of $20-30 per delivery to under $4. This involved careful control of fixed overheads, labour costs, and consumables such as batteries and maintenance.
For B2B use cases, however, the unit economic approach is rather different. Tim Fischer, CEO of Labfly, the Berlin-based medical drone delivery service provider and co-collaborator with Murzilli Consulting on the U-space Berlin Project, designed Labfly’s solution as a package service, where users pay an installation fee with a base number of flights. He finds the biggest drivers in cost to come from 2 main points: the pilot to the number of operations ratio and the drone battery’s life and how many cycles it can be used before swapping or recharging.
Tim outlined that most drone batteries last around 200 flights, and with battery costs ranging from 100 euros per kilogram, this can add significant operational expenses. "For a 10-kilogram drone, you could be looking at 300 to 400 euros in battery maintenance costs alone," he said. As companies scale, selecting the right drone configuration based on payload capacity and range will be crucial for optimising costs.
Cem Uyanik, CEO of Urban Ray, the urban logistics airline shared that the core of the company’s business model was to enter the drone delivery market through the healthcare sector. This, he feels, supports the company in remaining cost-competitive due to the healthcare industry’s willingness to pay for timely and secure deliveries. This strategy allows Urban Ray to start in a high-margin, low-volume market, which ensures their profitability in the early stages of their drone delivery unit economic approach.
"We start with healthcare because it allows us to enter with high-end use cases where margins are better. This lets us grow horizontally into lower-margin but higher-volume markets." - Cem Uyanik on Urban Ray’s unit economic approach.
Balancing capacity is another significant factor. Drone utilisation rates need to be high ~that Manna optimises capacity by leveraging real-time data. They use predictive analytics to calculate how many deliveries they can fulfil within the next 60 minutes at any given GPS point. This forecasting allows them to set realistic customer expectations, ensuring they know how many orders they can manage before delays might occur. They avoid blindly adding capacity by continually adjusting it as customer demand grows, particularly focusing on staffing, since overcapacity in terms of drones is less of a concern compared to the labour costs associated with drone operations.
Tim Fischer outlines that from a B2B perspective, balancing capacity utilisation in a B2B context is more complex than in B2C models like food delivery, where missions are frequent and constant. In B2B use cases, such as medical sample deliveries, missions are scheduled but less frequent.
"In the beginning, there may be downtime for the drones, as ground transportation remains cheaper in some cases," - Tim Fischer of Labfly on the long-term potential of larger-scale operations to balance capacity.
Cem Uyanik states that Urban Ray’s initial smaller networks - five to six key stakeholders, such as hospitals, labs, and pharmacies are still profitable due to the volume of goods being transported between these locations. This is done through their use of automated lockers, similar to Amazon lockers. These lockers allow drones to autonomously deliver packages without human intervention and enable the utilisation rates to expand and the drones to be either collecting or delivering goods.
By automating both flight operations and ground interactions through their lockers, Urban Ray aims to significantly reduce the number of human operators needed to maintain and monitor their drone fleets. This, in turn, will allow them to scale effectively into lower-margin, high-volume sectors.
Scaling and Regulatory Challenges
Scaling drone delivery is required to increase higher utilisation rates and dilute the fixed costs for unit economics. There are currently several bottlenecks for scaling, including regulatory hurdles, social acceptance, and logistical complexities. The regulatory framework, particularly in Europe, has had several advancements within the capabilities of drone technology through the addition of U-space standards. However, the uncertain implementation timelines remain a significant barrier to scaling operations.
Achieving social acceptance would also open the possibilities to scale. To adapt the general public to regular drone operations, it is important to maintain minimal noise pollution, consistent service quality and community education. Consistency in these elements allows for more widespread acceptance.
There are two potential models for scaling drone delivery: deep market penetration involving saturating specific geographies to dominate local delivery markets or wide and shallow market entry, which focuses on entering multiple new markets to spread the infrastructure investment risk. An ideal option would be to combine these two models to ensure full coverage in selected regions while setting up in others to avoid leaving untapped markets for future growth.
The future of drone delivery aims to reduce labour costs by automating missions and creating dock stations to autonomously swap batteries and payloads. The evolving technology will also help to bring cost advantages to manufacturers as they increase the scale of production.
In the July 2024 podcast episode of The Vertical Space, Bobby Healy from Manna explains that B2B medical delivery use cases have faced several hurdles, such as regulatory compliance, funding and integration into existing medical logistic networks. He notes that, in contrast, B2C last-mile delivery has been able to advance due to consumer demand and the smooth transition into the existing logistics systems.
The higher operational complexity of medical deliveries involves varying use cases, which makes consistent scaling difficult, while a B2C environment to deliver everyday goods enables a more streamlined, repeatable process that leverages current consumer behaviours through app-based ordering. The volume, frequency and consistency of delivering items like food and beverages support high utilisation rates, which helps to reduce the cost per delivery.
Tim Fischer from Labfly found that one of the major hurdles to scaling drone operations is the regulatory environment. "The regulations aren't quite there yet, which is why most companies are still in the early stages of operation. This is particularly true in the German market, where daily drone deliveries are not yet widespread.”
To collect data and experiences to identify areas for regulatory improvements including advanced air mobility and drone deliveries, there have been several testbed ventures. Projects such as the Berlin U-space sandbox, where Labfly’s B2B solution and Murzilli Consulting’s regulatory expertise are being applied with the aim of providing a pathway for broader-scaled drone operations
Both CEO’s from Labfly and Urban Ray see automation playing a key role in driving down costs and scaling operations. Tim Fischer from Labfly predicts a future where drones are piloted remotely, much like a call centre operation, rather than requiring on-site pilots. However, regulations and insurance liabilities still pose significant barriers to fully automated solutions.
Urban Ray’s ability to scale their operations depends on achieving a high level of automation. In particular, Cem Uyanik mentions the one-to-many ratio of pilots to operations, where a single person can manage multiple drones. One of the biggest challenges Urban Ray faces is labour, with costs continuing to rise, especially with shortages of skilled workers in various industries.
Urban Ray’s business model to scale includes reducing labour in drone maintenance and monitoring using technology to complete tasks such as remote inspections and data analysis. Once these services can be fully automated, he believes it will be possible for Urban Ray’s solution to expand into sectors where the unit margins are thinner, but the volumes are much higher.
When asked about the regulatory challenges facing drone logistics, Cem Uyanik of Urban Ray expressed optimism. While many in the industry view regulation as a bottleneck, he believes the pace of regulatory approvals has been faster than expected. Urban Ray received authorisation for their operations just a few months after submitting their application, and they've already moved forward with more advanced approvals.
"Regulations are moving faster than they have in the history of aviation. For us, it's actually working quite well, and we're already extending our expertise for the next level of operations." - Cem Uyanik on the regulatory process for Urban Ray’s drone delivery solution.
He did, however, acknowledge that any major incidents, such as a crash, could slow progress but remains confident that regulatory frameworks will continue to evolve in favour of drone logistics, especially as the industry grows.
Case Study: Drone Delivery in Healthcare
The healthcare sector has been part of several successful B2B testing beds for drone deliveries. One such example, published in The European Journal of Health Economics (2023) 24:1141–1150, was the delivery of Automated External Defibrillators (AEDs) in rural areas in the German district of Vorpommern-Greifswald.
The document presents the Mecklenburg-Vorpommern state law, which identifies the legal response time for emergency medical services (EMS) as 8:55 minutes, which can often be exceeded due to accessibility. The study compared 3 scenario variations to assess the most cost-efficient way to reduce response times:
The results of these scenarios revealed that supplying hotspots in Vorpommern-Griefswald with drones capable of delivering mobile AEDs within a 4-minute flight radius was the most cost-efficient way to ensure a shorter response time. All scenarios showed that the cost per km2 was lower when using a UAS. For the 4-minute flight radius, the cost was calculated at 6543.3€ per km2 for stationary AEDs compared to 3103.07€ for a drone-delivered solution. If the delivery times were modified to a flight radius of 6 minutes, the results were 1046.93 € per km2 for stationary AEDs and 496.49 € for UAS-based delivery.
The use of drones in this specific example reduced the required number of AED units, which cut down on capital expenditure (CapEx). This shows that drones have the potential to become an economically viable alternative to optimise AED provisioning in specific use cases.
Energy and Environmental Considerations
To optimise unit economic costs for drone delivery, an organisation needs to understand the environmental impact of drones. Factors such as energy consumption, carbon emissions, air pollutants and noise pollution all need to be managed effectively in order to scale. Considering sustainable options such as optimising the drone’s battery, utilising energy-saving technology e.g hot-swappable batteries and renewable energy sources, can reduce operational costs.
Urban Ray’s drones are powered by electric propulsion systems, which can help reduce operating emissions if powered by renewable energy. While this aligns with global trends toward sustainability, Cem Uyanik admitted that for most customers, the environmental aspect is more of a "nice-to-have" rather than a core selling point.
"People like that it's electric, but it's not the main reason they're interested. It still has to be cheaper than the current options. If it's cheaper and sustainable, then that's great." - Cem Uyanik on Urban Ray’s electric drones.
Tim Fischer of Labfly emphasised the efficiency of drones compared to traditional ground transportation. "For our field of medical deliveries, the weight is often very small, such as lab samples that only weigh grams. Using a car for such light cargo results in much higher emissions compared to a drone that weighs less than 10 kilograms." He did note, however, that drones become less efficient when transporting heavier loads compared to cars.
Optimising unit economic costs in drone delivery is a complex task that involves managing cost drivers, adopting innovative delivery models, and navigating regulatory landscapes. While drones are currently more expensive than ground-based alternatives, their speed and flexibility make them ideal for expanding last-mile delivery, especially in hard-to-reach areas. By focusing on high-frequency, high-demand categories like food and medical deliveries and leveraging automation for mission planning and energy efficiency, operators can achieve scalable and sustainable business models.
Effective capacity management, customer expectation alignment, and regulatory adaptation must also be considered for profitability. As technology improves, particularly in battery life and automation, there is potential for drones to overcome the current limitations, unlocking further market potential and making cost-efficient, long-range operations commercially possible. Ultimately, the key for businesses is to prove the viability of unit economics, reduce operational costs, and scale effectively as the regulatory environment evolves and drone capabilities advance.
Murzilli Consulting offers a wide range of services that can support organisations considering drone deliveries. For a full list of our services, click here, or write to us, and we would be happy to answer any questions.
