The Numbers Don’t Add Up For Restaurants: Third-party Delivery Apps

How restaurants profit using third-party delivery apps like Uber Eats, DoorDash, and Grubhub is a mystery to some. The numbers simply don’t add up.

The restaurant industry’s razor thin margins coupled with insanely high commissions and service fees is a perfect storm for any restaurant, especially during these times of pandemic.

So how exactly do we go about it? Why do some restaurants make it with third-party delivery apps while others shuttered their doors for good? Let’s start with the cost of running a restaurant business.

The Average Cost of Running a Restaurant Business

Restaurants are among the lowest in terms of profit margin. Believe it or not, 90% of the total revenue is actually spent by restaurants on things like food and beverage, payroll, bills, and upkeep. That leaves them with a measly 10% or less.

Here’s a rundown of the average cost of running a restaurant business. To illustrate, we’ll use a typical small quick serve restaurant (QSR) with a staff of less than 10 and a monthly sales average of $30,000.

Food and beverage costs35%$10,500
Payroll costs30%$9,000
Other controllable expenses12%$3,600
Occupancy costs9%$2,700
Depreciation4%$1,200
TOTAL $27,000

In this example, the owner pays himself around $3,000 depending on actual sales. This is the profit after all expenses have been deducted from the gross revenue. Some of these expenses are either fixed or variable or semi-fixed. Rent, insurance, and loan payments are fixed expenses while repairs, marketing, and taxes are not. Salaries and utility bills, on the other hand, are considered semi-fixed expenses.

Getting that much needed cash flow during the pandemic is a matter of survival for millions of restaurants across the globe.

That means trying every possible way to bring more business through the door whether it’s curbside pickup, online orders, or using third-party delivery apps like Uber Eats, Doordash, or Grubhub.

Let’s see what happens if we try to put third-party delivery apps into the picture.

How Much Restaurants Pay for Food Delivery Apps

Food delivery app is a hot topic in the restaurant community. For some it’s a game-changer because it levels the playing field for everybody. Others, however, aren’t so happy, particularly with the 30% to 35% commissions plus other charges.

Here’s a rundown of what restaurants actually pay using these apps. This is based on an actual summary sent to a food truck owner in Chicago on March 2020.

46 Prepaid Order$1,042.63
Commission– $206.51
Delivery Commission– $94.99
Processing Fee– $38.52
Promotions– $231.00
7 Order Adjustment– $131.19
Commission$9.75
Delivery Commission$4.88
Processing Fee$1.49
Promotions$20.00
Pay me now fee0.00
46 Orders in March$376.54

People were shocked to know how much these food delivery apps are costing the business – way, way more than the advertised 30% commission fees!

The food truck owner is literally operating at a loss! No wonder many restaurant owners were crushed during the pandemic all the while using these food delivery apps.

Let’s say you want to include third-party delivery apps into your budget. There are two ways to go about it.

You’ll either have to take it as part of your payroll cost (30%), in which case you’ll reduce your workforce and work extra hard with just a few people or work alone as a one-man band.

The other option is to use it primarily as a customer acquisition tool or as an alternative for dine-in or take out to supplement your restaurant’s income (50/50 or 60/40, and so on).

Hence, you might include it in one of your controllable expenses (12%), i.e. advertising, albeit a very expensive one. Later in this article, we’ll introduce you to the third option which would allow you to take advantage of third-party delivery apps and regain control of your restaurant’s income.

Why Restaurants Struggle with Third-Party Delivery Apps

So why are some restaurants making more with third-party delivery apps while others are losing big time?

Aside from sky high fees and commissions, some food delivery apps make it impossible to compete with other restaurants or circumvent the app by encouraging customers to order directly from them at a cheaper price.

So for instance, in one particular lawsuit filed againsts some of these delivery apps, it showed they have a non-competing clause (“No Price Competition Clause” or “NPCC”) where restaurants agree to keep their check-in prices consistent with the menu items in the app.

In other words, instead of helping, these apps might actually hurt your loyal customer base who’ll have to put up with your marked up items even when they’re coming in to check in or pick up their order.

Here’s how much restaurants bump up the price while subscribed to the service.

Another reason is that, as an advertising platform, it can put a big hole in your marketing budget. It’s just too expensive, especially for a small restaurant who just got started.

Before the pandemic, you can get away not using any of these apps. But since the new reality came, it became more of a necessity – or rather a necessary evil. Restaurants are now caught between a rock and a hard place, so to speak.

Lastly, these apps seem to favor more popular restaurants or those with a big enough customer base and a sizeable income.

These allow them to bid higher and stay top of mind, and they have economies of scale to make up for the high cost of using the app. There’s a sweet spot where you start feeling the gains of using these app. Otherwise, it becomes a slow slide to the bottom.

A Smart Way to Use Third Party Delivery Apps

We’re not here to discourage you from using third-party delivery apps. In fact, you can keep using it if it helps with getting more business to your restaurant. We’re offering a better way to help you transition from using third-party delivery apps to doing your own food delivery.

You might not expect this to come from us but using third-party delivery apps is actually a great way to learn the ins and outs of food delivery. We’ve devoted an entire article about the 10 Delivery Apps Your Restaurant Must Try.

The third option we told you about is learning how to do your own food delivery while using third-party delivery apps. Now you might be tempted to jump right away into doing your own deliveries.

While it’s a good way to get rid of delivery apps and commission fees, you might actually find that it puts a lot of stress on your staff, especially if it’s your first time doing it.

Moreover, you’d have to spend a lot of money building your own online food ordering and delivery system, including those that didn’t work or required a lot of fixing.

To give you an idea, Panera Bread spent more than $100 million to develop its own online ordering system. It paid off eventually in 2016 and now they’re offering $5 to as low as $3 flat rate on all food deliveries.

Enough said, here’s a much better way of doing it.

The 7 Steps to Doing Your Own Food Delivery

We’ve prepared a short video that explains the whole process. Watch till the end and try to visualize how you’re going to apply this for your own restaurant.

Here’s the gist of how it’s done from start to finish.

Step 1: Get your own food delivery app.

Step 2: Develop your kitchen and front of house processes.

Step 3: What food delivery service options will you use?

Step 4: Who will do your delivery and how?

Step 5: Food packaging and delivery bags

Step 6: Have a delivery, curbside pickup, and takeout menu.

Step 7: Tips and Fees

Need Small Business Advice?

We want to reach out and talk with you through our FREE 45-minute business consultation where we can discuss some solutions to get you through the new reality.

We lay out every possible means to keep you in business, whether it’s through LinkedIn, Facebook, Twitter, email series, sales funnels, landing pages or business directories.

Download SBD Sales and Marketing Automation App for your mobile and keep tabs on your business anywhere, anytime.

10 Delivery Apps Your Restaurant Must Try

Assuming there were 10 delivery apps you must try for your restaurant, what would they be and how would you rank them? We’ve done our homework to see which ones are worth your time, literally sifting through dozens of third-party delivery apps on Google Play and App Store.

We’ll be focusing on key areas considered crucial for your survival such as reach (total number of users), profit margin (commissions & delivery fees), and the app’s main selling point.

1. DeliveryBizConnect

10 delivery apps
  • Commission Fee: 0%
  • Delivery Fee: 0% (set by restaurant)

DeliveryBizConnect came out as a response to the call of many restaurant owners in dire need of help at the height of the pandemic. This app stands out among all others as being truly restaurant and customer-friendly. Its main goal is to help owners stay afloat by offerring zero commission fees which in turn reduces markup cost for their customers, so it’s a win-win on both sides.

By far, it’s the only app on our list that offers total control on how restaurants could profit from their businesses. They get to decide how much delivery fees to collect, minimum orders (if any), payment method, closing hours, etc. It comes with all the standard features like delivery tracking, push notifications, geofencing, curbside pickups, and even works as a contract tracing app.

DeliveryBizConnect is more than just a delivery app. It’s a full suite of tools for restaurants and similar businesses with features like CRM, sales and marketing automation, 3-page website (great for online and touchless ordering), branded mobile app, loyalty program, referral program, and has addded its newest features, the POS and Check-in/out module for contact tracing (also great for signing customers up for newsletter and updates).

DeliveryBizConnect is continuously being developed to meet the growing needs of restaurants, other businesses, and delivery drivers, especially those who have been affected by rising unemployment rates (opportunities for delivery drivers working with local restaurant owners).

2. DoorDash

  • Commission Fee: 20%
  • Delivery Fee: $5-$8

DoorDash is among the ‘Big 3’ in North America alongside Grubhub and Uber Eats. It’s currently available in more than 4,000 cities across the U.S., Canada, and Australia.

DoorDash accepts Google Pay, Apple Pay, card payments and has an optional loyalty program (DashPass) which waives delivery fees on orders upwards of $12. It has no minimum order required and offers real-time delivery tracking. Customers like it for being one of the most user-friendly and among the fastest in terms of delivery.

3. Uber Eats

  • Commission Fee: 30%
  • Delivery Fee: $2-$8

Although second only to DoorDash, Uber Eats has become more ubiquitous, connecting local restaurants to customers in more than 6,000 cities across 45 countries worldwide. Standard features include real-time tracking, hassle-free ordering, and curbside pickups.

Uber Eats accepts payments via PayPal, credit and debit cards, but is also experimenting cash payments in certain areas. Users pay a “small order” fee on orders that fall below a certain minimum. Like DoorDash, it has a loyalty program (Eats Pass) offering zero delivery fee, plus 5% off on orders $15 and above.  Customers like it just by the fact that it’s everywhere and among the easiest to come by.

4. Grubhub

  • Commission Fee: 30% (marketing fee included)
  • Delivery Fee: $4-$8 (set by restaurant)

Grubhub is among the first food delivery service predating DoorDash and Uber Eats. It’s available in all 50 states in the U.S. with 115,000 associated restaurants across 3,200 cities. Features are also very similar to Uber Eats with things like delivery tracking and curbside pickups.

Grubhub accepts card payments, PayPal, Google Pay, Apple Pay, and even cash. “Small order” fee will apply on orders below $10. It also has a loyalty program (Grubhub+) offering zero delivery fees much like in DoorDash and Uber Eats. Customers like being able to split the bill for group food orders via Venmo integration as well as quick ordering using Favorites and Quick Re-order.

5. Postmates

  • Commission Fee: 30%
  • Delivery Fee: $0.99-$3.99 (partner merchants)/$5.99-$9.99 (non-partner merchants)

Postmates connects more than 500,000 local and national restaurants and retailers to customers in 4,200 cities across the U.S. It features real-time order tracking, pickup and takeout orders as well as a loyalty program (free delivery on orders over $12 with an Unlimited Membership).

Postmates has partnered up with popular names like McDonald’s, Burger King, Taco Bell, Wendy’s and Starbucks, and only accepts Google Pay, Apple Pay, and card payments. The app collects a “small cart” fee on orders below the minimum. New customers can take advantage of the $100 delivery fee credit valid for 14 days upon redemption (code: EATNOW) which is great for customer acquisition.

6. Seamless

  • Commission Fee: 30% (marketing fee included)
  • Delivery Fee: $4-$8 (set by restaurant)

Seamless became a part of Grubhub Inc. after its merger in May 2013. It’s a much older company and had a larger market compared to Grubhub. Seamless currently partners with over 12,000 restaurants and serves 4,000 companies. It’s available in over 900 cities in the U.S.

Seamless is strikingly similar in many ways to Grubhub from the user experience to fees and payment method. One extra feature is the “Preorder” which allows customers to place an order 2 hours to up to 4 days in advance (Seamless had this feature as a catering service before the merger). It also has “Express Reorder” similar to Grubhub, and of course, Venmo integration for group orders so everyone gets their food all at the same time.

7. Skip the Dishes

  • Commission Fee: 20%
  • Delivery Fee: $4-$7 (set by restaurant/free, depending on minimum order)

Skip the Dishes is Canada’s most popular food delivery app serving more than 25,000 restaurants nationwide, including popular brands like McDonald’s, Tim Horton’s, Wendy’s, 7-Eleven, KFC, and more. It’s also available in major cities across the U.S.

Skip the Dishes comes with all the standard features like delivery tracking, curbside pickup, and re-order function. Its loyalty program doesn’t offer free deliveries but comes in the form of referral bonuses, cash backs, coupons, and discounts. Skip the Dishes is quite competitive when it comes to commission fees and delivery fees. It also offers grocery deliveries which made it one of the most-used apps during the pandemic.

8. Deliveroo

  • Commission Fee: 30% (5% when doing staff deliveries)
  • Delivery Fee: variable (distance-based)

Deliveroo is a London-based food delivery company operating in over 200 cities across 12 countries worldwide. It’s currently being used by more than 35,000 restaurants and well-known brands such as KFC and Pizza Hut. It also delivers grocery items.

Deliveroo accepts PayPal and card payments. It has the standard features like delivery tracking, curbside pickups, and has a loyalty program (Deliveroo Plus) offering unlimited free deliveries to subscribers. It also started introducing a “small order” fee on orders below $10.  Deliveroo has an “offers” tab which allows customers to find the best deals on quality food items.

Deliveroo’s selling point from a restaurant owner’s perspective is the commission fee, which makes it a great “in-between” from using third party deliveries to doing staff deliveries. This allows for a smoother transition until you’re ready to start having your own food delivery system.

9. Zomato

  • Commission Fee: 7-15%
  • Delivery Fee: 1$-2$ (USD conversion)

Zomato is an Indian food delivery service open in more than 10,000 cities across 24 countries worldwide including Canada and the U.S. Its rapid growth comes mainly from aggressive marketing, even as far as dropping the commission fee at some point for qualified restaurants.

Features are pretty much what you’d expect from similar apps such as delivery tracking but with an added “Book a Table” functionality for restaurant check-ins (available in selected markets). Zomato accepts card payments, PayPal, and Paytm. It doesn’t have a minimum order. Signing up to Zomato Pro entitles users to promos, exclusive bonuses, discounts. It also tells users what their friends were ordering and what they like best. Overall it’s a great way for getting more exposure and as a customer acquisition tool.

10. Foodpanda

  • Commission Fee: 15%
  • Delivery Fee: 1$-2$ (USD conversion)

Foodpanda is a subsidiary of Delivery Hero SE after its acquisition in December 2016. It’s based in Germany and currently working with over 27,000 restaurants across 50 countries worldwide (Asia, Europe, Latin America, Middle East, and Africa). This includes popular brands within the locality. You can think of it as the European counterpart of Uber Eats and Postmates.

Foodpanda comes with all the standard features such as delivery tracking and has a minimum order of $10. Users can also get their groceries done through the app. It has a referral program which is great for customer acquisition as well as discounts and coupons to encourage customer loyalty. By far, it’s one of the strongest competitors when it comes to commission fees and delivery fees outside Canada and the U.S.

Where Do We Go from Here?

We recommend testing these apps for your restaurant and find out which are the better ones at getting new customers. Go for two or more apps whenever possible to maximize your chances. Get familiar on how the app works and visualize how you can apply this to your restaurant when you start doing your own deliveries.

When you’re confident enough, introduce staff deliveries little by little (Deliveroo might help you with this using the 5% commission fees when doing your own delivery). Eventually, you’d be very good at handling food deliveries that you can start having your own food delivery system with your own personal branding on it.

We’ve prepared a video that explains everything in greater detail.

How to Do My Own Food Delivery vs. Using Uber Eats

Need Small Business Advice?

We want to reach out and talk with you through our FREE 45-minute business consultation where we can discuss some solutions to get you through the new reality.

We lay out every possible means to keep you in business, whether it’s through LinkedIn, Facebook, Twitter, email series, sales funnels, landing pages or business directories.

Download SBD Sales and Marketing Automation App for your mobile and keep tabs on your business in the comfort of your homes.

Why you MUST Collect and USE Customer Data to Thrive in the Take-Out and Re-opening of your dining room phase of the recovery.

Restaurant customer data is extremely crucial to make the pivot in this new reality. Your ability to generate more income apart from your dine-ins hinges on this, not just today but this point forward.

The new reality has rules. Just like in any game, you need to follow these rules or you lose. In this case, you lose your restaurant for not collecting and utilizing  restaurant customer data.

Your staff will also have to adapt to this new reality or you’ll lose your shirt. You got to collect customer data! Period.

IT’S ALL ABOUT THE DATA!!

Re-opening on a minor capacity doesn’t solve everything. If anything, it only adds to your problem if you don’t have online ordering, takeouts and/or delivery service already in place.

Your ability to collect and utilize customer data is super critical to your survival.

DeliveryBizConnect integrates CRM into your check-ins, enabling you to have 83% conversion rate on your list and an additional 25% increase in sales.

Start taking online orders vs. just phone and walk-up orders and increase your restaurant sales by 30%, plus another 11% thru mobile app orders – absolutely 0% commission fee!

Do takeouts and do your own deliveries thru the Driver App to get 20% more sales.

Find out how you can efficiently collect and control your restaurant customer data at https://deliverybizconnect.com