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

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5 Delivery Trends to Watch in 2020

There are 5 delivery trends to watch for this year, particularly in the food delivery industry which is estimated to be worth more than $200 billion by 2025. The global health crisis has created a major shift on how we do business and restaurants have taken big bold steps to stay relevant.

Here are 5 delivery trends that will change the way we look at food industry in the years to come.

Delivery Apps

Big brands control pretty much the entire food delivery market. DoorDash (46.5%) is up top followed by Uber Eats (25.7%), Grubhub (22.8%), and others (3.0%) according to Edison Trends. More restaurants will jump into the bandwagon in the foreseeable future, and it’s not hard to see why.

Food delivery and curbside pickup seem like the only way restaurants could ever hope of earning a decent income during this pandemic. It’s incredibly hard, if not impossible to profit with restaurant check-ins at only half the capacity. But while delivery apps do keep our restaurants on track, they also come at a hefty price (10-30% commission fees).

Customers also like the fact that they don’t have to wait long lines or risk catching the bug along the way. Depending on how well the restaurant and delivery service are, the experience should almost be the same as in the restaurant. But again, there’s a price to pay for all the convenience of using the app – and it’s not cheap.

Fortunately, many restaurants are starting to find more competitive ways without relying on third-party delivery apps. Some options include offering their own online orders for curbside pickups or even doing staff deliveries.

The problem with most restaurants is they don’t know where to start and they need to somehow make these different pieces to work together. (Think restaurant website, online menu, payment processor, mobile app, driver app, CRM, automation, POS, etc.) Done correctly, you can almost guarantee success in a little less than a month.

This also means fewer outlays and less markups so it’s a win-win for both you and your customers.

Doing Your Own Delivery

Restaurants already doing food deliveries got the upper hand during the onset of the pandemic. Those who didn’t were caught off-guard, but it became a wake-up call for everybody. Pretty soon, almost every restaurant is doing food delivery in one form or another like hiring delivery drivers, using third party delivery apps, or a combination of both.

However, nothing beats doing your own deliveries. The problem with third-party delivery apps is you have no control what happens after the food leaves your kitchen. You may have the best fries in town, but who knows if they will arrive a soggy mess or not.

Another reason why staff deliveries are becoming increasingly popular among restaurants is the cost. Staff deliveries are way cheaper compared to using third-party delivery apps. This, of course, doesn’t take into account marketing, cloud storage, and maintenance costs which are often bundled into the delivery app.

For most traditional restaurants, it’s just old-school telephone, paper and pen for taking orders, and a trusty old bike or scooter for deliveries. Rather slow compared to high tech delivery service with all the automation and guidance systems. Imagine if they had the systems in place and started taking online orders vs. just walk-up and phone orders. I could only think of sales doubling or tripling in less than a month.

Now we mentioned cost and why people are slowly moving away from third-party delivery apps. One thing we noticed is that some of these apps ask for the 30% even when the customer came to pick it up or you delivered the food yourself. It doesn’t make any sense.

We figured out a way to accomplish the same (and more) without you having to break the bank using DeliveryBizConnect should you decide to start doing your own deliveries.

Virtual Restaurants (Cloud Kitchens)

Another trend we’ll see in the food delivery industry is the rise of the so-called “virtual restaurant” or “cloud kitchen.” As you might have guessed, these restaurants don’t have a physical presence. You won’t find them on Google Maps, and if you do, they’d only do takeouts and curbside pickups. They exist mainly for online orders and deliveries.

There’s a couple of reasons why virtual restaurants are becoming more popular among restaurant startups. Cost is a big one. The upfront cost is significantly lesser compared to opening a physical storefront. The same goes for overhead costs.

Another reason is the low barrier to entry. Anyone who has a knack for a particular type of cuisine can start his own cloud kitchen. Set up your home kitchen, hire some extra set of hands, partner up with a delivery service, sign a few papers, and that’s it. You’re in business.

Cloud kitchens also have the option to expand, opening physical storefronts, after attracting a large market. So there’s plenty of options to go around with all the flexibility and nimbleness that virtual restaurants have. However, there are some caveats to be aware of.

Cloud kitchens rely heavily on third-party delivery apps – everything from customer acquisition, online orders, payments, and deliveries. Their whole business depends on it. In other words, any sudden change in the system, like fees, rankings, or algorithms can have a dramatic effect on their businesses.

The solution? Create your own system. Make the business truly yours by building your own personal brand whether it’s through virtual restaurant websites, mobile apps with your own personal branding, driver app for your own fleet of drivers, CRM, loyalty programs, automated newsletters and a host of other features.

Now, this might all sound like a lot, but we have created a system that lumps it all together in one complete package (DeliveryBizConnect), so you won’t have to go around and try to fit them all together yourself.

Delivery Optimized Menu

Customer behaviour has changed a lot since the pandemic. People eat out less often. They get their food online, and restaurants do their best to make it feel like a real restaurant experience. You don’t want them waiting too long to get their food and they should arrive hot and fresh.

Restaurants might have to cut back on certain menu items that don’t travel well or take too long to prepare and cook. Or, at least, they should be able to make some modifications to make them delivery-friendly. Some popular examples include casseroles, lasagna, burrito, deli sandwiches, marinated protein, chicken wings, burger, fries – somewhere along those lines.

Another option to optimize the menu for delivery is tweaking the food so it locks in all the goodness and stays crisp throughout the trip. For instance, make French fries a bit thicker than usual, or make your batter a lot crispier for your chicken wings so they arrive kitchen perfect when they get there.

Needless to say, you need to be as fast as possible using the quickest route for your food delivery. Popular apps like Uber Eats and Grubhub have this sorted out using a delivery optimized driver app. To date, Uber Eats holds the record for being fastest in terms of food delivery.

DeliveryBizConnect lets you do just that but with more features than you could imagine for the same price range.

Grocery Delivery

Another trend to watch out this year is the grocery delivery service. Think Amazon Fresh, Instacart, and FreshDirect. It’s a welcome option, especially for those who prefer traditional home-cooked meals over delivery-optimized food. It also allows for more freedom on your daily menu without having to leave home or spend hours waiting in the check-out line, increasing the risk of infection.

Grocery delivery experienced an uptick in places where people were mostly cooped up due to quarantine restrictions. But with the economy re-opening, people might revert to buying their groceries in-store.

As of now, it’s hard to tell whether we would come out of this completely, or it is something we’ll eventually get used to as part of our new reality. Good to know we can still get our groceries done, just in case, through these grocery delivery apps.

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 pandemic.

We layout 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.

Quick Guide on Setting up Your Restaurant Online Ordering System

Keeping up with today’s “new normal” highlights the importance of online orders and deliveries. It actually costs more not to have a restaurant online ordering system with dining and check-ins running at only half the capacity. If you’ve never tried one or needed something better, now’s the right time to dip your hands into it.

Which Restaurant Online Ordering System is Right for You?

When we think food delivery, the first thing we think about are mobile apps like Uber Eats and Grubhub. It’s the quickest route to get you started with online orders and delivery.

But there are a couple more ways to set up your own online ordering than just using third-party delivery apps. There are basically 3 ways to set up your online ordering system:

1. Third-party delivery apps. The most popular choice, but not necessarily the cheapest for every kind of restaurant. You might have ordered food yourself through one of these apps on your smartphone. Setting up is relatively easy but there are tradeoffs to be aware of.

  • Pros – hassle-free sign up and set up, widest reach, can be great for customer acquisition
  • Cons – 10-30% commission on every sale, poor delivery can affect your ratings

2. Restaurant websites. Popular among tech-savvy restaurant owners. It’s like owning a regular website purposely built for taking online orders from visitors. They’re mobile responsive so the experience is almost the same with third-party delivery apps.

  • Pros – you have full control and you only pay a flat fee for maintaining your site
  • Cons – setting up can take a while, requires third-party integration to work well

3. CRM-based delivery apps. Customer relationship management (CRM) is an excellent sales and marketing tool for any type of business. If you’re lucky, you might stumble into one of these specially designed CRMs that allow you to take online orders and deliveries.

  • Pros – you get the best of both worlds of running a fully functional restaurant website plus sales and marketing automation
  • Cons – they’re not easy to find (we’ll help you find one at the very end)

Let’s go through the process of setting up using 3 different methods.

Signing up to a Third-party Restaurant Online Ordering System

You go to their website, type in your restaurant details and hit submit. The app team will decide if your restaurant is a good fit. You’ll get a call or email approving your request and continue with the sign-up process. Log-in to your account and start setting up your online menu. It usually takes 1-2 days before your menu items are posted on the ordering app. Any changes you make on your online menu might also take 1-2 days to take effect. You then have to hook it up to your receipt printer to be printed and processed in the kitchen.

Some platforms allow you to use your own driver but they also need approval or certification by the app company. This greatly reduces your running expenses, considering they take up to 30% commission when you let them do the deliveries. You can offset this big chunk by charging delivery fees, but it doesn’t compare to having your own staff doing your deliveries. Over time, you may want to transition to having your own online order and delivery unless you’re really making it on third-party delivery apps.

Try our Break-even Calculator to see how much orders you need to start making profits.

Creating Your Own Restaurant Website

You start by choosing a website building platform like Wix or WordPress. Use the restaurant template and tweak it to your heart’s content. Or, you can outsource web experts to do this for you.

You’ll need to purchase your domain name and pay for hosting if your want to make the site truly your own. It’s basically renting server space to put in all your data which also includes how much bandwidth you need to handle all the traffic. You only pay server fees as opposed to paying 30% commissions on every sale. In most cases, this is way cheaper when you consider the monthly average you lose on third-party delivery apps.

Next, you need to integrate an online ordering platform for your restaurant website. Gloria Food app offers this for free where you can literally have your online menu on your restaurant website within minutes. You have total control of everything, including online checkouts and deliveries. Payments go straight to your bank account or payment processor and Gloria Food app won’t take commissions on every sale. You only pay a flat fee to connect your ordering system to your payment gateway. Hook it to your receipt printer for printing and processing same with any other delivery app.

Once you have online presence, you need to get the word out so people will start coming to your site. Gloria Food app also offers a paid option to help you with marketing. This includes sales optimized website, advanced promo marketing, and branded mobile apps. Add all these and you’re looking at around $1,000 to $2,000 per year. It’s a decent amount but relatively cheaper compared to using third-party delivery app.

You can still do your own marketing via social media and so on, but you need more than one approach to make it actually work. You need a 360° solution which encompasses everything from website setup to mobile marketing.

This brings us to our third method.

Using CRM to Build Your Web Presence and Your Own Restaurant Online Ordering System

CRMs are great for building web presence, allowing you to market your business with sales and marketing automation. And, with the latest addition of online ordering, delivery, and other restaurant functionality, there’s no need to shop around finding all these different pieces. It’s essentially an all-in-one package.

We promised to find you one so we’ll use DeliveryBizConnect and show you how it’s done. Simply go to the website and sign up to get your own account. You’ll get a 3-page website automatically built from your DeliveryBizconnect listing details. You can generate as many as you like for whatever purpose you need it for. Here’s a quick video on how easy it is to set up your online menu and start taking online orders with DeliveryBizConnect

As you can see, it’s almost like having your own restaurant website. You don’t have to get approved and you don’t have to pay commissions – ever. You’re completely in control from setup to checkout and delivery.

If you’re curious how this works, here’s how you handle different types of orders using DeliveryBizConnect:

One more thing. Because it’s a CRM you don’t have to go elsewhere to get the word out. DeliveryBizConnect is a full-on sales and marketing automation custom-built for restaurants owners during these challenging “new reality” we’re facing. This includes mobile app with your own personal branding, push notifications, as well as a driver app for doing staff deliveries. So there’s literally nothing else to look for.

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 pandemic.

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.

How Can DeliveryBizConnect.com’s team help your restaurant?

Deliverybizconnect.com helps restaurants rapidly grow from Step 1 to Step 9 of our Rapid Restaurant Sales Growth – A Proven 9 Stage “New Reality” Plan. We’ve done extensive research on how to rapidly grow restaurant sales in this new reality and how DeliveryBizconnect fits right in.

We at DeliveryBizConnect enables ANY LOCAL business, not just restaurants, to take online orders within 30 minutes and increase sales 30%

Deliverybizconnect.com helps restaurants do local deliveries using existing staff (20% additional sales).

Deliverybizconnect.com helps restaurants reduce 30% paid to food delivery service apps.

DeliveryBizConnect is an all-in-one system that enables restaurants to take phone and online orders for additional 30% increase in sales, delivery route optimization, driver tracking, automatic customer follow-up and built-in CRM (use the DeliveryBizConnect check-in function to subscribe check-in customers to your list for a 25% increase in sales)

DeliveryBizConnect has you covered on pretty much everything you need as a restaurant owner in this new reality and beyond.

Reach out to us at https://deliverybizconnect.com and we’ll be more than glad to talk with you on how you can rapidly grow your restaurant business like you never thought possible.

Using a Restaurant CRM can Maximize Sales by 25% and it is automatic!

Restaurant CRM helps you increase sales by at least 25%.

Now that you have all set up and you’re sitting on a big pile of data, what’s next?

With a restaurant CRM you can take back that control instead of relying solely on third party delivery apps. Setting up your restaurant CRM is actually easy once you have it all figured. It won’t even take an hour of work per week to fine tune your system.

Restaurant CRM helps you keep tabs of your ROI, so you know the system does exactly what it’s supposed to do.

Need a 25% increase in sales? https://DeliveryBizConnect.com enables you to use customer data from your online orders, telephone or walk-up orders and keep them coming back again and again. Subscribe your check-in customers to your email list and get as high as 83% conversion rates every single time.

DeliveryBizConnect.com helps you save plenty of time by allowing you to take online orders, increasing your sales by up to 30% and an additional 11% from mobile app orders.

Restaurant CRM enables you follow-up on your local deliveries to increase customer satisfaction and get a 20% increase in profit.

DeliveryBizConnect has you covered from online orders, restaurant CRM and deliveries. Find out more on https://DeliveryBizConnect.com

Have you ever wondered how much Staff done Delivery would Cost you per order?

Staff-done restaurant deliveries are easier than you think if you have tools like the Driver App from DeliveryBizConnect. It’s optimized to give the fastest route so they arrives fresh and kitchen perfect. That’s 20% more sales coming from a happy, satisfied customer.

The cost-benefit of turning your staff into your own delivery service like Uber Eats and Skip the Dishes is huge!

If you really want to get into the numbers, here it is:

30 Days/month x 8 hr., 4 deliveries/hr. = $2.19/order

OR

20 Days/month x 4 hr., 3 deliveries/hr. = $6.77/order

Right away, you can see a HUGE difference between staff-done restaurant deliveries and using 3rd party delivery apps on how much you’ll spend on each delivery. Note: we didn’t put the 75% wage subsidy and delivery fees into the equation just yet.

So all things considered, this actually brings in an increase in your profit margins by 20% or more! (We’ll give you the spreadsheet if you’re interested).

DeliveryBizConnects lets you do staff-done restaurant deliveries including takeouts. Get as high as 83% conversion rate when you subscribe your check-in customers to your list using Deliverybizconnect check-in function and CRM for an additional 25% increase in sales. 

Increase restaurant sales by 30% or more taking online orders vs. just phone and walk-up orders, plus another 11% thru mobile app orders.

Find out how you can rapidly grow your restaurant business at https://deliverybizconnect.com