Meet Joe. Joe is the owner of a popular fast casual restaurant called Tough Taters, and he’s recently expanded to a second location. Being a savvy restaurateur, Joe reads an article on building sales through online ordering. He’s heard a lot of buzz about a new online platform that can help him rapidly digitize his business, so he decides to take the plunge and contacts them.
Three Months Later. Joe’s business is growing and online delivery orders now account for 20% of his restaurant business.
Everything seems great until Joe starts crunching some numbers. He realizes, though he’s getting a big increase in online food delivery orders, his profits are actually lower than expected.
In the last 3 months, he has lost over $25K in revenue! Revenue paid out in commissions and other fees to the new online platform.
With the additional fees Joe is paying, he realizes he might have to raise his prices. To make matters worse, he is getting complaints that some of his delivery drivers are apparently flinging food orders through customers’ open windows without so much as a “hello.” This is definitely not what Joe had in mind as part of his expanded online food delivery service.
We’re guessing, like Joe, you want to keep as much of your earned money as possible!
This example illustrates a problem that has become all too common in the ecosystem of businesses, their delivery partners, and the consumers they serve:
- Businesses are losing up to 40% of their revenue to commissions and other fees on orders coming from third-party platforms. Using the restaurants as an example, most operate within a slim 3-9% profit margin. As the percentage of orders from third parties increases, it’s no wonder restaurants are struggling with retaining their own revenue. Maybe we can’t attribute all of the 110K+ closures in 2020 to this, but we’re pretty sure it didn’t help.
- Delivery drivers are losing up to 40% of their earnings to third-party commissions and fees as well – a hard pill to swallow, especially for the thousands that have turned to driving as a primary source of income after losing their jobs to the pandemic. There are even cases of driver tips being withheld. Considering they are also responsible for vehicle maintenance and fuel costs, it’s not surprising that some customers experience sub-par service at the hands of frustrated drivers.
- Consumers are losing more of their hard-earned cash too, albeit indirectly. You may have noticed the higher prices quoted through third-party apps compared to when ordering directly from a business – the result of business owners compensating for exorbitant commission and fees. On the delivery side, sometimes fees are subsidized by businesses, but again, added expense to businesses often translates into higher prices for the consumer in the long run. This means the customers won’t keep coming back for long.
You know who isn’t losing in all this? The third party platforms charging the commissions. With reports of 2020 earnings 3 times higher than the prior year, it’s no mystery where all the extra money is going. With each revolution of this vicious cycle, the friction experienced by its participants wears away at the machine, and it’s becoming clear it isn’t sustainable.
Don’t let this happen to you! Learn about what Ally is doing to change this for the better at allynow.com/merchant/.