What are the real costs associated with food delivery services:
Delivery services like UberEats, DoorDash, Eat24 and GrubHub are eating away at small independent businesses profits one bite at a time. With fee’s upwards of 30% charged directly to you the restaurateur this will inevitably eat away a your profit margins. There have been a whole list of news articles about restaurant groups and cities suing these companies over their steep fees and predatory business practices just one of which is referenced below.
We’ve added a calculator down below to help you determine if your third party ordering or delivery partner is making or loosing you money. An explanation of fields and assumptions can be found below the calculator.
These are the calculator inputs.
Average Check Size ($)
This is the size of your average check not taking into account any checks from a third party provider. Input an amount like 10 into the calculator, which stands for $10.
Daily Average Check Volume (#)
These are the average number of checks you produce daily not not taking into account any checks from a third party provider. Let’s say this number is 200, for 200 checks on an average day.
Profit Margin (%)
This is the percent profit you have. So if you did $1M in annual revenue and ended up with $50,000 at the end of the year that would be a 5% profit margin – so we would input 5 into the calculator.
Cost of Goods Sold (%)
What’s the cost of your food or items? Most restaurants (85%) sadly don’t know the answer here. Our guess is that your COGS is around 30% of sales: so if you did $1M in sales your food costs would be 300,000. If that were the case you would input 30 into the calculator.
Total Labor (%)
This is the total amount you spend on labor as a percentage of sales. If you did $1M in sales and spend $250,000 on labor that would be a labor percentage of 25%. Thus, input 25 into the calculator.
Back of House Labor (%)
Like Total Labor, this is specific to labor in the kitchen. Total labor comprises back of house labor and front of house labor. Figure out what percent of sales your back of house labor is and enter it into the calculator. A reasonable figure might be 15%.
Daily Avg Check Volume from 3rd Party (#)
This is how many checks a 3rd party generates for you on a daily average basis. Maybe it’s 100 checks, so put that number into the calculator.
Increase in Size of 3rd Party Check (%)
Are the checks from the third party larger than your own checks? Maybe the third party’s checks are 25% larger. We said your original check was $10, maybe the checks coming from the 3rd party are $12.50. So input 25 into the calculator to show a 25% increase.
3rd Party Commission Fee (%)
What percent is the 3rd party charging you? 10%? 30%? Insert the percentage into the calculator.
These are the calculator outputs.
Annual Revenue before 3rd Party
This is how much revenue your business was doing before introducing a 3rd party ordering/delivery service. We arrive at this amount by multiplying your daily check volume by the check average and again by 365 days in a year.
Annual Profit before 3rd Party
This is your annual profit before introducing a 3rd party ordering/delivery service. We get this figure by multiplying your profit margin by your annual revenue.
3rd Party Check Size
This is the average check size of a 3rd party check. We get this by multiplying the increase in size of a 3rd party check by your average check size.
“Incremental” Revenue from 3rd Party
Here’s the “incremental” revenue a 3rd party pitches to merchants. This figure is a multiplication of the size of the average 3rd party check and the number of checks per year. It does NOT include the 3rd party fee, COGS of those checks, or the labor needed to make those checks. Nor does it include the other overhead associated with running your business, which typically makes up 35% or so of your expenses (rent, marketing, etc.).
Profit/Loss from 3rd Party
This figure takes the most explanation. What we’re doing here is calculating the profit/loss of just the 3rd party operations. To do this accurately we subtract your fixed COGS rate from the 3rd party check. We then subtract the labor needed to make the check, which we’ve very conservatively set as only back of house labor (even though front of house labor could be argued to impact 3rd party checks), and lastly subtract the 3rd party fee. Implicitly we subtract overhead since third party partners would not be able to sell you a service if you didn’t pay rent, utilities, and other business necessities that should be allocated over all your checks.
Total Annual Profit/Loss after 3rd Party
This is the business’ total profit or loss after accounting for the profit/loss from the 3rd party operations and adding it to the business’ original profit. If the loss from the 3rd party services are greater than the business’ starting profit, the business will record an aggregate loss.
**This Calculator is meant to be used on a computer or tablet and will not be accessible on the mobile version of the website.