The on-demand business can be now found in numerous forms. You can order a delivery or cleaning service, ride wherever you want, take music lessons, or find an appropriate personal yoga trainer in your district within on-demand online services. Starting a food delivery service is one more area where the on-demand concept is applicable.
Some optimistic statistics to think about. In 2019, the online food delivery niche generated over $7,730 million and total market revenue is expected to grow by 12.8% over the next 4 years. It is expected to be serving 138.9 million users by 2024.
Although there are some global players such as UberEats, DoorDash, and Zomato, it is still possible to join local market competitors or develop a global product learning from their mistakes. Or, perhaps, you can try creating an Uber-like food delivery app for non-Uber regions and then sell your business to Uber.
Use our article to help build your online food delivery business successfully!
Revenue Model. How to Make Money in the Food-Delivery Business?
Starting a food delivery business is about planning and calculating. To set up a startup in the on-demand delivery area you need more than just a well-developed app or two. A business operating concept involves third-party service providers such as couriers, restaurants, and a support team, ready to solve any issues. To gather all those pieces of the puzzle together, you need to spend significant capital and be ready for long-term investments.
To prevent yourself from the situation where you just run out of money before even receiving your first revenue, think about an appropriate monetization model and plan your investments. There are 4 options of how you could make money out of your idea:
- Delivery fees
You may charge cafes and restaurants that do not have delivery services or ask the customers for payment. DoorDash charges users from $0.00 to $7.99, Foodpanda gets 10% commission per order, and UberEats usually costs from $4.99 with the total delivery price depending on distance.
- Peak pricing
The on-demand concept means flexible pricing. If demand is high, you charge users more, if it is low — the delivery service price remains nominal. This approach was originally developed by Uber. As a consequence, customers may be charged different prices within different districts or parts of the day.
- Commission charges
How to start a food delivery business? A Food delivery service can work to increase the profits of particular partner restaurants. According to this revenue idea, restaurants pay your business a fixed monthly price for serving the restaurant’s clients without charging them anything. Restaurant-centered models work well for new or not so popular food points.
In-app advertising is the most obvious way for restaurants to attract new clients or to retain those who know them well. Hot and delicious propositions with on-time delivery as well as new restaurant promotions can help you to increase profits without further additional investment.
Want to know more about the on-demand business model? Read our blog article Uber-like App Development: How to Make an App Like Uber.
Food Delivery App Types
How do food delivery services make money so soon after launch? Most of them, including Zomato, DoorDash, and UberEats use more than one monetization approach at a time. The Peak pricing on-demand approach helps them to generate higher revenue, encouraging contractors with extra money and reducing the load on themselves at the same time. In-app advertising helps cover ongoing tech and customer support spending which grows simultaneously with any increase in users.
What does a classic on-demand food delivery app look like?
The answer is there is no single app, but a number of them — one for clients to order food, one for couriers (contractors), and one for restaurants.
We shouldn’t also forget about the client support team and admin panel, which are normally designed for the web. There are 5 golden rules that can allow businesses to be successful in this area:
- fast delivery
- competitive prices
- convenient payment methods
- reliable drivers’ pool
- advanced, mobile-first approach (UI and UX)
You should also bear in mind key features that your digital product must include — tools for ordering food and schedule delivery, payment system integration, ranking and feedback section, and location tracking (for both client and courier).
How do food delivery companies make money? Surprisingly, choosing the right monetization model is not always enough. Most online food delivery services belong to one of two conceptual types that cannot be mixed.
examples — UberEats, Deliveroo, GrubHub
In this case, your online platform operates as an online meeting point for eaters and restaurants. Restaurants benefit from aggregators a lot. First, they get extra orders without overloading their restaurant space. Second, they don’t have to establish a corporate delivery service, which is always complicated. Finally, they gain additional attention from those who might never have heard about them before (aggregator online audience).
- Platform with logistic support
examples — restaurant apps like Buffalo Wild Wings and Panera Bread
This is a restaurant-centered business model where you create a product under the restaurant’s brand and propose to users options from the menu. The concept may also take a more complicated form where you retain full-time couriers to serve clients. The approach works well for well-known restaurants. The service helps them to keep customers, gives them the ability to collect and process personal data, and strengthens the corporate image.
Challenges to Entering the Mobilized Food-Delivery Market
Creating a food delivery website is not a simple task. As already stated, the online delivery business processes remain complicated, because your digital product matches and coordinates end-users, food providers, tech and client support, and delivery services.
On the one hand, you are dealing with business structure complexity, while on the other, the online food delivery market, with all the major players like DoorDash, GrubHub, Postmates, and Instacart is highly competitive. How to cope with those factors? The 5 most common challenges are set out below!
#1 Sustainability and scalability
Services like UberEats are extremely complicated. They consist of 5 separate apps and digital products connected to several APIs. Each service is also expected to conduct financial transactions, that’s why it is important to develop an advanced tech solution. Personal data processing is one more security issue, that should be solved prior to MVP release.
At the same time, the competitiveness of the food delivery market means that if a user doesn’t like (or understand) your interface they will leave the platform and go to one of your competitors.
Think of creating a stable UI and UX and test options to check how your service works across various platforms and devices.
Don’t forget about tech and conceptual scalability. As soon as you manage to get established, you’ll be doomed to constant new features to remain interesting.
#2 Global competition
You are lucky if there are no Seamless or UberEats in your region. However, it may just mean that the online food delivery business isn’t profitable there. Even if you manage to start a profitable business in your area first, be aware that expanding it to other regions could mean going head-to-head with huge corporate competitors.
What we advise you to do is to use your weaknesses as strengths and stay as flexible as possible. Before Starting a food delivery service, work out a user-centered UX solution that is based on users’ needs and expectations and your freshest novel ideas, just like Uber once did. Learn more about its history from our blog article How to Create a Rideshare App.
Use local knowledge as a competitive advantage if possible. For example, if you’ve got another product operating in the local market, use its audience to promote your delivery service.
#3 Partnerships with restaurants and couriers
Small local restaurants, well-known fast-food networks, eateries from the Michelin guide… Who would you like to focus on? To run a startup in the food delivery area means that, in order to persuade restaurants of each type, you must use different arguments and negotiation styles. We advise you to start with the less popular restaurants.
Part-time courier management might be one more problem.
Develop a vice-like engagement and motivational system, write clear work instructions, and be attentive to contractors’ feedback.
Bear in mind that the couriers are the only people from your team that the clients will see!
#4 MVP features
MVP (or Minimum Viable Product) is a ready-to-use product with only the essential features. It is created to gain early adopters, study user feedback, and check your startup hypotheses without spending the whole budget on a full-featured project that no one really needs.
At the planning stage of your startup, list all features you’d like to see within your product and then remove those that are not about the key service idea. Basic features might include a catalog and filters, online maps and payment system integration, as well as personal profile editing. More on MVP find here — blog article How to Build an MVP.
#5 Retaining users
As on-demand services apps need constant activity inside them, it is extremely important to provide users with compelling reasons to check an app as frequently as possible. New partner engagement and old partner retention politics also matters.
Coupons, personal offers, updates, push notification with useful information from favorite bars and cafes could be implemented as a part of your retention strategy.
Starting a Food Delivery Business: Top KPIs
KPIs (or Key Performance Indicators) are a form of monitoring that can determine whether your business is likely to succeed or risks going bankrupt. Taking into consideration that on-demand services are not those that bring you a return on your investments a short period of time, we recommend you to set several control points to have enough time for corrective actions when something starts to go wrong.
How to start a food delivery business correctly? Learn the most important on-demand business KPIs and plan what numbers you’d like to reach within one month or one year. Find more tips in our blog article How to Start a Startup.
People use apps because they help simplify everyday tasks. In the case of on-demand food delivery services, we are speaking about getting their favorite meals without actually going to restaurants, that are fast, and available at a reasonable price. Although you may attract users with lower prices, a winning strategy is to develop an exclusive service.
Faster and more polite couriers that will not destroy meals carrying them from the next street seems to be a good investment.
How to get new users? Conduct local market research and get to know the weaknesses of your major competitors. Then, start a promotional campaign before product launch. Gain first customers in collaboration with restaurants that are constantly in demand within the region.
It is not only end-users you need to retain, but also couriers and partner restaurants. To do so, you need to learn from their early feedback and be ready to change your service conditions to make it more convenient for all parties.
The most common strategies from customer retention include a convenient menu and filter development (you should apply AI if possible), personal offers, responsive client support, and online delivery tracking. An interactive, well-designed ranking system also engages users. Especially if your app reminds users to review the service or restaurant.
Partner retention could be based on flexible delivery pricing (bigger commission for distant places or night orders), bonuses, and other motivational approaches. You can create a competitive environment between your contractors and motivate them with rating prizes.
Two more must-have driver retention programs are a flexible part-time work schedule and free transport maintenance.
Some companies provide couriers with transport (Postmates), others cover their transport maintenance expenses (UberEats).
Reducing delivery costs make your prices more competitive. Even if your service advantage is not about cheapness, a low transportation cost will help you attract the best contractors due to higher wages.
How can you reduce transportation costs? Most on-demand food delivery apps use three methods. The first one is smart route synchronization (check Uber) which means that drivers receive orders in the same area they are in, or on the way to.
The second solution is to use energy-efficient transport with low maintenance costs. The third is about commercially reasonable delivery coverage (check Deliv) that can be up to 20 km.
How Much Does It Cost to Develop an On-Demand Delivery App Like UberEats?
How do food delivery services make money and what is the best way to build your startup budget? The basic rule is to make a precise budget calculation and then leave up to 20% for unexpected costs.
Keep in mind, that the on-demand delivery service budget consists of several sections — digital product development and design (MVP), promotion, partnership building and contractor training (preparational period), as well as ongoing tech and client support. Find detailed budgeting instruction in our blog article How Much Does It Cost to Create an App.
Here, we would like to focus on design and app development costs. Your development budget may need to be smaller or larger depending on the country of development, team size, deadlines, MVP features, and the chosen platform. Let’s look deeper into each of them.
#1 Team and place of development
The basic team required for on-demand food delivery app development consists of a project manager (PM), UX and UI designers, Android (iOS) developers, backend developers, and a QA manager. To speed up the development process you can hire several designers and developers. You may also need a dedicated local market expert and marketing specialist during the Discovery stage. Detailed guide — I Have an App Idea Now What.
Depending on the work contract you’d like to use with your team, employee hourly rates vary. In-house development remains the most expensive form of hiring. It may cost you up to 40% more than development team outsourcing.
Offshore development which is about remote cooperation is cheaper if you choose a team from a country with lower hourly rates.
For comparison: a US-based digital specialist will cost you up to $250 per hour, while an Eastern European one costs about $50 per hour.
Dedicated development team hiring allows you to reach a wider talent and expertise pool. For more about outsourcing pros and cons read here — Advantages and Disadvantages of IT Outsourcing.
How do food delivery companies make money? Features are the correct answer. Although both of them are serving food delivery orders, Grubhub and DoorDash have different functionality that required different periods of development time.
In the paragraphs above, we looked through the most common on-demand delivery app MVP features. Here, we’d like to group them according to app sides and get to know how much time is required to implement them:
- Login and profile editing
- Search bar and filters
- Order section
- Delivery tracking (map)
- Support direct contact
- Personal offers management tools
from 900 hours for iOS or Android app development
- Login and profile editing
- Orders picking and dropping (with a map attached and navigation)
- Payments and bonuses section
from 400 hours for iOS or Android app development
a tablet version is preferable
- Upcoming orders listing
- Menu editing
from 300 hours for iOS or Android app development
Admin panel (clients’ support)
a web portal is preferable
from 250 hours for a web version
This leads to app downloading and attracts end-users, drivers, and restaurants speaking abouts their benefits
Don’t forget that on-demand service building includes work on tech documentation which will take over 40 hours and UX and UI design development that can be estimated at 70 hours. QA tasks including MVP testing and bug fixing, as well as deployment processes can take about another 100 hours.
The promotional campaign is something that remains unpredictable in terms of budget unless you don’t have a clear promotional plan. We advise you to assign 20% of the development budget on promotion. The total estimation is around 2000 hours.
iOS or Android is a common question for startupers planning to launch their app-based service. You may find lots of reasons to opt for one or another solution. Although Android’s audience is significantly bigger, the platform is less standardized which makes it more difficult and expensive to work with.
At the same time, iOS is dominating Western European and Nordic markets, as well as the US and Canada. Attractive iOS native apps are cheaper to develop and its potential audience spends significantly more money on the Internet. For more arguments read our blog article Android vs iOS: Which Platform to Build Your App for First Is Better.
If you have a limited budget and you plan to check your MVP first, we advise you to start with the iOS app (using Swift programming language).
It will cost you less compared to Android development and you’ll get guarantees that your app will look as it was designed to, which doesn’t always happen with Android apps, due to the thousands of devices on that platform.
Is it time to launch an on-demand food delivery startup in 2020? Our answer is yes, as the delivery market continues to grow, and there are still millions of cities (and even some countries) without delivery services like UberEats or Postmates.
The difficulty is that a modern smartphone-based delivery service requires a huge investment. For example, instead of one application, you need a minimum of three (for end-users, couriers, and restaurants).
A separate critical issue concerns user acquisition and retention. The delivery business is only able to survive due to a large number of orders per hour and contractors ready to deliver meals from restaurants quickly and accurately. But if you are ready for these challenges — you could end up with a very profitable business.
Build an on-demand food delivery business in 2020.
Contact LANARS to estimate your idea.