In 1984, Domino’s Pizza introduced a stunning promise: Delivery in 30 minutes or less, or your pizza is free. The policy was short-lived. In 1993, a jury slapped Domino’s with a $79 million fine after finding the time crunch resulted in reckless driving. The possibility of free pies ended shortly thereafter.
It sounds good on paper, but going from zero to pizza in less than half an hour is a logistical nightmare. Even a massive chain like Domino’s is challenged to prep, bake, pack, and chauffeur meals across town on such an ultra-tight timeline.
Local delivery has a lot of moving parts, and it can be a daunting prospect for small business owners. Thankfully, if you’re planning to use in-house delivery services to get your product to clients, you can cover the costs of the added hassle by charging delivery fees.
What is a delivery fee?
A delivery fee is an additional charge local businesses—most commonly restaurants—apply to delivery orders to help cover the operating costs of bringing a product directly to customers. Customers pay a little bit extra for the convenience of delivery and businesses are able to offset delivery expenses.
As a business owner, offering local delivery can provide access to a wider customer base and increase the number of products you sell, helping you earn more money. This model is most common for restaurants, but other types of businesses use it, too (think furniture stores, flower shops, and specialty coffee roasters). Some of these businesses may use a third-party service like Postmates to handle delivery—in which the service provider is the one charging the fee.
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What do delivery fees cover?
Delivery fees are intended to help cover the costs of providing delivery—gas, labor, wear, and tear. Exactly what the fee covers—and who gets it—varies depending on how the delivery service operates.
If a local business provides delivery services themselves, the business owner determines how much to charge for delivery and keeps 100% of the fee. In third-party food delivery apps like Uber Eats or Postmates, the delivery company keeps the fee and uses it to cover their expenses, while drivers keep customer tips.
Local on-demand delivery options for small businesses
Depending on your goals, you may not need to build a brand-new delivery system from the ground up. Many businesses outsource delivery logistics to third-party delivery services. These are the most common methods restaurants use to add delivery—and the fee structure varies for each.
In-house delivery
In-house delivery services, also known as first-party delivery systems, are completely owned and operated by your business. Customers order directly from your business, and an employee delivers the product. Operating an independent delivery program gives you more control over your profits and the customer experience.
Advantages
With a first-party system, you decide how much to charge for delivery and keep 100% of the profits. This system also helps you conduct quality assurance.
Delivery drivers work for your business, so management can communicate with them directly to ensure products arrive on time and in good condition.
Drawbacks
Implementing an in-house delivery program requires a significant upfront investment. Expenses may include training costs for delivery people, insurance fees, and delivery vehicle maintenance.
Best for
In-house delivery systems may be best suited to high-volume restaurants with multiple locations, local subscription-based businesses, and businesses that specialize in high-ticket items.
In-house plus on-demand delivery
With this system, you own and operate your own ordering system and outsource delivery logistics to a third-party company. Instead of hiring and training your own fleet of delivery people, you pay a flat fee to use a pre-existing network of drivers. A prominent example is Uber Direct.
Advantages
Working with an on-demand delivery service helps you save on some of the expenses of building a delivery network, including hiring and training drivers. This system often leads to a lower average delivery cost per order compared to an entirely third-party system.
Drawbacks
As with a first-party service, businesses using this delivery model are responsible for developing their own online ordering systems. However, unlike a completely self-owned system, companies need to pay for and place their trust in another business to operate.
Best for
Established businesses with a large base of loyal customers can benefit from this system. You can use this system to provide a boutique ordering experience with less complexity than an in-house system.
Third-party delivery
In a third-party system, you outsource the majority of delivery logistics to a specialized company. These companies typically provide an ordering platform in addition to a coordinated network of drivers. They’re almost exclusively used for food delivery. Uber Eats and GrubHub are well-known examples of third-party delivery systems.
Advantages
Using a third-party delivery system removes many of the logistical and financial roadblocks you might face when introducing delivery. And when it comes to ordering takeout, many customers use delivery platforms like search engines—participating in a delivery network may boost a restaurant’s visibility with customers.
Drawbacks
Partnering with a delivery company can cut into your profits—these services collect 10% to 30% of the total order cost. Using a third-party system can also pose a reputational risk—if your delivery partner messes up an order, customers could blame you.
Best for
Third-party systems are a powerful tool for attracting customers. Delivery companies provide access to a large network of customers that can help new restaurants and small establishments grow their business.
Other factors to consider when choosing a delivery strategy
Offering local on-demand delivery increases business expenses no matter which method you choose. If you don’t charge more for delivery orders, these new costs will come out of your profits. When selecting a delivery strategy, it’s helpful to consider how much of this expense you’d like to pass on to consumers.
Third-party delivery services tend to be the most expensive for customers. In addition to delivery fees, third-party platforms often add service fees or other charges to the order subtotal. By the time the tax is tacked on, consumers may be suffering from a bit of sticker shock. This can create an inaccurate impression of your prices.
With first-party or hybrid delivery models, your business shoulders the majority of the financial burden at the outset. After the system is up and running, you may earn more money from each delivery order.
Delivery fees FAQ
How much should a delivery fee be?
Delivery fees range from around $2 in major cities to over $10 for higher-end services. The ideal fee is just enough to cover your delivery costs without deterring customers. Estimate your expenses and research competitor fees to determine how much you should charge.
What are delivery charges?
Restaurants often add fees to food orders to help cover the additional costs associated with making deliveries. Depending on how the restaurant operates its delivery business, fees may go directly to the business or to a third-party service.
Are delivery fees negotiable?
Business owners may be able to negotiate with third-party delivery apps. These fees are generally not negotiable for customers, but many delivery services offer premium memberships with perks like free delivery or priority delivery.
Why are delivery fees so high?
Delivery logistics are complicated. Expenses like driver wages, packing costs, insurance charges, and platform fees can all contribute to delivery prices.
What’s the best delivery option for restaurants?
The best delivery method for a restaurant may vary depending on its size, order volume, and current reputation. Well-established restaurants might enjoy the control gained by operating their own first-party delivery system. Small or new restaurants might benefit from the discoverable experience on third-party apps.
