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Improve Your Food Delivery Profit Margins

By Miriam Robinson

Food delivery can be costly! As a restaurant operator, you are likely all too familiar with increasing costs and shrinking margins. Don’t let delivery drain your profits, and instead rethink your delivery strategy to grow your profits.

When thinking about improving your profit margin, there are two opportunities to consider:

  • Increase your delivery sales volume
  • Decrease your delivery expenses

1.  Increase Delivery Sales Volume

Increasing your delivery sales volume can ultimately improve your profit margin if you keep your expenses in check. Focus on growing aspects such as your delivery customer base, customer frequency, and delivery sales average, and you'll be well on your way.

(i) Increase Your Delivery Customer Base

Building a strong delivery customer base should be one of your main priorities. Increasing the number of customers who know about you and want to order delivery from you will increase delivery sales. But how do you accomplish this?

Start by spreading awareness that you’re open for delivery. If they love your food, customers can now enjoy it from the comfort of their own home. Post frequently to social media and send out emails to talk your customers through how easy it is to order and receive one of their favorite menu items in a timely manner, without getting off the couch. Entice someone who has never ordered delivery from you before by offering an exciting promotion, such as free delivery on their first order. Something as simple as a free delivery can help you get a leg up on the competition. 

Some more ideas to entice customers to order delivery from you:

(ii) Increase Order Frequency

Once they’ve tried your delivery service, customers should be excited to order again! 

  • Providing excellent customer service can be a great way to keep customers coming back. Food should be arriving at their home at the right temperature and looking as appetizing as it does in your restaurant. 
  • 60% of consumers cite delivery time as a key factor in ordering online. Make sure your online ETAs are accurate and your delivery drivers have the navigation tools they need to locate the customer quickly.
  • Run loyalty programs, and send email updates about new offers and discounts. This can help greatly in customer retention because customers feel involved and informed.

(iii) Increase Your Delivery Sales Average

You can increase your delivery sales per customer by using upselling techniques. Configure your online ordering settings to suggest items to customers in a way that will encourage them to order more, or to order larger item sizes. 

Lucky for your sales, customers who order pizza online order 18% more on average than customers who order over the phone. They can take their time selecting food items that sound delicious, and will often order more than they had originally planned. Good food photography can play a big part in this. Studies show that items that have an image next to them have an average increase of 6.5% in sales, resulting in higher sales for you.

2. Decrease Food Delivery Costs

Decreasing your food delivery expenses can significantly contribute to increasing your profit margin. Some aspects that can contribute to unnecessarily high expenses include:

  • Too many delivery drivers scheduled to work
  • High driver turnover rate (training expenses)
  • Expensive delivery packaging
  • Third party commission fees
  • Card-not-present processing fees
  • Driver insurance and car maintenance
  • Unsuccessful marketing attempts
  • Charging too little for distance driven

(i) Calculate Fees by Delivery Zone

Make sure you’re charging the right delivery fees by creating custom delivery zones. When an order is placed, auto-assign the customer to a zone based on address, and charge the specified fees for that zone. Assigning minimum charges for distant zones will help ensure that you’re covering costs.

(ii) Control Labour Costs

Labor costs are notorious for being the most expensive variable in the food delivery equation. As more cities and states increase their minimum wages, labor costs will continue to rise.

The following contribute to delivery driver labor costs:

  • High turnover rate
  • High minimum wage
  • Lack of training

There are a few ways to control delivery labor expenses:

  • Hire the right people—Make sure that the drivers you hire are a good fit for your company and are willing to learn and grow.
  • Keep your delivery drivers happy and motivated—This will incentivize them to perform better, and they will be less likely to quit.
  • Train your drivers thoroughly—Having competent and confident drivers means you will run into fewer issues, and it gives you the option to run your restaurant with fewer delivery drivers.

(iii) Installing a POS System Built for Delivery

A POS system built for delivery will help you to optimize your delivery management, and alert you to any operational issues that need to be addressed. You might uncover that the wait time between delivery runs is very high on some days of the week and low on other days. Being aware of this can help you schedule drivers more effectively. This not only saves you unnecessary labor expenses, but also keeps your delivery drivers from feeling overwhelmed or bored. You might also discover through analytics and reporting that one of your drivers is consistently late delivering orders, and could use more training.

(iv) Fees That Add Up

Sometimes it is the smaller, less obvious expenses that add up the most.

Credit Card Processing Fees

For online and delivery orders, you’re probably being charged card-not-present fees. These fees add up quickly.

The solution? Let customers pay at their door for deliveries. SpeedLine recently introduced Pay@ the Door™, which enables delivery restaurants to accept card-present EMV payments at the door, reducing the risk of fraud. The benefits of increased payment security for delivery are two-fold: it’s safer for your restaurant and your customers, and it’s also cheaper for you.

Third Party Commission Fees

Third-party companies such as Grubhub, Uber Eats, and Doordash are known to charge hefty commission fees—30 percent is not unheard of. When you combine this with a 30 percent food cost, plus a 30 percent labor cost, the margin is pretty small. Add your operating costs and your margin can go down to almost zero.

It’s a tradeoff—delivery companies offer extensive infrastructure and experience, but you give up more of your margin. Although you might deem this to be worthwhile, it’s worth taking a close look at the numbers and comparing them with an independent delivery option.

The Goal is a Win-Win

In order for food delivery to be successful, it must be a win-win scenario. Your restaurant needs to make money, and your customer needs to be satisfied. This means that if you’re looking for ways to improve your delivery margins, you will undoubtedly find small but powerful ways to do so by better serving your customers and making your operations more efficient. Implementing some of the changes mentioned will help you improve your delivery profit margins and open your eyes to all the opportunities that a well run delivery service can bring.

 

Solving the Biggest Challenges in Delivery webinar register now

 


Posted on Thu, Jul 16, 2020 @ 07:07 AM.
Updated on July 29, 2020 @ 10:54 PM PST.

Posted by Miriam Robinson

Miriam is the Marketing Content Specialist with SpeedLine Solutions Inc., the go-to for pizza and delivery point of sale solutions.

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Tags: Delivery, restaurant delivery, Food Delivery, Increase Profit Margins

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