Choosing between in-house food delivery vs. third-party delivery services

What are native platforms?

A native platform is any technology you can implement on your website to provide functionality.

"As native platforms such as Bbot, Checkmate, and Relay have come on the market, it has opened up the opportunity to integrate seamlessly into restaurant websites," says Elizabeth Tilton, CEO of restaurant consultancy Oyster Sunday.

A native approach that drives customers to your website gives you more control over your customer ordering experience. It also allows you to better understand shoppers' behaviors by using website analytics, all while saving you hefty fees. But is it more cost-effective in the long run compared to selling your food on third-party platforms?

The difference between in-house vs. third-party delivery services

While both in-house and third-party delivery services accomplish the same goal, they use very different paths to get there.

With in-house food delivery services:

• The restaurant operates and manages all aspects of the delivery process
• The restaurant must implement native platforms to take, process, and manage orders
• The restaurant must hire delivery staff and either provide vehicles or pay for mileage
• The restaurant has complete control over the entire customer experience

What are third-party food delivery services? Here’s how they differ from in-house versions:

• The restaurant contracts out all technical requirements to a third-party platform
• Customers order through the third-party platform instead of through the restaurant
• The third-party platform contracts and pays delivery drivers
• The third-party platform has control over the ordering and delivery experience

The benefits of in-house food delivery services

While third-party platforms can be faster to set up and less expensive to launch, restaurants may still be better off in the long run building out their in-house delivery operations. Here's why:

• More control over the entire process: Managing the end-to-end process means your restaurant can ensure food is delivered quickly and in the best condition.

• Increased brand reputation: A negative delivery experience by a third-party platform still reflects poorly on your restaurant. By controlling the entire process, you can ensure you’re not blamed for issues outside of your control. (However, you can’t blame the delivery agent if something goes wrong, so taking ownership is critical.)

• Lower costs: Third-party platforms charge a commission on every order, which can add up over time.

• Better integration with other systems: In-house delivery platforms can be easier to integrate into existing restaurant systems, such as point-of-sale and inventory, which can help streamline operations.

Breaking down costs for third-party food delivery services

The cost to use third-party delivery services will vary depending on the platform you choose, along with any extra features you add. Here are some of the fees you'll need to consider:

• Sales commission fees: 15% to -40% of the meal

• Delivery fees: $7 to $11+ flat fees or 5%+ of food cost

• Activation fees: $0 to $1,000+ depending on location

• Promotional marketing (sponsored listings, favorable placement, etc.): Variable

• Payment processing fees: 2.9% of transactions plus $.30 per order

Keep in mind that these are only estimates. Fees vary greatly depending on the membership plan you choose, the city your restaurant is in, how many locations you have, and many other factors.

Breaking down costs for in-house food delivery platforms

Scott Landers, co-founder of food delivery consulting agency Figure 8 Logistics, says that offering online food delivery services yourself is not only doable but potentially much more profitable than using a third-party system.

"With third-party platforms, your profit margins are capped. If you sell more, you pay more, with no efficiency for a larger check size or the lifetime value of the customer relationship," he says. "With native delivery, you can fix your logistics costs so you can make more money as the check size increases. You also only have to spend money on advertising to acquire a customer one time. Every time they come back to order on their own, your acquisition cost is zero, increasing their lifetime value."

While your actual costs will depend on your sales volume, Landers recommends that restaurants estimate the following costs when budgeting for a native approach to online ordering and delivery:

• Online ordering management software: $150/month per location using software like Bbot.

• Delivery logistics: $6 to $8 per delivery using an outsourced delivery service. "As delivery becomes a larger part of your business model, you may be able to reduce this cost by hiring drivers in-house or shifting waitstaff to be delivery drivers," Landers says.

• Online marketing: $500 to $1,000 per week in search and social advertising. "Target your marketing dollars to deliver the highest returns," Landers says. "You should be generating a minimum 5x to –10x return on your marketing spend."

• Packaging costs, such as napkins, bags, and utensils: $.25 to $1+ per order, depending on the quality of materials and if you use custom-branded packaging.

• Additional software: Email marketing platforms, social media management platforms, and aggregator software to connect apps to your POS system can cost $50 to $100+ per month.

Figure 8 Logistics and Oyster Sunday have created an open-source spreadsheet you can use to calculate your delivery profit margins based on your specific food, packaging, and delivery costs. Download a copy of the spreadsheet here.

Consider a hybrid delivery approach for online ordering success

Hungry to start taking online orders? You don't have to decide between selling on a marketplace or on your own website. Many restaurants use a hybrid approach.

"We advise restaurant operators to see third-party apps as a marketing expense, and to not rely on them as a lifeline for their business," Tilton says. "Restaurants can direct the customer to their native delivery services while also utilizing strategic third-party apps to ensure as many customers as possible have access to purchase."

To help you offer online checkout more effectively, here are a few tips to keep in mind:

• Prioritize your native channels: Make your native channels your preferred ordering method by removing references to third-party marketplaces on your website. In addition, make sure you direct customers who find you on Yelp and Google My Business to your website, not a marketplace. This approach allows you to only use marketplaces to attract new customers who find you through those platforms.

• Set customer expectations: Balance customer demands with your kitchen capacity by setting clear expectations about when food will be ready before customers hit the "Submit" button.

• Optimize your menu for delivery: To ensure quality, items not conducive for travel should be held as an exclusive for customers who dine in at your restaurant. Similarly, make sure your online menu prices reflect the cost of delivery instead of trying to keep the prices equivalent to dine-in prices.

• Communication is key: To build customer trust and confidence, clearly communicate with your customers how their food will be delivered, along with the operating procedures you follow to ensure the health and safety of delivery staff and diners.

Using PayPal for Business

PayPal for Business makes it easy for restaurants to accept payments for online orders while growing your business. Business can seamlessly:

• Accept orders online and in person
• Leverage financial services
• Accept donations
• Get started quickly

Learn more about PayPal for Business.

About Figure 8 Logistics

Figure 8 Logistics was founded in 2019 as a food delivery consulting agency based in New York City. Figure 8 works with restaurants to build scalable and sustainable food delivery businesses and provides full-service food delivery consulting, including technology and logistics development, marketing and media strategy, operations training, and economic analysis. Sample clients include Zuul, Naked Farmer, Seamore's, and Mexicue.