From a customer’s perspective, online ordering is the best thing to happen to restaurants in recent memory. It’s a breeze to pull up an online ordering app on your phone or visit a site that offers online ordering, browse an online menu, and order take-out or delivery at your favorite eateries. And with online ordering becoming more and more popular, this high-tech feature is coming to be expected by customers from restaurants big and small.
But from a restaurant owner or manager’s perspective, the online ordering revolution has some big and unexpected costs. Aside from at times cumbersome training sessions and hidden set-up costs, online ordering portals often have some real, monetary costs related as well. Here are the costs of online ordering to restaurant owners from some of the biggest and most popular vendors in the market:
As one of the largest and most well know online ordering systems, as evidence by their recent super bowl commercial and huge marketing campaign in general, Eat24 has become a flagship company in the online ordering revolution. But all of that recognizability and marketing doesn’t come cheap, and Eat24 passes off some big costs to restaurant owners.
The company charges a flat rate of 12.5% commission on all dishes ordered through it’s portal, not counting gratuities or taxes. Additionally, Eat24 charges a standard fee for credit card transactions. Doing the math quickly shows how much commission style pricing like this can cut into your bottom line. If a customer order $20 dollars worth of food off of your menu, and Eat24 pockets $2.50 immediately, leaving you with a $17.50 gross. But of course that’s before all of your costs, and won’t all be profit.
As far as position in the market goes, Grub Hub is probably Eat24’s biggest competition as far as being well known and wide spread. Grub Hub advertises itself as a “free service” for customers, but of course that doesn’t mean it’s free for restaurants to use.
However, Grub Hub isn’t quite as transparent or straightforward as Eat24’s. Restaurants on average pay a 13.5% commission rate, but the exact amount that your business will pay is somewhat flexible. Restaurant owners can choose to pay a higher commission rate to Grub Hub in order to be placed higher in their listings, and hopefully get more exposure from browsing, undecided customers.
The actual costs to restaurants are variable then, and depend on what you are willing to pay and how important exposure is to your business. Doing the simple math again shows similar results to Eat24. On a 20 dollar order, Grub Hub will pocket $2.70 off the top at the average rate of 13.5% commission.
Again, these numbers don’t seem huge at first. But as a restaurant owner, you have to consider what it means to be cutting into your bottom line on every order you cook. There are a huge number of costs related to running your restaurant, from rent to supplies to paying your staff to insurance and other administrative fees. And these costs can all go up quickly: if you have a favorite menu item, and the prices of the ingredients spike, you will be making a smaller profit on each dish you serve.
All of this is common knowledge to restaurant owners, and part of entering what can be a challenging and volatile field. But with online ordering becoming so widespread, as a restaurant owner you need to start getting serious about what the fees associated with online ordering mean for your business. Yes, your eatery may be getting some exposure with an online ordering platform, and you may be seeing more orders coming in, but if you are paying close to 15% commission on those orders, your profits will be severely impacted. And this isn’t a variable cost that will go down: you can expect to pay high commission rates on every dish you serve from an online order.
What’s the Alternative?
As more and more customers come to expect online ordering as an offering from restaurants big and small, it’s getting harder and harder to imagine a world where foregoing online ordering all together is a viable option for restaurant owners. So if you don’t want to pay high commission fees, what are your options?
A monthly set payment plan, like the one offered by Orders2Me, can be a great option for restaurant owners looking to cash in on online ordering without paying high commission fees. We charge only $49/month for our basic pricing package, meaning that you would only have to receive one $15 order today to make a monthly service like ours a better deal than a 12.5% commission based platform. So do the math for your restaurant, and consider a monthly plan to keep your online ordering costs down.
Please share your thoughts in the comments.
The Cost of Online Ordering, and the Alternatives was last modified: May 15th, 2015 by Rafi Cohen
Rafi Cohen, a graduate of Baruch College & Brooklyn native is the Co-Founder @ Orders2me, an online ordering platform that gives restaurant owners all the features they need to grow their business in the digital age.