How DoorDash Works | Business Model & Revenue Sources Explained
What is DoorDash
DoorDash is an On Demand logistics based startup, that acts as an intermediary between merchants and the prospective buyers who wish to get products from local merchants delivered at their doorstep. Founded in 2013, currently DoorDash is only working on food delivery.
The business model of DoorDash is designed to benefit users as well as the restaurants. It enables users to find a restaurant and order food on one hand and on the other DoorDash gives restaurants an access to extended customer base. It also benefits people by offering them employment for delivering the food. Since its foundation, DoorDash has managed to raise decent funding from investors and has tied up with many popular restaurant chains in major cities of the USA.
Some Facts about DoorDash
- Founders: Andy Fang, Stanley Tang, Evan Moore & Tony Xu
- Year of Foundation: Year 2013
- Headquarters: San Francisco, California
- Funding: $186.7M (As of May 2016).
- Valuation: $717M (As of March 2016, According to VB).
- DoorDash is a Y Combinator-backed company.
The Successful Timeline
Salient Features of DoorDash
- DoorDash hires its own drivers who are called Dashers.
- Delivery charges per order are $5 to $8 for the customer.
- The commission for the company is close to 20% (covered from the restaurants).
- It operates in over 20 markets across U.S. and Canada.
- The Dashers working for DoorDash make more than $600 within a calendar year in the U.S.
DoorDash’s 3 Customer Segments
DoorDash acts as an integrator between restaurants and users who want to order food online. It also provides employment to people who are looking for a full-time/part-time job. Thus, the customer segments involved with DoorDash Business Model are:
- Foodie people with no time to go out.
- Corporates, business people who wish to treat their team without wasting time and affecting their work routine.
- People who don’t want to cook.
- College going as well as working people with no kitchen facility.
- Restaurants without home delivery services.
- Food joints which do not have good sitting areas.
- Restaurants which want more customers and online branding.
- People who desire a delivery job with flexible timings.
- People who desire a job with good tips.
Value Propositions offered by DoorDash
DoorDash has a Y structure Business Model, which focuses on all the three sides of the food delivery business model, standing to build up a co-ordination between restaurants, drivers and customers. It empowers the restaurants and customers by providing them with the facility to track the driver’s location so as to predict the time of dispatch and delivery, respectively.
With a merchant- partnership, contracts with drivers and convenient communication software, DoorDash is able to take a control over the entire delivery process, which together leads to a smooth experience for everyone.
- A superior experience with better pricing and increased efficiency. –
- A facility to track the delivery after placing an order.
- Customer Service available 24×7.
- A straight-forward, reliable and easy to use product covering massive number of restaurant menus just involving click and choose options.
- No tension of getting food delivered.
- Extended customer base.
- An easy, cheap and fast way of delivering orders.
- Empowerment of small restaurant owners to work at a wider platform.
Dashers at Doordash get a flat payment for every delivery they make on weekly basis and usually make more than $600. (in U.S).
- A source of employment (full time as well as part time).
- An opportunity to receive good tips from customers.
The 4 Step Model – How DoorDash Works
Most of the logistics based On Demand startups use a similar model, but it is the minor differences involved that create a difference. If you are an entrepreneur willing to start a similar business, it is vital that you make note of these points.
- Choose order: Users choose their favourite food by pressing a button which shows up the list of restaurants with variety of menus listed on DoorDash. Features such as search, nearby restaurants, making choices based on categories, also help the users for better sorting.
- Payment: Users make the required transactions after placing their orders online. Once the order has been received by DoorDash, it forwards it to respective restaurant where it is prepared and packed for delivery.
- Track order: The delivery person picks up the packed food order from the respective restaurant. The in-built software used by drivers in their phones allows them to accept orders whenever they have downtime. DoorDash provides with the facility to track the food location so as to have an estimate of time of delivery.
- Delivery: The dashers try to make shorten the delivery period as much as is practical. The customers, although not necessarily but usually tip the dashers, the dashers get to keep 100% of the tip received.
DoorDash Business Model Canvas
Revenue Generation Model – How Doordash Makes Money
For a budding entrepreneur willing to enter into On Demand Logistics or food delivery startup, understanding the mode of Revenue Generation is of vital importance.
Doordash makes money in the following manner:
- Commission on each order
DoorDash serves by delivering from the restaurant to doorstep of customers who place food orders online through DoorDash. For the same, DoorDash charges a commission percentage out of each and every order delivered. Usually, the percentage of commission from restaurants is 20%.
- Restaurant Advertising on DoorDash platform
Besides commission, they DoorDash also charges restaurants for their marketing and advertising on their App. To be on the top of list of restaurants for a limited time, for pop up in advanced search, DoorDash charges commission.
- Delivery Fees
DoorDash hires its own drivers, who are called Dashers. The delivery rate depends upon the distance of travel and DoorDash’s tie-up with the restaurant in consideration, but on an average the delivery fee is $5 to $8 per order.
DoorDash seems to be utilizing technology as much as possible in their operations and seems to be evolving further.
It has come up with an innovative rating system for restaurants known as the “Delight” score. It is based on a 10 point rating scale and includes factors in delivery quality, restaurant popularity, and customer feedback to give an accurate estimate of how much a new customer can expect to be delighted. This score will help users choose a restaurant for their order and with time DoorDash wants to become an authoritative source in this domain.
As of now, DoorDash is focussing only on food delivery but in the long run, it might expand to other spaces as well and give tough competition to others in the on-demand delivery industry.