Fees vs profit? Are third-party apps worth it?

Fees vs profit? Are third-party apps worth it?

Let's talk about the thrill of winning and the agony of losing - whether it's a poker game with friends or the numbers on your monthly balance sheet. Winning feels fantastic, but losing? Not so much.

Do you ever look at the third-party fees at the end of the month and it feels like a gut punch? How can you be making money hand over fist yet have nothing left in the bank? How does this make sense? It dawned on me that many customers, even our loyal regulars, were opting for the convenience of ordering through those ubiquitous "apps" rather than stepping foot in our restaurant. With our usual profit margin hovering around 10%-15% and these apps taking a hefty 30% cut, it seemed like we were bleeding money with every order.

Now, the knee-jerk reaction might be to jack up prices to offset those commissions. But here's the kicker: the commission percentage remains fixed, no matter how much you bump up those prices. So, if a burger costs $10 and the commission is 30%, that's $3. Raise the price to $15 for delivery, and suddenly you're looking at a $4.50 commission. It's like they're taking more of your pie the higher you set your prices!

The biggest issue is the customer is getting the short end of the stick as they are paying the inflated price of the burger and then the fees on top and it's costing them almost double.

So, what's the game plan?

1. Know your third-party platforms: These platforms can be a great short-term boost for your business but relying on them as long-term partners may not be the best strategy. They can help expand your reach and attract customers as an alternative to traditional advertising, but depending on them entirely is akin to having a real estate agent sell you a house and then collect a commission every time you make a mortgage payment.

2. Encourage direct orders: Those apps hoard tons of valuable customer data to market themselves and other businesses like yours. It's crucial to gather your customers' information and find ways to entice them to order directly from your restaurant. When you have control over your customers' data, you're not handing over that commission repeatedly.

3. Make it Easy: Online ordering for takeout and delivery is no longer just an option - it's a necessity. If takeout is a significant part of your business, make it as effortless for customers to order directly from your restaurant as it is from a third-party app.

4. Embrace tools and new technology: Companies are waking up to the fact that those fees are a pain point for businesses like yours. DoorDash, for example, now offers direct ordering from restaurants, but they still retain control over the customer data. Emerging companies like Calibre Restaurant Solutions are introducing "Zero Commission" models, where a flat fee delivery system ensures that the money you make stays in your pocket.

Getting hold of customer information can be tricky, but here are a few suggestions:

- Slap a sticker on the bag encouraging direct orders.

- Include QR codes on your food packaging.

- Tuck a flyer into the bag with details on ordering directly.

To make these strategies more effective:

- Offer incentives like saving $5 on direct orders or throwing in a free dessert.

- Run a review-for-a-prize campaign where customers leave feedback and enter a giveaway.

- Keep it clear and simple - focus on one call-to-action at a time, whether it's scanning a code or visiting a specific website.

There are countless creative ways to gather and leverage customer data. Remember, those third-party companies hold onto that data for a reason - the more they retain, the more customers order through their platforms and the more commission you end up shelling out. While these platforms are essential tools for your business, it's up to you to use them strategically and efficiently to maximize their benefits.

Cheers

Tony

Tony Nikas, Restaurant Marketing Coach

Scale Local | Restaurant Marketing