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What's your business model?

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How does DoorDash make money?

DoorDash charges restaurants and its users a fee for every order placed on its platform

Innovation series by Steven Loeb
October 5, 2018
Short URL: http://vator.tv/n/4b18

The once mighty food delivery space slowed to a crawl over the past few years, thanks to consolidationsome untimely deaths and one disastrous IPO. According to CB Insights, 2017 saw only three new delivery companies get at least $5 million in funding, down from 12 in 2013.

In 2018, though, things have begun to turn around again. In just the first five months of the year, there was $1.3 billion invested into food tech, compared to $1.5 billion in all of 2016, according to data from Pitchbook, which puts the space on the path to see its highest amount of VC capital in a decade.

One company in particular has benefited from this resurgence, raising its biggest round ever, making it a unicorn and establishing it as one of the dominant food delivery companies. 

That would be DoorDash, the on-demand restaurant courier service that delivers food from restaurants that don't have their own delivery fleets. 

"DoorDash is a technology company that connects people with the best in their cities. We do this by empowering local businesses and in turn, generate new ways for people to earn, work and live. We started by facilitating door-to-door delivery, but we see this as just the beginning of connecting people with possibility — easier evenings, happier days, bigger savings accounts, wider nets and stronger communities," the company writes on its website

The company makes it money from three revenue streams, the first being a fee it charges its customers on every order places through the platform. Though this free varies based on a variety of factors, including location and time of day, it is generally between $5 to $8 an order.

The second revenue stream is a commission DoorDash takes for every order, this one coming  from the restaurant.

This fee is said to be roughly 20 percent on average, which makes it higher than other companies in the space; according to Nasdaq, Delivery Hero takes an average commission of 10 or 11 percent on each order, coming out to be roughly €1.60. GrubHub, meanwhile, is said to take an average of 13.5 percent. Delivery Hero does take higher fees if it does the delivery itself, rather than being done by the restaurant, but it's still a lower percentage than DoorDash. 

Finally, DoorDash makes money by allowing its partner restaurants to advertise on the site. Basically, the restaurant pays the company so that it will appear at the top of search results on the platform.

Founded in 2012, DoorDash operates in 56 markets and more than 600 cities across North America. 

In March, the company revealed that it raised $535 million in funding led by SoftBank Group with participation from existing investors Sequoia Capital, GIC and Wellcome Trust. SoftBank’s Jeffrey Housenbold and GIC’s Jeremy Kranz joined the board of directors at DoorDash. With that funding, the company has raised a total of $971.8 million and valued it at $1.4 billion. That was followed by another $250 million round in August, which valued it at $4 billion. 

With its new funding, DoorDash said it is expecting to expand to 1,600 cities this year. 

(Image source: blog.doordash.com)


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