How does DoorDash make money?

By   |   Verified by Andrew Boyd   |   Updated 9th June 2021

How DoorDash makes money
  • Want to know how DoorDash came about?
  • Interested in how DoorDash makes its money?
  • Read on to see what restaurants pay to be on the DoorDash app.

Did you close the door on the delivery guy thinking, how does DoorDash make money? This meal-delivery service is one of the most popular options for ordering food online, with hundreds of thousands of users across the U.S. This article will show you how the company earns money.

Doordash makes money by offering food delivery services to its users. DoorDash partners with local restaurants, offering delivery services in exchange for a service fee.

Restaurant owners who previously had no delivery option can contract their delivery needs to DoorDash without hiring delivery staff and increasing their overhead.

DoorDash earns through commissions as well as service and delivery fees. The company also operates a logistics service that partners can white-label and a premium catering service for businesses.

What does DoorDash do?

Founded in 2013 by Andy Fang, Tony Xu, Evan Moore, and Stanley Tang, these Stanford alumni decided to disrupt and innovate the meal delivery industry. At the time of its founding, food delivery services were only listing restaurants, making the restaurant responsible for delivering orders themselves.

The company started as "PaloAltoDelivery.com," using the launch to test their platform. After receiving hundreds of orders in the first few weeks of operation, the founders decided to formalize the operation, and DoorDash was the result.

By 2015, some two years after its founding, DoorDash was available in 18 cities across the US, with a valuation of $600 million.

How does DoorDash work?

DoorDash is an online, on-demand food delivery service, allowing customers to order food from local restaurants and have it delivered to their door. Users order through the site's online platform, available for Android and iOS devices.

DoorDash doesn't do any meal preparation; it simply collects the food from the partner restaurant and delivers it to the customer.

The company has an army of "Dashers" it uses to deliver the orders to the customer. DoorDash hires its Dashers on a contractual basis, eliminating the need for permanent employees. Therefore, the Dasher doesn't receive a salary. They only make money on the orders they deliver for the platform.

DoorDash compensates its Dashers using several factors, including base pay for the delivery, promotions for working in higher demand times of the day, and rewards for Dashers completing challenges, like a certain number of deliveries in a specified time frame.

The DoorDash back office team operates the marketplace and handles the payment process. Customers pay DoorDash directly when ordering, and the restaurants claim their money back from the platform, minus delivery fees and service charges.

DoorDash not only delivers food, but customers also have the option of ordering from convenience stores and other markets like Walgreens.

How DoorDash makes money

DoorDash makes money by charging commissions on all the orders it delivers for restaurants and convenience retailers. They also generate recurring revenue from subscription services including DashPass, DoorDash for Work, and Drive. Let's unpack the DoorDash revenue model to see how the company makes its money.

Commissions

DoorDash charges all restaurant partners a percentage fee for any order processed through its platform.

As of April 2021, DoorDash introduced its new tiered commission model. The new structure offers restaurants the choice of paying 15% (Basic), 25% (Plus), or 30% (Premier) commissions. The Basic plan has the highest delivery fees for the customer and limits the delivery area. The Plus plan reduces delivery costs, expands the delivery area, and puts restaurants into the loyalty program. Finally, the Premier plan has the lowest fees, the largest delivery area, the loyalty program, and also guarantees DoorDash delivers 20 or more orders a month, otherwise the restaurant gets a fee refund.

DoorDash also charges commissions on convenience item delivery from stores like 7-Eleven. The company launched its DashMart service in August 2020 after seeing increased demand during the height of the coronavirus pandemic.

Some of the DashMart partners involved include CVS, Wawa, 7-Eleven, and Walgreens. With DoorMart, the company pits itself against competitors like Postmates and GoPuff. However, DoorDash has considerable negotiating power with its partners and the fees it charges are lower than Postmates and GoPuff.

Service and delivery fees

While DoorDash makes money from commissions, it also earns through charging customers for delivery of their food or convenience items. Delivery fees range from $6 to $8, depending on the platform's delivery location and current demand for services.

While the company uses these fees to pay its drivers, it doesn't disclose how much of the service charge ends up in the pockets of its Dashers. The company also charges service fees based on the order total.

DashPass

The DashPass from DoorDash comes as a subscription service offering its customers the chance to save on delivery charges and service fees. The customer pays a flat fee of $9.99 monthly, and they don't have to pay any fees on orders over $12. With DashPass, DoorDash claims customers save an average of $4 per order. It's a good deal for people that use DoorDash for regular meal delivery.

DashPass holders also benefit from lower service fees, but it's important to note that not all restaurants are partners in the DashPass program. Like any other subscription service, DashPass users have the right to cancel the service at any time.

Drive

This white-label logistics service from DoorDash lets restaurant partners tap into the DoorDash fleet of Dashers. DoorDash aims the Drive service at restaurants that already have delivery options but can't keep up with increasing demand, especially around peak periods.

Pricing for the Drive service is available on request from DoorDash, with restaurants and businesses paying DoorDash a service fee for each order fulfilled by the company.

DoorDash for Work

With DoorDash for Work, companies can subscribe employees to the DashPass program. This service caters to people forced to work from home during the pandemic. DoorDash will generate revenues from subscriptions and the fees it collects for order fulfillment.

Future growth engine

According to DoorDash COO Christopher Payne, DoorDash intends to expand aggressively into delivery markets.

The company already has plenty of success with delivery logistics. The addition of services like the Storefront model enables merchants to configure digital ordering from direct native channels.

The company also intends to introduce Self-Delivery, allowing restaurants to leverage the DoorDash marketplace while using in-house delivery teams.

Competitors

Just as people use multiple options for delivery, many drivers too work for more than one company. With the gig economy in full swing and delivery becoming ever more popular, DoorDash has a host of competitors, including Uber Eats, Zomato, Slice, Caviar, PostMates, GrubHub, Swiggy, Olo, and Deliveroo.