How DoorDash Makes Money? The DoorDash Business Model

Published On:Tuesday 10-Mar-2020

How does DoorDash make money?

DoorDash has raised over $700 million from different investors over several rounds of funding. According to The Wall Street Journal, DoorDash is in the process of raising approximately $500 million in funding. This gives it a valuation hike of over $6 billion. Not to mention, it is already a successful company. But, do you know how this company makes money? In this article, we are going to discuss about it. Before, starting on that topic, let us know something about the company’s background in brief.

A brief history

In the fall of 2012, DoorDash’s founders were working on building technology for small businesses. So, they were collecting reviews for an app they built. During that time, a store manager seemed not so impressed by their app. They came to know that the biggest challenge for store managers was to find customers for food delivery. This cracked the idea on their mind. After several months, in January of 2013 Palo Alto Delivery was live. The founders claimed that they received their first order within half an hour of their app release.

How were they different from their competitors?

DoorDash followed a slightly different approach to be different than their competitors. While a majority of their competitors were focussing on impressing the users, they focussed on keeping the restaurants impressed. CEO Tony Xu and COO Christopher Payne developed a software for restaurants that minimized their workload. Also, the software they made was easy to embed on their websites. Due to such extensive services, the company received outstanding reviews which helped it to gain reputation in the market.

Raising Private Capital for sustainability

As all businesses face problems, DoorDash too did. The major problem it faced during its rise was to differentiate itself from its competitors. In order to stay afloat, it turned into a venture capital funding to help find a way out. Nearly $1 billion was raised and DoorDash used it to expand its reach from 600 to more than 3300 United States cities. It was not until 2018 when the annual sales tripled.

How does DoorDash make money? The DoorDash Business Model

DoorDash has a business model that is based between two parties: the users and the restaurants. The users can find food to eat and DoorDash takes the duty to deliver it to their door. In this process there are three ways DoorDash finds to get its revenue.

Delivery fees: As simple as that. DoorDash Business Model uses this as a direct revenue stream from the users for the service it offers. Doordash charges $5 to $8 per order depending on the time of day, distance travelled and its relationship with the restaurant. The deliveries are done by its hired drivers known as Dashers.

Commission: This is yet another way of revenue for DoorDash Business Model . The start-up takes a 20% commission fee from the restaurants for every order placed. This is where DoorDash Business Model charges more than its competitors. But, this is normal. For a company who pays special attention to the restaurants, this charge seems acceptable. This is where much effort of DoorDash lies.

Advertising restaurants: If you are aware of digital marketing, you may be familiar with this method of earning. Now, let me give you an example. As there are many restaurants available on DoorDash, a new comer would definitely like to gain some user attention. So, the restaurant owners pay DoorDash to push them up to the top of the list for a temporary period of time. Now, this is a win-win situation for everyone: the users, the restaurants and DoorDash. The restaurants get noticed by users. The users can be aware of different restaurants available to them. And finally, it is a major source of revenue for DoorDash.

The pricey business model of DoorDash Business Model seems working like “so far so good”. Also, its market share is trailing its competitors like GrubHub and UberEats. In this situation, there is one more challenge for DoorDash – to raise more capital. On the other hand, its competitors’ offerings are raising pressure on DoorDash Business Model to hold its position in the market. However, the billion dollar food delivery industry has further scope of growth as the mobile users continue to grow worldwide. Thank You.

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