Business

DoorDash Business Model | How Does DoorDash Make Money?

DoorDash is a logistics-on-demand startup that serves as a middleman between retailers and prospective customers looking to get goods from local merchants delivered to their front door. 

DoorDash was founded in 2013 and is currently focused exclusively on food delivery.

DoorDash business model

The DoorDash business model is intended to benefit both users and restaurants. On the one hand, it allows users to locate restaurants and place food orders; on the other hand, DoorDash provides restaurants with an expanded customer base. 

Additionally, it supports the community by providing jobs for food delivery personnel. Since its inception, DoorDash has raised significant funding from investors and established partnerships with numerous prominent restaurant chains in major US cities.

1. What is DoorDash?

DoorDash is an online food delivery service that collaborates with local restaurants to offer meals to consumers in their near area. Contractual drivers (referred to as Dashers) make deliveries on an as-needed basis.

DoorDash generates revenue from commissions, distribution and service fees, a white-label logistics service, premium subscription plans, and catering services to business customers.

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The DoorDash business model is planned to support both consumers and restaurants. It allows users to check for restaurants near them and order their favorite meal from the restaurant to deliver to their door. 

Although it allows restaurants to grow their company, the food delivery business increases their customer base significantly.

DoorDash, founded in 2013 by four Stanford graduates, was an immediate success with customers thanks to its versatile workforce of drivers. In December 2020, the company went public, making it one of the biggest IPOs in the food delivery industry.

2. How Does DoorDash Work?

DoorDash does not prepare the food. Instead, to serve customers in urban areas, the organization collaborates with small restaurants and large food chains throughout the United States.

In some instances, DoorDash can include restaurant kitchen space so that the restaurant can concentrate solely on making delivery food (a concept referred to as cloud or ghost kitchens).

DoorDash business model

The food distribution process is then carried out by so-called Dashers, the company’s hired riders on a contract basis. Dashers are not employees of the corporation since they are contract staff. Instead, they are only compensated while they are successfully delivering.

Let’s take a look at how Doordash operates as a business. If you are a consumer, driver, or merchant, the four steps listed below are all you need to know to learn how to use DoorDash:

If you plan to order food using the DoorDash app, please follow the below steps:

2.1 Select What to Order

You can browse through a variety of food options. Next, you can filter the search results and select foods based on your requirement. Additionally, you get an option to save frequently ordered restaurants to make ordering easier the next time.

2.2 Make Payment

DoorDash enables you to pay for your food directly from the app through the integration of in-app Payment. You must mention the restaurant and the delivery location during this process. The distance between the pickup and drop-off locations has always determined the delivery fee charged by DoorDash. DoorDash routes the order to the restaurant once you make the payment to them. 

2.3 Track Your Order

The Dasher collects the packaged food from the food joint and proceeds to the delivery location. The DoorDash mobile app includes a feature that allows customers to track their orders. This feature was specifically designed for user convenience in the application.

2.4 Get your Food Delivered

The Dashers deliver the food to the drop-off points. Although the DoorDash delivery fee is already included in the payment process, users have the option of tipping the Dashers. It, however, is entirely dependent on the customer.

3. Success Story of DoorDash

Tony Xu, Stanley Tang, Evan Moore, and Andy Fang, all Stanford alumni, founded DoorDash in 2013. At the time, food delivery platforms were limited to listing restaurants, which were then required to conduct deliveries independently.

This frequently resulted in restaurants’ inability to deliver food quickly enough. In some cases, orders had to be canceled due to excessive demand.

DoorDash enters the picture. Initially, the company operated under PaloAltoDelivery.com to evaluate the model in a congested region (Stanford and many big tech companies like Apple are situated in that area).

After a few hundred orders, the founders had received sufficient confirmation. They rebranded as DoorDash and joined Y Combinator, a prestigious startup accelerator.

The increased level of convenience enabled the company to expand into new markets rapidly. By 2015, two years after its founding, DoorDash had expanded to over 18 cities across the United States and soared to a valuation of more than $600 million.

One of the company’s successes formulas is that every full-time employee (not contract employees) must work as a Dasher at least once a month. It maintains a continuous feedback loop and enables the company to fine-tune the product experience as needed.

Nonetheless, DoorDash’s growth has not been without challenges. As is the case with other on-demand services such as Uber and Deliveroo, the company has been sued numerous times for allegedly misclassifying drivers as contract workers.

The mounting public outcry over how these on-demand giants treated their contractual workers resulted in DoorDash’s financial collapse in 2016. Fortunately, a prominent investor intervened to alleviate the mounting financial pressure.

In 2018, Softbank (the lead investor in “success stories” like WeWork and dog-walking startup Wag) led a $535 million round, providing DoorDash with the necessary war chest to compete in the competitive food delivery market. It allowed DoorDash to capture 34% of the US market in 2019, effectively eclipsing its competitors.

With the August 2020 launch of DashMart, DoorDash will use that leverage to take on Amazon and Instacart.

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The move aligns with the company’s Drive product, a white-label delivery solution used by Walmart and Denny’s. Through Drive, other businesses can leverage DoorDash’s driver network to provide their delivery services.

On its path to dominance, the company made a point of accumulating heatwaves to support its growth-at-all-costs ethos. In 2019, its drivers sued DoorDash for allegedly subsidizing their pay with customer tips. The company responded to public outcry by altering its tipping policies, effectively allowing drivers to keep the entire tip.

Regrettably, the driver’s efforts to expand their rights appear to have taken a significant backward step. In November 2020, California voters approved the implementation of Proposition 22 with 56% of the vote. Prop-22 keeps gig workers classified as independent contractors rather than employees.

DoorDash finally decided to go public on the strength of that vote and increased demand for online food delivery during the pandemic. The company filed with the SEC in November 2020 on a confidential basis and went public a month later.

DoorDash is currently available in over 4,000 cities in the United States, Canada, and Australia. Additionally, the company employs over 200,000 drivers who deliver food on an as-needed basis.

4. How Does DoorDash Make Money?

DoorDash earns money from commissions, distribution and service fees, a white-label logistics service called Drive, a premium subscription service called DashPass, and a catered meal for other businesses.

Let us understand how DoorDash monetizes its user base and how the company effectively became America’s go-to app for all food delivery.

4.1 Commissions from Restaurants

Restaurants are charged a variable percentage fee for each order placed through DoorDash’s network. This variable sum is automatically deducted if an order is placed.

DoorDash adopted a tiered commission structure in April 2021. Restaurants pay a commission of 15% (Basic), 25% (Plus), or 30% (Premier) under the new scheme.

Restaurants get various benefits based on the plan they select

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For example, Plus provides restaurants with increased visibility and access to DashPass users. 

You can get the full detail of the DoorDash Fees breakdown from here.

Similarly, when users order convenience goods, DoorDash charges a commission. It launched DashMart in August 2020, allowing customers to order virtually any product, from toilet paper to shampoo.

Among the DashMart partners are 7-Eleven, CVS, Walgreens, and Wawa. The service faces competition from GoPuff and Postmates.

Nonetheless, the commissions it charges for those deliveries are somewhat lower due to their partners’ bargaining power.

4.2 Delivery and Service Fees from Users

Along with the restaurant commission, DoorDash earns money by charging customers for delivery and various other services such as marketing and app maintenance.

Typically, delivery fees vary from $6 to $8, depending on the distance and current demand.

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Although delivery fees are used to pay drivers, the company does not reveal how much money ends up in the drivers’ pockets.

Service charges are measured as a percentage of the subtotal of the order. They can cover various costs through service fees, including technology creation, marketing, and payment processing.

4.3 DashPass

DashPass is a premium subscription service offered by DoorDash that enables customers to save money on delivery and service fees.

Customers who pay a flat monthly rate of $9.99 will avoid having to pay shipping rates on orders above $12. Additionally, service costs are discounted.

Notably, not all restaurants participate in the DashPass program. Customers, including subscribers of other streaming services such as Netflix, have the option to cancel at any time.

DoorDash estimates that customers who subscribe to DashPass can save an average of $4-5 per request.

The subscription service is designed for consumers who often order meals via the DoorDash app.

4.4 Drive

Drive is a white-label delivery service that enables restaurants to leverage DoorDash’s driver network.

It is intended for merchants who already generate demand from their platform but cannot always meet the demand. These customers include Denny’s and Wing Stop.

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You can get pricing upon request. Almost certainly, these companies pay DoorDash a fee for each order fulfilled by the company.

4.5 DoorDash For Work

DoorDash for Work enables businesses to provide DashPass subscriptions to their employees.

The service is intended for workers who have been compelled to operate from home due to the pandemic.

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DoorDash earns money from subscriptions and varying payments associated with the orders it facilitates.

5. What are the Top 5 Features DoorDash?

Doordash distinguishes itself through five app features. Ones that are now heavily imitated in the development of food delivery applications.

5.1 Suggested List

The app makes use of artificial intelligence to provide consumers with a recommended list based on their preferences.

5.2 Top Menu

To make the entire food ordering process more customer-centric, they have a top menu choice in the app, displaying the most popular items ordered by customers at a particular restaurant.

5.3 Dual Rating

Doordash allows you to submit your rating twice –

  • To the food’s and delivery’s quality, 
  • To the person who delivers the food to your place.

5.4 Live Tracking

They allow you to monitor the progress of your food order online. Additionally, DoorDash sends daily updates on the location of the food to your computer.

5.5 Schedule Delivery

You can plan orders up to a week in advance using the application! As a result, you’ll save time and money while buying during rush hours or festivals.

6. What makes DoorDash Stand Out of Competition?

Any company is characterized by the exceptional services it provides to its customers. Their goods and services should be of the highest quality and should meet the customers’ needs.

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Thus, how does Doordash operate? Many unique features distinguish DoorDash’s market and sales model:

  • Benefits each section concurrently.
  • DoorDash employs its drivers, whom they refer to as “Dashers.”
  • DoorDash charges users between $5 and $8 for delivery.
  • DoorDash earns money by charging merchants a 20% commission fee.
  • The Dashers earn over $600 in a single year.
  • DoorDash operates in over 4,000 cities and 340,000 locations in the United States and Canada.

Numerous online food services such as Zomato, Swiggy, and Foodpanda have expanded to India in response to business models such as DoorDash.

These Indian companies’ food service apps allow customers to order food and find the ideal restaurant for any occasion.

As with every other startup, DoorDash encountered difficulties in its early stages. Despite the obstacles that this on-demand food delivery service encountered, they could produce a healthy profit for the company. All of this is possible because of the DoorDash value proposition.

7. What is DoorDash Business Model?

Due to the success of the DoorDash business model, DoorDash’s revenue increased with each passing year. It has successfully partnered with renowned restaurants and met end-user demand in several cities.

Investigate the DoorDash business model in detail to learn how the company raised funds. How does DoorDash calculate the fees? How does it generate revenue? And a lot more.

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Learn what you need to know about growing and expanding your distribution company to a high level of success.

  • Restaurant Owners
  • Customers
  • Delivery Providers

8. Who are DoorDash Partners?

DoorDash has raised approximately $700 million in funding from investors such as Khosla Ventures, Charles River Ventures, Sequoia Capital, SV Angel, SoftBank, and Kleiner Perkins.

In February 2019, DoorDash raised approximately $400 million, bringing the company’s overall investment to $1.4 billion, which was later estimated at approximately $7.1 billion.

As of May 2019, DoorDash had received an additional $600 million in funding from other strategic investors, cementing its position as one of the leading food delivery service providers in the United States.

It becomes effortless to incorporate an increasing number of stakeholders into the business process. The following are the main stakeholders who are a part of the DoorDash business model:

  • Providers of services and retail establishments seeking to extend their market scope.
  • Food delivery companies that cater to foodies.

9. What are the Activities of DoorDash?

The primary activity is creating a digital platform that connects foodies with their favorite restaurants and enables them to order food to be delivered directly to their homes. Additional tasks included in the model are the following:

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  • Establish a productive relationship with retail establishments.
  • Employ service providers to meet the need for foodies.
  • Increase customer interest through social media and other marketing channels.
  • Provide service providers with a digital interface for managing and accepting service requests.
  • Create an outstanding infrastructure with the assistance of the technology stack.
  • Enhance the payment experience for consumers.

10. What is the Expenditure Structure of DoorDash?

Certain costs must be incurred to make a substantial profit. As a result, the expenditure structure that the business model entails is as follows:

  • The cost of developing a technological setup.
  • An expense that you must spend to manage and operate your distribution company effectively.
  • Pay commissions and salaries to platform-registered service providers.

11. How Does DoorDash Benefits Customers?

Users will benefit from your business model in a variety of ways, including the following:

  • Users who dislike going to restaurants physically.
  • Food enthusiasts who enjoy ordering food through a sophisticated platform.
  • Numerous payment methods, including debit and credit cards.
  • Utilize the benefit of sales and discounts by distributing them through a digital channel.

12. How Can Delivery Providers Leverage Its Use?

When it comes to a competitive and valuable business model, the distribution partners are the brand’s greatest asset.

Delivery providers may derive numerous benefits from their company, including the following:

  • Delivery companies are given an optimized route to ensure they arrive at their customers’ locations as quickly as possible.
  • Profitability is increased by delivering a distribution service to consumers.

13. How Restaurants and Retail Stores Are Benefited Through It?

Retail establishments and restaurants are partners in your distribution business and can profit in the following ways:

  • Local retailers can satiate the appetites of a more significant number of consumers.
  • Restaurants and retail establishments can make more money from their delivery services.
  • Provide an easy-to-use delivery service via the app.

14. How DoorDash Developed a Strong Relationship with its Customers?

Since developing good customer relationships guarantees market success and enables companies to maximize long-term benefits for their distribution business, this business model operates similarly.

  • Utilize the strength and productivity of social media channels to promote your distribution sector.
  • Enhance the band’s market profile.
  • Customer service should be available at all times.
  • Gather customer feedback and reviews with the advanced online food ordering system.

15. What are the Key Resources of DoorDash?

Resources assist you in surviving in this dynamic business market; therefore, to maintain a competitive advantage, the business model provides you with various resources such as:

  • A feature-rich platform that enables the engagement of additional service providers and retail locations.
  • A technological stack that is capable of operating across several platforms.
  • Impressive online portal and mobile application for service providers to use.

16. What are the Revenue Streams of DoorDash?

Every business owner desires increased revenue from their enterprise, and this business model provides them with that opportunity. Additionally, this business model supports service providers who register with the platform:

  • Food enthusiasts who enjoy ordering their favorite meal through the app.
  • Service providers will use the platform to meet the need for foodies.
  • Service providers use the platform to control their distribution services.
  • Investors who contribute a certain amount to demonstrate their support for decision-making.
  • On the website, food retailers and restaurants conduct business.

17. What is the Earning Source of DoorDash?

This business model enables you to generate significant revenue from your distribution business across a variety of channels.

  • Collect delivery fees from consumers after providing them with exceptional service following their specifications.
  • After successfully registering, retail stores and restaurants will offer their delivery services to customers; however, they must pay a commission to retail stores and restaurants.

18. What is the Future of DoorDash?

The DoorDash business model enables it to generate substantial revenue from your distribution business by using various distribution channels.

Charge customers for delivery after supplying them with outstanding service that meets their specifications.

Following effective registration, retail stores and restaurants will sell their delivery services to customers; however, they will be required to pay a commission to retail stores and restaurants.

19. How Much Funding did DoorDash Raise?

Crunchbase reports that DoorDash has raised a total of $2.5 billion in 12 funding rounds. The company raised $400 million in its most recent Series H round, announced in June 2020, at a valuation of $16 billion.

In December 2020, the company raised an additional $3.4 billion via its initial public offering. DoorDash was valued at $39 billion when it went public.

They experienced the usual IPO pop, which resulted in the stock skyrocketing to $66 billion. The company is reportedly worth approximately $53 billion.

The SoftBank Vision Fund, Sequoia Capital, Kleiner Perkins, Temasek Holdings, and Darsana Capital Partners are among the company’s investors.

20. How Much Money Does DashDoor Generate?

According to the company’s S-1 report, it earned $885 million in sales for 2019.

DoorDash earned $1.916 billion in the first nine months of 2020, almost 400 percent more than the $587 million it earned in the same span of 2019.

Despite its exponential growth, DoorDash remains an unprofitable venture, owing primarily to the pandemic.

It lost $667 million in 2019 and $147 million in the first nine months of 2020.

For comparison, DoorDash competitor Grubhub reported the fiscal year 2019 revenue of $1.3 billion.

Meanwhile, usage figures indicate that DoorDash has a 34% market share among app users, while Grubhub has a 24% share.

21. What is the Valuation of DoorDash?

The selling of DoorDash stock, which will raise about $3.4 billion, would value the firm at approximately $39 billion, more than double its previous private valuation of $16 billion, according to Law360.

DoorDash is currently the second-largest initial public offering of 2020, behind only tech firm Snowflake, which raised approximately $3.9 billion.

22. Frequently Asked Questions about DoorDash

22.1 What is DoorDash & How does it work?

Doordash is an application that facilitates food distribution. It provides users with a list of restaurants and their menus. After the customer makes their selection and selects a payment method, the door dashers – Doordash’s distribution team – make it available to them.

22.2 Why is Doordash successful?

DoorDash’s food delivery company is succeeding because it connects consumers, restaurants, and drivers. On the one hand, it enables consumers to get food delivered to their doorstep. 

On the other hand, it enables local restaurants to connect with drivers who can assist them in expanding their services beyond their immediate area and earn more money.

22.3 Is DoorDash, a profitable company?

Since its founding in 2013, DoorDash has acquired four startups and raised a total of $2. 1 billion in investment, the most recent being a Series G-round.

22.4 How are Dashers Paid?

The door dashers receive $1 for each order. However, if you deliver during peak hours or under certain conditions that fall under their peak pay policy, you earn additional money on the delivery.

22.4 Does the DoorDash delivery fee go to the driver?

No, the delivery fee is a service fee paid to the company, not the driver. Drivers are compensated with a one-time delivery fee of $1 plus any additional tips.

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About the author

Madhav

Hey Folks, I am Madhav! I lead a team of Marketers at Tech Startup based in Australia. In my free time, I dissect the business models of various businesses. And if there's any free time, I cook some new Dish!