Business

Postmates Business Model | How Does Postmates Make Money?

Postmates is an on-demand goods delivery network with a presence in over 90 metropolitan areas across the United States that enables individuals to have virtually anything from nearby retailers delivered to their homes for a small fee. 

Many people compare the business model of Postmates to that of Uber, except for the company’s customers who can obtain goods from neighboring retailers instead of taking cabs. 

Users can order anything they want from anywhere within the city via Postmates human dispatch. 

Postmates messengers receive schedule notifications on their phones, and the company uses GPS to coordinate requests and supply on time.

Postmates business model is distinct, which has helped the organization acquire significant funding from financial professionals and a large client base.

The Postmates company was created in 2011 and has grown to be one of the most successful globally within less than five years. Apple, McDonald’s, Starbucks, Walgreens, Chipotle, and countless other well-known brands have partnered with Postmates.

What is Postmates?

Postmates is an online courier service that connects local businesses to nearby customers. The company’s primary revenue source is food delivery, but in addition, it also partners with supermarkets, retail stores, and bars.

Postmates generates revenue from various sources (delivery and service fees, for instance) and its subscription service (called Unlimited).

Postmates Business Model

It has grown to become one of the country’s most popular delivery companies since it was founded in 2011 in San Francisco. Uber acquired the startup for $2.65 billion after raising more than $903 million in capital.

Postmates earns money by charging fees such as commission, delivery fee, service charge, cart, and cancellation fees. Additionally, Postmates also makes money through its subscription service (named Unlimited – $9.99/month or $99.99 annually), which offers free shipping on all orders above $12.

  • Founded: 1st May 2011
  • Founders: Sean Plaice, Sam Street, Bastian Lehmann.
  • Daily orders: 8500 (as of 2016)
  • Average order size: $45
  • Funding received: $681.5M (as of August 2019)
  • Headquarters: San Francisco, California, United States
  • Valuation: $1.85 Billion
  • Operates the largest on-demand delivery fleet in 44 major US metropolitan markets

How Does Postmate work?

The Postmates service connects customers with restaurants and retail establishments in their neighborhood via the internet. 

Customers can place orders on the company’s website or through the company’s Android and iOS apps.

Users can also order groceries and other things, such as small technological devices or clothing, in addition to food and beverage orders.

In short, Postmates only delivers meals to consumers, which means it does not prepare meals itself. 

Instead, the company enlists independent contractors to fulfill requests. Users can also pick up orders to avoid paying for delivery.

Postmates also handles payments and categorizes products and restaurants on its network.

Postmates Business Model

Postmates offers a membership service called Unlimited to its most devoted customers. As a result, they can save money on delivery and other related expenses.

When demand is high, Postmates uses surge pricing tactics (known as Postmates Blitz  Pricing). 

The idea is to persuade more drivers to deliver during peak times by offering higher delivery costs.

Postmates currently works with over 75,000 businesses, including restaurants, grocery stores, and traditional shops. 

Currently, Postmates is available in more than 4,200 cities in the United States, serving more than 80% of all households.

Once you log in to the Postmates app, it works as follows:

Search for your Products through the Stores

Postmates lists participating stores and the products they sell. You can browse all products and use the filters to find the product you’re looking for quickly. In addition, customers can browse a variety of products and stores that sell them.

Add your Products to the Cart

The customer can add products to their cart. The cart keeps track of each product and calculates what the customer will pay. Customers must be informed of their purchases after adding items to their shopping list with the Add to Cart option.

Make Payment

Once a client has added all necessary products to their shopping cart, they can continue with the shopping process by entering their shipping address. Postmates collects payment for the purchased products through the online payment options it provides to its customers. Once a customer has paid for their order, the order is considered to have been placed.

Prepare Delivery

Postmates notifies nearby delivery services when a client places an order. Postmates representatives visit the store and purchase items. Once the items have been delivered, they send them to the specified address of the customer. The delivery employees are chosen so that the entire delivery process takes less than an hour.

Track Delivery

The Postmates live tracking service allows customers to track their orders live. If a delay occurs throughout the delivery process, the delivery person can also text message the customer.

Postmates Business Model

Payment for the delivery has been made in advance, so consumers do not have to worry about paying when the delivery arrives. They only need to pick up the order once it comes.

Postmates Business Model

The robust social media presence of Postmates has helped it gain popularity. Social media is an effective tool for increasing brand exposure and converting followers into customers. 

Furthermore, clients enjoy knowing what businesses are up to, and keeping them informed is the most effective way to retain them.

People are naturally curious about how Postmates for business got so popular and how much money it makes. Furthermore, some questions are answered by messages on other websites, providing a complete picture.

Feedback is crucial for any business because it allows them to learn what their clients think of them. Consumers can leave reviews, feedback, and ratings for Postmates.

Here are three segments of Postmates Business Model:

Customers

Customers are individuals who order items from Postmates and request delivery services. It is the customer’s responsibility to pay convenience fees and delivery charges associated with the goods ordered.

The Postmates team collaborates with general merchants to provide a platform for a massive audience. The merchants and dealers they deal with are often more than happy to contribute a small portion of the total bill to Postmates’ earnings.

Postmates interacts with merchants in this way. And it is for this reason, and customers find it far more cost-effective to share a small percentage of their income with Postmates than to hire a delivery boy.

  • Postmates enables them to order anything from participating local merchants.
  • Postmates assures delivery within an hour or less.
  • Customers can place orders at any time of day or night, as Postmates operates 24 hours a day, 365 days a year.

Merchants & Store Owners

Postmates partners with merchants to avoid the costs associated with running their fleet of delivery trucks. As a result, customers pay a small fee instead of a monthly fee to use Postmates’ delivery services. 

Postmates Business Model

Their app and website allow Postmates to promote their locations to potential customers, which helps them grow their revenue and popularity.

  • Store owners can use this effective platform for marketing their products and services.
  • They can get items delivered to consumers without the hassle of maintaining a delivery team by utilizing Postmates’ services.
  • Store owners now have the opportunity to serve their clients better thanks to Postmates’ delivery services around town.

Delivery Service Providers

Postmates uses independent contractors for courier delivery. Postmates allows delivery employees to work as freelancers and earn a fair living. 

Postmates estimates that delivery operators can earn up to $25 per hour on average. 

Postmates retains 20% of its revenue from delivery services while sharing the remaining 80% with delivery service providers.

  • Allows for flexible work hours through the support and encouragement of freelancing in the supply of services.
  • Delivery service providers receive a more significant portion of the revenue generated by their deliveries, 80 percent of the total revenue generated by their deliveries.
  • Delivery service providers may use their preferred mode of transportation to execute the delivery. (Walking, riding a bicycle, skating, scootering, or riding a bike are all acceptable modes of transport!)

How Does Postmates Make Money?

Postmates makes money in three primary ways: through Delivery Fees, Convenience Fees, and the Merchant Program. 

Also, Postmates earns money through various costs, including delivery and service fees, as well as through its premium membership service, Unlimited.

However, in this essay, we will explore all of the revenue streams for this massive delivery application.

Fees

Postmates makes most of its revenue through fees it charges for completing orders through its platform.

The business receives a percentage of the products’ sales price at the beginning. However, the percentage varies depending on what products are supplied and what the partnership agreement entails.

A restaurant, for instance, pays a 20% commission when it sells food. On the other hand, a supermarket (such as Walmart) would pay in the low single digits due to the grocery industry’s razor-thin margins.

Additionally, Postmates earns money from the delivery fees associated with shipping the goods. All merchants get $5.99–$9.99 delivery from Postmates, and partners get $0.99–$3.99 delivery from Postmates. 

A combination of parameters, including delivery speed, pickup time, and driver rating, is then used to determine a driver’s compensation.

Third, Postmates charges a “service fee.” The percentage-based fee is designed to compensate the company and its drivers for additional services provided during the delivery, such as grocery shopping from supermarket shelves.

Fourth, Postmates charges a small fee for orders that don’t meet the minimal requirements (which vary by location). Each order costs $1.99 for the little cart.

Consumers who cancel their orders will be charged a cancellation fee. This fee varies depending on the number of orders, the merchant, and the order’s status.

Postmates’ revenue may be increased when it uses its Blitz Pricing feature.

Delivery Fee

Postmates has a unique selling point over other on-demand services because it accepts orders from merchants who aren’t partners.

Postmates Business Model

Deliveries to Postmates partners (those with a green checkmark next to their name) cost $3.99, and deliveries to everyone else cost $5.99–$9.99. 

The delivery fee is split 4:1 between the delivery person and the corporation, with the corporation receiving just 20% of the price.

Blitz Pricing (Surge Pricing)

Postmates’ dynamic pricing system allows it to raise prices tenfold when the number of deliveries exceeds the number of available couriers. Postmates are rewarded for being available when you need them most with this feature.

Commissions

Postmates offers restaurants and other businesses a new digital on-demand environment through their partnership. 

The company receives more orders, eliminates credit card processing fees (Postmates processes each transaction), and can focus on their core business since Postmates takes care of delivery. 

Postmates has a wide range of trading agreements with a variety of trading partners. As a result, it is common for the company to charge a fee for orders placed through its website.

Postmates pay between 15% and 30% of a product’s price before taxes. Furthermore, the cost is determined by the agreements each partner has with the client. 

The commission will not be charged to non-partner dealers (but they will have to pay a high customer service fee to compensate).

Partnerships

Postmates has released an API that allows businesses to integrate the industry’s most advanced local delivery platform into their applications. 

Postmates’ API also enables partners to deliver their items inside Postmates’ service areas using Postmates’ fleet.

Businesses such as Starbucks, Target, and Instacart have adopted this  API to deliver their items via the Postmates Fleet of couriers.

Additionally, these alliances allow the organization to maximize the use of its fleet and provide additional money for it.

Postmates Unlimited Subscription

Unlimited is a subscription service that offers significant savings on delivery fees to clients. In exchange for paying $9.99 per month (or $99.99 annually), customers will receive the following features:

  • All orders over $12 are delivered free of charge.
  • The majority of Postmates freebies and events are first-come, first-served.
  • Blitz pricing will not be charged during busy hours.
  • Exclusive offers for members.

A Postmates Unlimited member saves an average of $185 per year. Two monthly orders would cover the membership fee.

Postmates subscribers will have access to Postmates’ network of over 600,000 restaurants and businesses. It is possible to terminate Unlimited at any time since it is a subscription service.

Expenses of Postmates

Postmates’ primary sources of expenses are:

Technology Setup and Operating Costs

A platform’s success depends solely on its applications and website. Therefore, the operating costs of the technological setup are the expenses related to maintaining and operating the application and website.

Employees Salary

Salaries paid to employees working in the back-end are included in this category.

Delivery Fleet Payment

Postmates receive 80% of the delivery fee for every order they deliver successfully. Only 20% of companies’ profits are kept.

Branding & Marketing Costs

Postmate incurs costs for marketing its platform to customers and merchants and providing perks to every individual customer.

Administrative Expenses

These are the costs associated with a business’s day-to-day operations. The term is used to describe all expenses, regardless of whether any sales occur—for instance, office supplies, equipment, and subscriptions.

Success Story of Postmates

Postmates was started in 2011 in San Francisco by Bastian Lehman (CEO), Sam Street, and Sean Plaice.

Lehman, a native German, began his career as a network consultant in the late 1990s after dropping out of college. 

He quickly concluded that the employee lifestyle was not for him and began experimenting with various company concepts.

Unfortunately, none of them took flight, and he returned to work. As a country manager for the German and European markets, he led different technology enterprises.

However, the itch for business returned in full force, prompting him to launch Curated in March 2009. 

Curated by was a real-time Twitter curating website that enabled users to aggregate and display tweets across many networks.

One year later, in September 2010, the team graduated successfully from the AngelPal accelerator, allowing them to expand their business outside of Silicon Valley.

While the team generated some initial curiosity, Curated by never took off. The issue was that venture capitalist did not find the instrument or the underlying market compelling enough to invest.

As a result, the team shifted away from Curated. by and focused on the rapidly growing smartphone industry. Nevertheless, Lehman had an essential notion for Postmates in 2005, when he relocated from Munich to London.

Postmates was founded to create a local courier service that would enable anyone with extra car space to make deliveries. 

Postmates was able to raise $875,00 in a seed round just a few weeks after laying out the initial components of the firm.

Postmates made their public debut in September 2011 by participating in TechCrunch’s Disrupt event. Simultaneously, the business debuted its beta version in San Francisco. 

The startup was able to complete over 1,000 deliveries in three months.

Postmates finally introduced to the general public in December 2011. 

Postmates quickly gained popularity, particularly among the wealthy tech community that had begun to occupy San Francisco’s inner city.

While Postmates began with the intention of delivering anything from washing machines to t-shirts, it quickly discovered that the majority of its orders were for food. 

Postmates had delivered over 2 million orders and operated in close to 30 markets by 2015.

The company used a few growth hacks to accelerate its expansion. 

To begin, it grasped the complexities of operating an internet marketplace. When Postmates expanded into a new location, it brought an extensive network of couriers and eateries (and other stores). 

This enabled them almost always to fulfill orders while still delivering a diverse assortment of products to consumers.

Second, it leveraged its technology prowess to enable couriers and local businesses to connect and other firms to offer delivery services to their clients (through Postmates’ API). 

For example, Etsy and Starbucks were utilizing the API to enable quick delivery within their apps. Following that, Postmates couriers would handle the shipment on their behalf.

Thirdly, the organization excelled in securing exclusive agreements with national merchants. 

In 2015, Apple stated that for a fixed cost of $19, Postmates would manage same-day deliveries of selected goods (such as the iPhone).

Postmates avoided some of the issues that other meal delivery startups, such as Grubhub or DoorDash, confront. 

Typically, most clients order during peak hours (i.e., lunch and supper), leaving other time slots vacant.

This complicates demand forecasting, which frequently eats into a company’s profitability. 

Postmates, on the other hand, may frequently fill many time slots (because it is not exclusively focused on food) and hence have drivers deliver throughout the day.

Finally, Postmates’ service grew in popularity among celebrities. As a result, they were frequently spotted tweeting about the firm, generating positive word-of-mouth. 

Postmates achieved a 40% market share in one of the largest delivery cities in the United States, Los Angeles, as a direct result of these positive feedback loops.

Regrettably, not everything went as planned. Initially, CEO Lehman faced backlash for telling a client who contacted help to ‘fuck off.’

Years later, a slew of clients expressed their discontent with the massive pricing disparities. 

Postmates merchants, such as pharmacies and supermarkets, may adjust their rates during the day without updating the platform. 

This resulted in surges of up to 50% in some instances, which understandably enraged and upset customers.

And, like any other delivery firm in the modern era, most notably Uber, Instacart, and DoorDash, Postmates has faced legal implications from its network of drivers. 

They have repeatedly accused the corporation of misclassifying them as contract employees while demanding additional benefits, like health insurance.

While the corporation continued to expand its portfolio of markets, it also had to learn some painful lessons about profitability. 

In 2019, less than two years after opening its first foreign market in Mexico City, it was forced to close and lay off all employees.

By 2018, speculations of an IPO had begun to circulate among Postmates’ circles. The company even filed an S-1 in late 2019 but never went public. 

Lehman attributed the failure to adverse market conditions.

As a result, it came as a surprise when Uber announced in July 2020 that it would purchase Postmates for $2.65 billion in an all-stock deal. 

A few weeks ago, analysts speculated that Uber was considering acquiring rival DoorDash, but regulatory concerns ultimately blocked the deal.

The merged entity (UberEATS and Postmates) would control more than half of the meal delivery business in the United States. 

The transaction is pending legal approval. DoorDash is a close second, with around 40% of the market.

What is the Future of Postmates?

Postmates has faced continual competition from Uber, GrubHub, Amazon, and even small on-demand startup companies. 

However, its well-defined business model and strategy have paved the path for it to become the most influential on-demand delivery firm the world has ever seen.

According to reports, the launch of the API cleared the door for Postmates’ success, and according to reports, the firm has even contemplated merging with Doordash to compete with Uber, GrubHub, and Amazon. 

Postmates’ other significant agreements like Instacart and Walmart have also aided in the company’s ascension to the top in its own niche.

Read, How does Birchbox Make Money?

Key Takeaways from Postmates Business Model

Postmates is a North American food delivery service. It began after three friends tried but were unsuccessful in obtaining delivery of hot dogs to their apartment in 2011.

Postmates makes money through various order-related fees, including a commission fee, a delivery fee, a cart fee, and a service fee. Additionally, if a customer wants to cancel a purchase that has already been made, there will be a fee.

Postmates also offers a membership service that lets users save money on deliveries and access certain member perks. However, it is uncertain if the subscription service will eventually prove profitable for the company in the long run.

Also read, A Complete Guide to Online Marketplace Business Model!

Final Words on Postmates Business Model

Postmates has altered the way numerous delivery app business modules operate in the modern-day. This business’s growth and popularity have surpassed all expectations. Numerous sectors have partnered with Postmates to leverage the platform’s massive audience reach. 

Postmates is well-known in the United States and other countries. It has benefited millennials since its inception in the market in 2011, i.e., 2011. 

As a result, now is the ideal moment to complete your Postmates App Development to secure potential commercial transactions.

There are also notable innovators in the same area, such as DoorDash, Grubhub, Zomato, and Uber Eats.

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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!