How to Start a Restaurant Delivery Service

Part 1 - How to start a Restaurant Delivery Service business - Background

As time becomes more and more of a commodity, the general public looks for new ways to streamline daily activities. Food delivery services are, therefore, great opportunities for entrepreneurs and consumers. Approximately 60% of each dollar spent on food consumption will go to businesses outside the household. With a restaurant delivery business, you will be able to fill a need for numerous consumers, offering fresh and unique food options and allowing for gourmet dining, without leaving the house.

Our guide is in 3 parts:

• Part 1 - How to start a Restaurant Delivery business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a restaurant delivery service?

Entrepreneurs experienced in this industry indicate start-up costs could range anywhere from $3,000 – $25,000.

Your initial investment should include the following:

• Dispatch space – Specific costs vary, depending upon location. To reduce expenses, many business leaders have chosen to start out working from home.

• Insurance – Be sure to discuss your needs with a reputable insurance agent. If working from home, contact your agent to proper coverage. The last thing you need is a team member hurting themselves onsite, only for you to find out you’re uninsured/underinsured.

• Computer, fax machine, & telephone system – Utilize your personal devices until you’ve generated enough profit to invest in these business tools.

• High-speed internet and a business landline with several lines – initial down payment ranges anywhere from $60 to $250

• Delivery vehicles – Most businesses require their delivery drivers to have their own mode of transportation. Owners in large cities such as New York City will provide each driver with a bike.

• Business license

• Delivery food service bags to ensure freshness and maintain proper temperature

• Marketing materials – Shirts for delivery drivers, menus, coupons, etc.

• Website – Invest in an intuitive and interactive website that has the ability to grow with your company. If it is within your budget, definitely speak with a developer about packaging your site with a mobile app.

• Software solution – Investing in a logistics management software system will help in coordinating orders, customers, and drivers.

What are the ongoing expenses for a restaurant delivery service?

Overhead costs vary, ranging anywhere from $600 to $10,000 per month, depending upon how the business is structured and the dispatch location. Items that should be budgeted for include:

• Payroll costs – To reduce these expenses, consider hiring your team members as independent contractors. There are pros and cons to both choices, so it is recommended that you speak with an attorney and/or an accountant to weigh your options fully.

• Insurance

• Marketing and other printed materials

• Rent and other associated costs, should you decide to lease a space for dispatch

• Phone and internet expenses

• Website maintenance

• Business management software system

Who is the target market?

Your delivery radius must be populated enough to sustain and grow your business long-term. Target customers include busy/working families, disabled persons, heavily populated business areas, seniors, and college students.

How does a restaurant delivery service make money?

Restaurant delivery services generate a profit by charging each restaurant a commission. Additionally, most companies include a delivery service fee, which is paid by the customer.

How much can you charge customers?

Before opening for business, take time to develop a delivery menu. To avoid questions and confusion, keep all food prices the same as they appear on the restaurant menu. Include a surcharge for delivery, in order to make your business profitable. This could be either a flat rate or a percentage of the total order. Since your restaurant partners are realizing increased sales and receiving “free” advertising through your organization, it is also standard to charge the restaurant a surcharge. Additionally, it is recommended that you encourage customers to tip their delivery driver.

How much profit can a restaurant delivery service make?

Experienced professionals have reported an annual profit of $25,000 or more the first year. Five to six years in, those same companies are reporting upwards of $4 million annually. Factors such as location, demand, and desired growth affect your overall profits.

How can you make your business more profitable?

To maximize productivity, consider the following strategies:

• Consider offering additional delivery services. This could include: wine/liquor, farmers, grocery stores, health food stores, pet stores, and pharmacies.

• Work to decrease delivery time, increasing the number of orders that can be filled.

• One industry leader guarantees his employees a minimum of $15/hour. He also holds a monthly employee meeting, where individuals can express concerns, ask questions, and receive additional training. This reduces turnover and increases workforce engagement.

Day-to-Day and Growth

What happens during a typical day at a restaurant delivery service?

Running a successful restaurant delivery service requires a high level of professionalism and hard work from the entire team. Everyone must work and no one’s role is more important than another.

Management and staff will be tasked with the following items each day:

• Recording relevant information for each order.

• Dispatch and delivery of each order placed.

• Reaching out to current and potential customers, answering any questions and/or concerns they might have.

• Working with current and potential restaurants to ensure profitable partnerships for both parties.

• Market research and implementing marketing strategy.

• Administrative tasks such as payroll and accounting.

What are some skills and experiences that will help you build a successful restaurant delivery service?

A basic understanding of both restaurant and delivery industries would prove beneficial. This experience will offer valuable insight into the logistics that go into coordinating client requests, restaurants, and delivery needs.

Regardless of which role you decide to take on within the organization, it is critical that you possess strong communication and leadership skills. Each team member represents the company in both word and action. Organization and time management are necessary, as is the ability to remain calm when faced with an unforeseeable crisis.

If you are inexperienced in managing a business, consider attending an online or local class that focuses on business management, logistics, and marketing. The Restaurant Marketing and Delivery Association is also a great educational resource and networking tool.

What is the growth potential for a restaurant delivery service?

According to recent studies, United States consumers spend an average of $3.5 billion annually on restaurant delivery. This number is expected to rise to over $12.5 billion by 2019. The owner of one major delivery service started out as a one-man operation, delivering on his bike. He now has over 200 employees in multiple cities across the U.S., with an annual profit of over $3 million.

What are some insider tips for jump starting a restaurant delivery service?

Industry leaders offer the following start-up advice:

• Make sure your customers have a variety of options to choose from. Pizza and Chinese are more readily available for delivery; what about Thai, Mexican, Indian, and American?

• Food freshness is a direct reflection on your company. Work with restaurant management to ensure the delivery menu only includes dishes that transport well.

• Try to keep your restaurant radius to 20 minutes.

• Try to focus on locally owned restaurants. In addition to supporting another small business, these establishments are free of franchising contracts that could limit participation.

How and when to build a team

It is recommended that you start out with at least one other team member. If you try to wear too many hats, your business will suffer, hindering you from ever really getting off the ground. You will need at least one driver, preferably two, as well as someone dispatching. Since your drivers are the face of the business, make sure they are professional and look presentable at all times. They should also have a clean driving record and reliable transportation.

Part 2 - Is a Restaurant Delivery Service business the right fit for you?

Part 3 - Action plan to launch your Restaurant Delivery Service business in 90 days