What Your Restaurant Online Ordering Tool Really Costs You
Online ordering is a booming market for restaurants. Check out how this new revenue stream can help grow your restaurant, and how to make sure you're not losing money.
DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.
Online ordering is a crucial extension of your restaurant business in 2020 and beyond. Customers are still looking to order from their favorite restaurants — even if in-person dining is limited or curtailed. But how customers choose to order delivery greatly affects your profitability. Third-party vendors offer ease and convenience, but that comes at a cost.
The question for restaurant owners is: Are you leveraging online ordering as much as you could be? Or are you seeing your profits siphoned off in fees and commissions charged by delivery services?
Let’s dig in.
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Online Ordering is the Future
COVID is only accelerating what was already an emerging trend. In 2019, 51% of guests were ordering food online directly from a restaurant website or app, according to Toast data. In 2020, that number jumped to 82%, further underscoring that guests are actively looking for your restaurant online — via their desktops or on their phones.
In other words, online ordering isn’t going anywhere, even when COVID is a distant memory. That’s because your guest’s expectations have now changed and they're used to the convenience of ordering food online: they can order two extra spicy pad thai dishes and a side of spring rolls, visually confirm that their order is accurate, and pay for their meal without ever speaking to a single person or leaving the comfort of their home.
The Importance of Online Ordering in the Time of COVID
COVID-19 has accelerated the digital transformation of the restaurant industry. Online ordering, curbside pickup, and contactless delivery are now more critical than ever, and restaurants are relying on new technology to survive this winter, as the weather gets colder and COVID restrictions potentially tighten.
The data backs it up. From February to August 2020 alone, restaurants on Toast saw their off-premise sales skyrocket from an average of 15% pre-COVID to 70%. Those restaurants are generating an average of $15,000/month with digital ordering, with top restaurants earning $40,000/month or more.
If you haven’t optimized your digital ordering technology just yet, this piece can help. You’ll learn:
- The costs of setting up online ordering;
- the benefits of an integrated, first-party online ordering system; and
- how to convert your third-party customers to order directly from you, to help your business thrive during COVID and beyond.
How Much Do Different Online Ordering Systems Cost?
In response to the growing demand, restaurants have been turning to ordering services like Grubhub and UberEats to connect with local consumers looking to order meals online. These online ordering vendors offer a valuable network of new potential customers. They can provide marketing for independent restaurant owners and ensure a flow of orders which might not otherwise exist.
But that comes at a cost. Third-party online ordering services charge restaurant owners a significant chunk of their revenue in fees. Here is the breakdown of how much online food ordering services charge restaurants.
How Much Does Grubhub Charge Restaurants
Grubhub charges an average of 15-25% commission per order. Lower rates are available, but even that has a “cost” for your restaurant of lower placement in search results. Rates vary depending on what your restaurant is looking for, but generally include a 4% processing fee, a marketing fee ranging from 15-20%, and a delivery service fee of 10% if you use their drivers.
How Much Does UberEats Charge Restaurants
UberEats charges restaurants 15-30%, depending on whether you use their drives or your own.
How Much Does ChowNow Charge Restaurants
ChowNow charges restaurants $99 monthly and a $199 setup fee for each location, and they have a range of packages that increase in price from there.
How Much Does Eat24 Charge Restaurants
Eat24 charges a fixed percentage which results in 12.5% of a restaurant’s net online sales.
The Benefits of an Integrated, First-Party Online Ordering System
In 2020, more than half of the revenue generated from off-premise dining is made up of delivery. Yet restaurants lose an average of 25–30% per month on third-party delivery providers.
These escalating commissions and fees mean that the more business a restaurant does online, the higher percentage of its sales go to the vendor, reducing online profitability.
Restaurant operators should look for online ordering technologies that will accelerate their business rather than exploit it. Some POS vendors offer online ordering as an integrated feature of the POS system, which provides restaurant owners a number of benefits that are simply not afforded to them when they use third-party online ordering vendors.
Integrating online ordering into a restaurant POS just makes sense. Here’s why.
There is typically a cost associated with online ordering through the POS system too, but it's usually not as expensive as the fees of external vendors. When restaurants offer online ordering through their POS system, like online ordering with Toast, there are no setup or upfront fees, and no commissions: a flat monthly fee means more money back in your business, at a time where this matters the most.
In other words, restaurants keep more of their revenue from each online sale rather than giving it away to third-party vendors in the form of commissions and miscellaneous fees.
Capture Customer Data
Data drives business. Whether you're running a restaurant, a retail shop, or a software company, the more information you have about your customers, the better.
Despite their ability to extend a restaurant's online reach, most online ordering vendors don't provide their restaurant clients access to the customer data that they collect as consumers place orders through their respective platforms. According to a Forbes report, GrubHub collects data on the behaviors of users placing more than 150,000 orders each day from nearly 29,000 restaurants. This wealth of information, however, isn't shared with restaurant clients.
While GrubHub CEO Matt Maloney has acknowledged the huge potential of this customer information for restaurants, Maloney says that restaurants aren't willing to pay more for that data on top of the 13.5% commission rate. Without this data, there’s no way for restaurants to tell who their regular customers are, no way to customize their experience, and no way to reach out to them in the future.
If online ordering is run through the restaurant POS rather than a third-party vendor, restaurants can capture customers’ contact information and detailed order history the same way they do for in-store transactions. With this data, restaurants can run customized email marketing campaigns and better understand their business overall.
Whether it's sending an in-store promotion to all customers who have placed an order online to encourage restaurant traffic or offering special deals to your most valuable customers, customer data is much more powerful when it's stored in your POS system than when it's restricted in a third-party's database.
Generate Repeat Visits
Online ordering vendors are great for helping restaurants attract new customers who would not have found them otherwise. But after that initial transaction, restaurant operators are still paying commission for a guest’s second and third order.
Even if you continue to use a third-party vendor to help attract new customers, it is a good idea to have an internal restaurant online ordering system as well so returning customers can order through your site directly, and you’re spared the commission fees. Your staff works hard to delight customers and to bring them back to the restaurant. This way, your business is completely rewarded for that effort.
With a third-party vendor, the online ordering menu is hosted separately from the rest of the restaurant’s assets. It’s often difficult and expensive to set up and make changes to menu items. Some vendors limit the number of changes restaurants can make each month or charge an extra fee for each additional modification.
When online ordering is offered as an integrated component of a restaurant's internal POS system, online menu changes are as simple to make as they are in-store. Web pages can be made dynamic and, if you’re using a cloud-based system, changes can be immediately reflected online. With Toast, for example, when modifications are made to the in-house menu, they’re automatically synced online. Not only do restaurant operators save a great deal of time and money, but they’re also assured that customers in-store and online are seeing an accurate representation of the day’s menu options.
Control Your Brand
A restaurant’s brand is built on the quality of the food, service, and overall guest experience. Online ordering for restaurants is an extension of brand and values. The online ordering experience directly affects how your business is perceived; it’s an opportunity to be consistent and to delight customers beyond your restaurant's walls.
With third-party online ordering vendors, restaurant operators are essentially giving up control over their brand. Most vendors state in their terms of service that they have full license to market and position their clients as they see fit. Aside from a logo and a few photos, restaurant clients have very little say in the way that their restaurant is listed on their online ordering vendor's platform.
By hosting online ordering within their POS, restaurant operators are more likely to have control over the experience, and the look and feel of the process. The transactions function the same way as in-house operations and are easier to customize, change, and troubleshoot. Branding matters in business; externally hosted online ordering puts the power in the hands of the vendor.
How to Get Guests Ordering Food Online from Third-Party Systems to Order Directly From You
Direct that 30% back into your pocket by getting your guests to order directly from you. Once you have your own integrated, first-party online ordering system, communicate this new ordering option to your guests. Here are a few ways to do this:
Make sure your online ordering is front and center on your website
Highlight your online ordering platform clearly on your website, and make sure the ordering is as seamless as possible.
Use a loyalty program
Integrate your delivery and online ordering program with your loyalty program so guests can earn points and rewards with every order.
Raise your third-party prices
Raise your prices on third-party delivery sites and keep prices lower on your website’s online ordering platform. El Pollo Loco did this by passing the 30% third-party upcharge onto the customer and increased menu prices by the same amount. This makes sure that your restaurant is making enough money through the third-party platforms, while also incentivizing guests to order directly from you to save money.
Offer a discount code
Add an item (e.g. napkin or receipt) to third-party orders with a promo code to order directly from their website’s online ordering platform in the future. Rewired Cafe in Chicago, IL created koozies that they provide with every takeout order to encourage guests to deliver directly from their site next time.
Limit your third-party menu
The Loyalist in Matthews, NC identified their top-selling items and removed them from the third-party menus so they only appear on their first-party platform. They made this clear in their marketing and promotional efforts — so guests are aware of where they can order their favorites.
Online ordering is a crucial extension of your restaurant, and it’s here to stay. Even post-COVID, your customers will continue to order online. Tee yourself up for success, and hold onto the profit you’ve worked so hard to earn.
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