Food delivery drivers are always getting the shaft when it comes to getting paid. That is the impression on the street and in the car daily as food is side hustled around.
But is that a fair evaluation of the problematic dance food delivery services has to deal with?
Let’s D(r)ive In
The economics of food delivery services is a balancing act between the restaurant, customer, and delivery service.
If the delivery service doesn’t pay enough to drivers, they won’t have anyone to deliver meals. If the restaurant charges too much or the delivery service takes too much, the customer will order elsewhere.
Trying to balance all these competing demands fairly is the key to success, but no one party will feel fairly treated when balanced.
Ultimately, food delivery drivers depend on food delivery companies, who depend on customers ordering from restaurants.
Without food delivery companies, there will be no need for drivers. That solves that.
I found this video fascinating.
Here are the most interesting sections for me.
Pay Model Construction
“When it comes to driver earnings, DoorDash makes no attempt to hide that. The tip is the most significant element to making its economics work. The current pay model for DoorDash drivers is made up of three elements. The first is the base pay, which is calculated based on the estimated time, distance, and desirability of the order.
The second is the tip from consumers, which drivers get to keep a hundred percent. The third is promotions where if drivers meet certain goals and conditions, then they can get a bonus payout for completing that order. But these promotions are generally too non-transparent and too inconsistent to be considered part of a driver’s regular earnings.
Not every driver’s offered promotions and the conditions to achieve such bonuses can vary for each driver, depending on when they started using DoorDash, what signup codes they may have used, and what region they’re.”
How This Breaks Down
“Let’s look at door Dash’s own breakdown of an example delivery and see how much is given to the restaurant, how much is kept by DoorDash as the middleman and how much is given to the driver. For a sample, $33 order of which food costs $22.
Service fees make up $6, taxes $2, and the customer adds a $3 tip. The driver earns $8, the restaurant gets $20, and the DoorDash pocket’s $5. And door Dash’s own example, the customer tip makes up almost 50% of the driver’s earnings. Tipping is so central to door Dash’s economics. So the company itself calls out the risk that if customers consistently provide low tips or simply just don’t tip at all, then there would be a material harm in the company’s ability to provide delivery and retain drivers.
Increasing Pay Will Only Come From Tips
Earning on base pay alone is inadequate, but rather than directly educating or requiring customers to tip, DoorDash opts for this hands off approach and they let drivers and consumers socialize amongst themselves on how to be successful in its marketplace.”
This dog eat dog mentality is most visible in the DoorDash communities where seasoned dashers shame, no tip, customers and fellow drivers who take no tip orders new DoorDash.DoorDash & The Myth of Profitable Food Delivery
“In 2021 DoorDash, it’s top line increased by another 2 billion to hit 4.8 billion on 1.3 billion orders and 25 million monthly active users. Despite this historic growth, DoorDash continues to post a loss of 500 million every year with an average negative operating margin of minus 42%. While DoorDash can’t escape the losses under traditional business accounting, the company pushes a set of operational metrics that it believes more accurately capture how profitability for them is just right around the corner.”
Food Delivery Drivers are Plentiful and Disposable, for Now
“When it comes to the labor pool, the company seems to favor having a large, replaceable, flexible pool of on-demand drivers that jump in whenever they want, rather than a growing, committed, dedicated, reliable group of drivers. DoorDash executives proudly highlighted that in 2021, even though there were 6 billion dashers that all these drivers worked on average less than four active hours per week.
Of course, there’s some nuance here in that active hours is actually the time spent from when a driver accepts to completes an order. The time that a DoorDash driver spends waiting for orders to come in can actually be much longer.
DoorDash believes that acquiring drivers isn’t difficult, and they believe that dashers are entirely different type of gig workers than Uber drivers, Instacart shoppers, or Lyft drivers.
With DoorDash, you can deliver orders on scooter, bike, or car, and the company believes that this “safer working experience” allows them to bring on a unique audience of drivers and bikers who aren’t contested or interested in using other gig economy apps.”
More Earning Pressure Coming
“But with inflation, higher gas prices and a recession coming, it’s impossible to keep consumer prices unchanged. Even if DoorDash doesn’t increase its service fees, the restaurants will inevitably increase the prices on their platform to offset their higher ingredient and labor costs. And if DoorDash increases, its cut of the pie, the restaurant will more likely than not, just pass those costs onto the customer.”
Very deep in their financials. You’ll find this horrifying line. Cumulative payments to drivers for UberEats drivers historically have exceeded the cumulative delivery fees paid by customers. This is Uber admitting that the service and delivery fees that they charge customers for Uber Eats orders has never been enough to offset the costs of delivery.DoorDash & The Myth of Profitable Food Delivery
“But ultimately, if a company has to spend hundreds of millions every year just to squeeze one more dollar profit out of a $10 transaction, or rely on consumer tips to pay drivers a livable wage, I think there’s a good case to be made that perhaps that business just isn’t profitable. Profitable food delivery is a myth, and value creation is meaningless without sufficient value capture.”
What That All Means
As unhappy as drivers are, there is little hope wages will increase from food delivery companies losing money.
The only way to control income as a food delivery driver is to adopt the “No Tip, No Trip” approach and self-select out the requests that will not pay well, even if this hurts your driver rating.
Maximizing income as a food delivery driver is an order-by-order transactional equation.