Let’s talk about a history of getting paid by Doordash. I have planned doing an epsiode on each of the four main food delivery services, on Postmates, Grubhub, Doordash and Uber Eats. We already had episodes on Grubhub and Postmates. My intention was to do Doordash next, however that is on hold. I wanted to wait until their new pay model drops, but that may be a few weeks.
Courier Nation, this has been such a long drawn out process that I thought THAT would be a good topic for this week. Let’s talk about Doordash and pay models and all the drama around it.
Folks, I think this pay model is a bigger deal to Doordash than they let on. I think it has a lot to do with why they have moved to number one ahead of Grubhub and all the others, and I think they’re scared right now about changing it. It really is that big a deal. Let’s get into why.
A little history of getting paid by Doordash, their pay model past and future
You have to look at the timing of when Doordash adopted their current pay model.
Prior to about mid 2017, Doordash was paying drivers a very simple $5 plus tips. Honestly, I don’t think that was too bad a model. Now that was well before I started delivering for them.
So why did they change it?
From what I can gather, It’s all about getting orders fulfilled when the customer doesn’t tip. If you watch what is happening with Grubhub right now, you can see their challenge on getting low pay orders accepted and completed, in fact it’s gotten so bad for them that they lost their market share lead in this industry.
Enter Marciano vs Grubhub.
This is where the timing enters into the discussion. Doordash was known to have tighter requirements around acceptance rates. They were hit with a class action suit for misclassification of employees in 2015 and reached a $5 million settlement in April of 2017. Part of the arrangement was changing up some policies and better defining their policy around deactivating employees.
Basically what happened is, they got it handed to them because they were requiring couriers to accept a percentage of orders. That crosses the line as to how much control a company can have over independent contractors. If they can’t force drivers to accept orders, they’re going to have a harder time getting drivers to take those orders that don’t have a tip. Just ask Grubhub if that’s a problem.
And so in the months following that settlement, Doordash began experimenting with new pay models and testing them out different ways of getting paid by Doordash in different markets. If you’re a Dasher today, that might sound familiar. In September of 2017 they announced the new pay structure nationwide. Ultimately, this was the pay structure that they found would best take care of those lower paying orders.
How Doordash calculates pay today
You hear a lot of people claiming Doordash steals tips. Doordash does not steal tips. Let’s be very clear about that. I think there are huge problems with how they do it but it’s not about stealing tips.
The bottom line is that they pay $1 plus your tips. That’s a big drop from the $5 they used to pay. I really think that the $1 from Doordash is the bigger problem, not the way tips are handled.
The Guaranteed Pay
To make sure that low tip orders get taken, Doordash created a Guaranteed Pay structure. Essentially they are subsidizing the low tip offers. You could say it’s a form of socialism, where the payment is taken away from higher tip offers to make the lower tip offers. They came up with this idea that every delivery should pay a certain amount whether there is a tip or not. If the $1 + tip doesn’t meet that minimum, Doordash makes up the difference.
With this guaranteed pay angle, Doordash was able to make sure that an order didn’t pay too low when there was no tip, and thus made sure all orders were somewhat attractive. The problem comes in the perception they created with that: If the guaranteed pay is $5.50 and the customer tips $4, the Dasher gets $5.50. If the guaranteed pay is $5.50 and the customer doesn’t tip, the Dasher gets $5.50. Tip or no tip, the Dasher gets the same pay.
So it boils down to $1 Plus Tips Plus Doordash Additional Pay.
If anyone has ever figured out exactly HOW Doordash determines their guaranteed pay, I want to meet that person and give them a reward. Doordash has not been transparent at all in how they calculate it.
Understanding both sides of the controversy.
So I understand the sentiment behind the claims that tips are not taken. But I also understand why Doordash is doing things this way. I hear this all the time in Grubhub forums that people would take those lower pay offers more often if Grubhub would pitch in a few extra dollars. This is pretty much the same thing, right?
Here’s one way to think about it. In a lot of states, tipped workers can be paid less than minimum wage because tips can be factored into that minimum wage. But, if tips plus wage come out to less than minimum wage the employer has to pay the difference. To a certain extent, that’s really not any different.
I really don’t think I have an issue with how things are structured.Some of you will disagree, and that’s okay, because honestly a part of me does as well. However, I think Doordash’s mistake is more in how they made it look and it created the perception of wrongdoing. Now don’t get me wrong, I DO have a problem with the pay model. My problem with the model is that they would think that $1 is EVER sufficient for Doordash to pay on a delivery.
But even then, I can see why they went that way. Say they’d gone with $3 as the base pay. They would have had to subsidize less and that would have paid a lot of the extra. The problem is, if they aren’t subsidizing as much, it’s a little harder for them to make the case that they’re paying a lot more to cover for the bad tip. It’s less opportunity for them to look like the good guys, does that make sense?
What will the new model look like?
On July 24, after months of bad press due to claims of tip stealing, Doordash announced they would change their pay model. They more or less left it at that, and it wasn’t until nearly a month later, August 22, that they sent another email with more details on the pay model.
The new pay structure will boil down to base plus promotions plus tips. And base pay has now increased from a minimum of $1 to a minimum of $2.
Base pay is calculated on a combination of time plus distance plus ‘desirability.’ The promotions include the peak pay or challenges that are already a part of the Dasher experience (although challenges have just been rolling out to some areas).
Is it really any different?
My gut feeling, reading the details of the email, is that the new pay model is really the old pay model but just rearranged to look like less of a problem.
I’ve seen screenshots of pay summaries from people where the new model has been tested. There is no more transparency to how they calculate the base pay as there was to how they currently calculate the guaranteed minimum.
And the thing you want to really notice in their description: The desirability. Desirability is code for “we’re going to continue to subsidize tips but you just won’t know about it.”
My theory on how it will play out.
Here’s what I think. I don’t think that much is actually changing. I think they’re going to do things pretty close to what they already do but it’s going to be structured differently enough that they can say they did something.
The reason I think that is, they’re scared spitless about orders not being picked up. I think that’s why it’s taking so long to roll this new model out, they’re scrambling to see how it works. If they did straight up delivery fee based on time and distance alone, with the tip on top, they’re going to have the same problem Grubhub has, because that’s what Grubhub does. And they lose their competitive advantage over Grubhub. Folks, I’m telling you, it’s a huge advantage.
That’s why “desirability” as part of the base pay is a huge thing. Here’s what I expect to happen when it all settles down:
Under the new model, base pay is going to be $2 on most orders. If the tip is more than $5, you’ll rarely see that base get much over $2.50, probably $3 at max.
Desirability though…. if there’s no tip, that $2 isn’t enough, so that’s where desirability comes in. They say we have to make this more desirable, so we’ll bump up the base pay. That tells me that instead of adding ‘Doordash additional pay’ they will just bump up the base by a similar amount. But now it just won’t seem as obvious.
There WILL be some increases, but not as much as people hope. And decreases won’t be as steep as people fear.
Folks, Tony Xu promised that the average pay from Doordash would increase. I believe him. I also am aware of how he’s parsed words and spun things over the years. Do not assume “increase” to mean “substantial increase.” I expect there to be an increase, but it’s going to be maybe a few pennies.
Obviously high-tip orders will be increased by at least a dollar. Much more than that will be rare. But in the end, most orders will pay out fairly similarly to what they are now. I do think you’ll see the minimum decrease, in order to pay for those increases. Those decreases won’t be as steep as some people fear they will. I expect that you’ll see markets that have a $5.50 minimum now will drop to around $5. MAYBE $4.50. In a way I think it’s kind of genius though, you know? People are bracing for $3 orders like on Postmates or Grubhub. When they come in at $5, instead of being upset that their minimum was decreased they’ll think, huh, that’s not nearly as bad as I thought it would be. Brilliant.
And obviously, I could be totally wrong.
We don’t know. We could find out that the pay model has changed dramatically. I could be completely wrong on this.
The thing I’m clinging to on this is, they do not want to give up their advantage over Grubhub. They do a better job of completing orders, pure and simple. They cannot lose that advantage. A dramatic change puts them at risk there.
I think they have three other options. They tried one already – forcing drivers to accept more – and got their rear ends handed to them in a lawsuit. If they change how they pay more dramatically than I think, they have to do one of two things.
- They can avoid letting drivers know the tip amount ahead of time. That would cut back on cherrypicking, however it might also cost them too many drivers. Actually I think this isn’t a bad way to go for them but probably not a good change to try to make.
- They can do incentives and promotions outside the base pay to encourage higher acceptance rates. I’ve seen hints that they’ll try some of these, so it’s very possible. You just have to understand that it’s going to cost Doordash extra money if they do that. There’s no wiggle room under the current system.
Here’s the thing you have to remember, folks. All of the other platforms, when they change the pay model, it’s a decrease. Now Doordash said it would be an increase but they didn’t say how much. In this competitive environment where that’s happening, I just don’t see Doordash opening their pocketbooks that much. They’re trying to go public here soon and increasing their labor costs much, I just don’t see happening.
So where else is the money going to come from? Folks, right now the base and additional pay average out to not much more than $2 per delivery. That’s already getting swallowed up by the $2 base pay. The only place it can really come from is taking away from existing promotions. Now they could do it, and there are smarter people than me, but I just don’t see it happening. To me, all indications point to it being more or less the same, just structured differently.
How should we look at all this for our business?
I expect the new model to roll out the 30th. Partly because that’s the last day of the month and it’s the latest that they can roll it out and still keep the ‘next month’ promise from their last email. But also because that’s a Monday – it just makes sense since Monday is the start of the pay week for Doordash.
I’m planning to put more time into Doordash during the first couple weeks of the model (providing that things don’t get too saturated with other drivers doing the same thing). The main reason for that is, I expect that Doordash will pay more right when they roll it out. Grubhub did this, in fact they did it twice this year. After the latest model, they had a lot of bonuses added to lower paying orders, and those have pretty much disappeared. I think Doordash is going to do the same thing, pad things a bit at first so it gets a good initial reaction, and then slowly move down to their new normal.
Am I too much of a cynic?
Ultimately, my advice is, don’t get too caught up in the pay model. Pay more attention to how you profit. Choose your deliveries well. Doordash is one of the best at letting you do that. Use the 40 cent rule in evaluating delivery offers like always. To me, it doesn’t matter how much of my pay was from a tip, how much from the delivery company, how much was incentive. In my opinion, it’s all about the bottom line – what did I profit per hour? Pay attention to the nuances, track everything you do, give it a shot, read and react..