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When Low Pay Orders Can Increase Your Profit Rate: Introducing the Loss Leader

I’m going to say something today that is a bit different than you’ve heard from me in the past.

You can make good money on low paying or unprofitable deliveries.

You heard me right. The guy who has been preaching the 40 cent rule, preaching to only take deliveries that pay 40 cents a minute or whatever your particular goal…  is saying you can make more with some low paying deliveries.

You’re joking, right?

Evaluating delivery opportunities, like chess, is a game that involves looking at the big picture

No, I’m not doing the reverse of content creators who long preached accepting everything you get and then changed course, and not being contrarian for the sake of being contrarian. But, there are times where a delivery that looks like a loss or low profit actually leads to greater profits, that it can actually INCREASE your profits.

And no, I'm definitely not saying take all low pay orders. It's all about being strategic.

Introducing the Loss Leader priniciple.

In retail it’s where you sell something at a loss to get people in the door. You really see it in action on Black Friday with some of the crazy cheap sales ridiculous offers that you see. You know they have to be taking a loss on that stuff, so how does that make sense? That big screen tv has to sell for a loss, so how can they do that?

Look at the lines of people waiting for the doors to open for those sales. Those few items sell for a loss, but people are grabbing other items that have higher profit margins. They are using the loss to lead the way to their most profitable day. These businesses don’t see those items as a loss, they see them as an investment. It’s a sort of marketing cost really. They make more in profits in other areas because of the smaller loss they take on a few items.

Businesses using the loss leader are looking at the big picture.

This is a huge lesson for us in the on demand delivery world. There are a lot of times where we can focus on the delivery itself, but it’s also important to look at the big picture.

We can use the loss leader principle in our delivery businesses.

Some deliveries are not worthwhile on their own. Some may even be a loss but can still make us more profitable. It’s all about the big picture. It’s about looking at deliveries to see how they impact our overall profitability. In most cases the delivery provides the profitability in and of itself – we talk about this more in Episode 12. But there are times where the low or no profit deliveries can be used strategically to lead to higher overall profits.

That doesn’t mean accepting all offers. With every delivery, you want to be strategic. You want to make Business Decisions. But sometimes the loss leader can help you meet your goal. The better you know your market, like we discuss in Episode 4,the better you can identify those opportunities. When you know the restaurants and the conditions and when some deliveries can be done quickly, when you know all those things, you have a better chance of identifying loss leaders that can help you out.

Let’s look at four different scenarios where a low paying delivery can serve as a loss leader.

A delivery that gets you where you want to be.

Sometimes you drop off a delivery in an area that isn’t profitable, or it’s in an area that has fewer restaurants and you need to make your way back to an area that is just going to pay better. Sometimes it’s time to call it a day but you have a bit of a drive home. You are already committed to going a certain way. There are times where you can find a low paying offer that takes you that same direction. On its own, it’s not worth taking but if it doesn’t slow you down much, what it does is pay you for going where you were going anyway.

The delivery fills a gap.

This can happen when you have accepted a well paying order, but you know the food won’t be ready for awhile. You could just wait at the restaurant, or you could find a short enough, quick enough delivery that you can knock out while waiting. That little order may not pay well, but it pays more than you make waiting.

As part of stacked or multiple orders.

In yesterday’s episode we talked about working multiple apps. This can apply for those or when you have multiple orders on the same platform. There are times Grubhub sneaks in a $4 offer with a higher paying offer. A lot of drivers resent those, but if that extra order is adding very little time or distance, it can actually be quite profitable. Use the same calculations you’d talk about in episodes 9 and 12, use the 40 cent rule – but this time all you need to do is divide the extra pay by what you estimate the EXTRA time that it would take. That $4 can often make the overall delivery more profitable.

When the order helps you fulfill promotions or incentives.

You may have an offer that gives you a bonus for completing so many deliveries. Or the promotion might guarantee a certain amount per delivery. Part of the reason many deliveries have low pay is often because they’re shorter deliveries. I live on those short $3 orders when there’s a promotion like that, because in the end, it adds up to more than my price, my pay per minute. I had a $3 delivery for a McDonalds that was 5 miles away that actually earned me $50 because it was the last order I needed to fulfill a promotion – the order came in just ahead of the deadline and it was the last one I needed for a bonus.

Now this doesn’t mean that I’m on board with taking every delivery. Some would add that taking a low offer because you might get a better delivery as a reward is a form of loss leader. My experience is that’s rolling the dice too much. “Might” is not a good reason, especially if there’s not a track record to back that up.

Here are a few questions you can ask when evaluating loss leaders

Always look at the big picture – how does it help profitability?

Is it something that can add revenue where there wouldn’t be, without creating more expense in the process?

If it’s an order that sets you up for another order, does it improve profit for that next order in a way that more than offsets the lack of profit on this order?

Is taking this order (especially in a stacked order environment) interfering with your commitment to provide good service on another order?

If you take it to put yourself in a better position for future orders, do you have a good enough track record that the averages work in your favor on this? Such as, have you measured that more often than not the area it’s taking you to is profitable?

Don’t make business decisions based on hope.

I’ll never accept a zero tip order on Grubhub based on the hope of getting a cash tip. I’ve done too many deliveries to think that’s going to happen. You need to have a reasonable, experience based expectation.

You will find times that the loss leader didn’t perform as you’d hoped. Just like there are times that a delivery doesn’t perform as well as you hoped. But you will find times it did better than you expected. When you get more experienced at evaluating these things, the averages play out. Don’t stress on if it performs exactly as you hoped. Focus on the big picture and let it work itself out.

Could this help someone else? Please share it.