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Keeping Your Profits Up When Grubhub and Postmates are Slashing Delivery Fees

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Just how stupid do these companies think we are?

Postmates thinks that since they increased the pickup fee in our market from $1.15 to $1.40, “these new rates remove the need for a minimum guarantee adjustment.”

Ummmmm, you do know you decreased our dropoff fee by the same amount, right? And you cut the per minute fee 12.5%. And oh, by the way, you cut our per mile fee 20% at the same time gas prices are going up.

Now I know the adjustments are different in different areas. But when I compare the last 50 deliveries, it comes out to a whopping 15% cut in delivery fees. That's pretty significant. On top of that, it's less than three months since they slashed fees 7%.

Postmates has had two signficant fee reductions in less than three months.

What I really love is how these companies frame their fee reductions. Grubhub said ” we’re improving how you earn to better compensate you for your effort on each order” and proceeded to slash delivery fees an average of 8% in my market.

It's kind of like when the government says “we're here to help you.” Whenever these companies promise to improve how they're paying, be prepared for the opposite.

Is it time to do something else?

No. Not yet.

These kinds of reductions are concerning, there's no question about it. And if you watch the ride share industry, you know that this isn't going to be the end.

There's a pattern in these gig industries where they make it very attractive to start, and then it's a race to zero as they reduce compensation as much as possible while still keeping people on.

Ultimately, this should never be a surprise. When Grubhub announced an improvement in pay that includes total mileage and time, people were anticipating a significant increase in pay.

How anyone would expect that any of these companies were going to actually improve payouts despite never showing any history of doing so is beyond me.

However, that's not reason to quit. While we are getting less per delivery, that alone is not enough to make a final decision. Personally, even though delivery fees are dropping, my profitability has continued to increase.

It's a matter of looking at the big picture. If you can still be profitable, keep going. However, keep going with the full knowledge that things are not going to get better, and be prepared to move on.

Tips to Stay Profitable In Spite of Pay Reduction.

Focus on hourly profit, not individual delivery amounts.

One of the biggest mistakes delivery drivers make is they focus on the individual payout. The reality is that a $4 delivery fee can be and often is worth more than a $15 fee.

How many times could you do a particular delivery in an hour? Use that to calculate your hourly rate.

If a delivery takes 10 minutes, you can do 6 of them in an hour. That $4 delivery that took 10 minutes is worth $24 per hour. If that $15 delivery took an hour because you drove across town in heavy traffic to do it, it was worth a whole lot less than that $4 delivery.

To calculate your hourly rate, figure out how many times you could do that delivery, from the moment you got the order to the moment you dropped off. If it took 10 minutes, you can do 6 of them. If it took half an hour, you can only do 2.

You could do the actual math (60 divided by minutes of the delivery). If you want to do quick math in your head, round the minutes to the nearest: 10 (6 per hour), 12 (5 per hour), 15 (4 per hour), 20 (3 per hour), 24 (2.5 per hour), 30 (2 per hour), 40 (1.5 per hour), or 60 (1 per hour).

Now take the deliveries per hour times your profit and you get your hourly rate.

Notice that I'm saying profit. That's not the same as pay. If you drive a lot of miles, your profit is lower.

I use 25 cents a mile to estimate my cost of driving – So I take my pay minus 25 cents a mile.

If I received $10 and drove 6 miles ($1.50 car expense) I made $8.50. If you have a newer or more expensive car, your cost per mile will be a lot more than 25 cents, (you can learn more here) but 25 cents makes for quick and easy math.

Be efficient.

This is why it's important to focus on the hourly. Getting your deliveries done more quickly and driving fewer miles make more of a difference on your profits than a small reduction in delivery fee.

Obviously we would rather not have the delivery fees cut. However, we can overcome those cuts by shaving time off our deliveries. Focus on finding ways to get in and out of restaurants faster, on getting the food dropped off faster. There are things we can't control, but other things we can do. Look at this article on the 40 cent rule – that every minute you save is worth from 30 to 40 cents depending on your target hourly rate.

Be selective

Pay more attention to the offers you receive. When the pay is being reduced, there are fewer deliveries now worth taking. Grubhub and Postmates both have dramatically reduced the extra they provide when you have to drive further, so you have to take that into account. Do a quick calculation of the distance, of the time you think an offer will take, and what the hourly profit will be and be more selective than ever on what you accept.

Have other options

It is becoming more and more important to be able to deliver for multiple platforms. If the pay drop is making you have to be more selective on what deliveries you accept, running multiple apps at one time becomes a more vital strategy for you.

Work on Customer Service

This is especially true with Postmates, where your tip comes after the delivery. I actually enjoy the challenge when it comes to Postmates, because the tip feels more like it was earned. I am tipped well on Postmates, so I really believe that makes a difference. To be fair, I should include UberEats in that discussion, and I do believe it also makes a difference there, but tipping with them is a totally different animal.

Know your threshold.

There is a point where it's just not worth it. Honestly, in this business, that point is a lot higher than most people realize. When you account for taxes, for vehicle expenses, and for needing to cover your time off, you are making less than you realize.

This means that you need to know what you are actually making. This takes us back to the profit per hour – that is the only reliable gauge. You can't look at what your total daily or weekly amount. It's also a huge difference if you are driving 500 miles or 1,000 miles a week. You need to be tracking that amount on a week by week basis and watch how it's going.

If your weekly profit per hour is remaining steady or increasing, carry on. If it's going down, you need to watch it closely. There's a point where you have to determine that this isn't worth it.

Have an exit strategy.

If the point comes where reductions mean you no longer can be profitable, what do you do next? Be ready for that now. Keep an eye out for options. Make long term plans. We'll cover this in more depth soon.

Driving can actually provide some great opportunities for making those plans. But the bottom line is, things can change and change quickly. A company can exit the market. An accident can happen that changes everything. An app can suspend you for things outside your control. You need to always be ready.

Rate reductions aren't the end of the world. But we have to keep an eye out.

Here's the deal: We're not going to change their minds.

Postmates is not going to suddenly discover the error of their ways. Grubhub isn't going back on what their new model.

When you see how well the protests and actions are working for Uber and Lyft drivers (they aren't) you know that we're not going to change what's happening here.

But you know something? That's a part of being in business. I was in telecom for twenty years. Prices in all areas have come down dramatically. We made a fraction in profit on a sale more recently than we did twenty years ago. At the same time, there were more opportunities for profit in other ways.

The same is true in so many other areas. Those changes didn't mean the end of the industry but it did mean people had to adapt.

You can still be quite profitable doing this, but you have to keep your eyes out for ways to adapt. When you keep multiple options open, one change with one company doesn't harm you as much. Your customer is paying less but you, the boss and owner of your business, still have the opportunity to be profitable.

It's up to you.

Could this help someone else? Please share it.

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