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As time becomes more and more of a commodity, the general public looks for new ways to streamline daily activities. Food delivery services are, therefore, great opportunities for entrepreneurs and consumers. Approximately 60% of each dollar spent on food consumption will go to businesses outside the household. With a restaurant delivery business, you will be able to fill a need for numerous consumers, offering fresh and unique food options and allowing for gourmet dining, without leaving the house.
Who is this business right for?
Entrepreneurs who wish to position themselves in the food and beverage industry, without all the overhead and grueling hours, will discover fulfillment in this business venture. While this endeavor offers flexibility, it also requires a great deal of dedication and organization.
What happens during a typical day at a restaurant delivery service?
Running a successful restaurant delivery se rvice requires a high level of professionalism and hard work from the entire team. Everyone must work and no one’s role is more important than another.
Management and staff will be tasked with the following items each day:
- Recording relevant information for each order.
- Dispatch and delivery of each order placed.
- Reaching out to current and potential customers, answering any questions and/or concerns they might have.
- Working with current and potential restaurants to ensure profitable partnerships for both parties.
- Market research and implementing marketing strategy.
- Administrative tasks such as payroll and accounting.
What is the target market?
Your delivery radius must be populated enough to sustain and grow your business long-term. Target customers include busy/working families, disabled persons, heavily populated business areas, seniors, and college students.
How does a restaurant delivery service make money?
Restaurant delivery services generate a profit by charging each restaurant a commission. Additionally, most companies include a delivery service fee, which is paid by the customer.
What is the growth potential for a restaurant delivery service?
According to recent studies, United States consumers spend an average of $3.5 billion annually on restaurant delivery. This number is expected to rise to over $12.5 billion by 2019. The owner of one major delivery service started out as a one-man operation, delivering on his bike. He now has over 200 employees in multiple cities across the U.S., with an annual profit of over $3 million.
What are some skills and experiences that will help you build a successful restaurant delivery service?
A basic understanding of both restaurant and delivery industries would prove beneficial. This experience will offer valuable insight into the logistics that go into coordinating client requests, restaurants, and delivery needs.
Regardless of which role you decide to take on within the organization, it is critical that you possess strong communication and leadership skills. Each team member represents the company in both word and action. Organization and time management are necessary, as is the ability to remain calm when faced with an unforeseeable crisis.
If you are inexperienced in managing a business, consider attending an online or local class that focuses on business management, logistics, and marketing. The Restaurant Marketing and Delivery Association is also a great educational resource and networking tool.
What are the costs involved in opening a restaurant delivery service?
Entrepreneurs experienced in this industry indicate start-up costs could range anywhere from $3,000 - $25,000.
Your initial investment should include the following:
- Dispatch space - Specific costs vary, depending upon location. To reduce expenses, many business leaders have chosen to start out working from home.
- Insurance - Be sure to discuss your needs with a reputable insurance agent. If working from home, contact your agent to proper coverage. The last thing you need is a team member hurting themselves onsite, only for you to find out you’re uninsured/underinsured.
- Computer, fax machine, & telephone system - Utilize your personal devices until you’ve generated enough profit to invest in these business tools.
- High-speed internet and a business landline with several lines - initial down payment ranges anywhere from $60 to $250
- Delivery vehicles - Most businesses require their delivery drivers to have their own mode of transportation. Owners in large cities such as New York City will provide each driver with a bike.
- Business license
- Delivery food service bags to ensure freshness and maintain proper temperature
- Marketing materials - Shirts for delivery drivers, menus, coupons, etc.
- Website - Invest in an intuitive and interactive website that has the ability to grow with your company. If it is within your budget, definitely speak with a developer about packaging your site with a mobile app.
- Software solution - Investing in a logistics management software system will help in coordinating orders, customers, and drivers.
What are the steps to start a restaurant delivery service?
Once you're ready to start your restaurant delivery service, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your restaurant delivery service is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your restaurant delivery service keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a restaurant delivery service?
Industry leaders offer the following start-up advice:
- Make sure your customers have a variety of options to choose from. Pizza and Chinese are more readily available for delivery; what about Thai, Mexican, Indian, and American?
- Food freshness is a direct reflection on your company. Work with restaurant management to ensure the delivery menu only includes dishes that transport well.
- Try to keep your restaurant radius to 20 minutes.
- Try to focus on locally owned restaurants. In addition to supporting another small business, these establishments are free of franchising contracts that could limit participation.
How to promote & market a restaurant delivery service
Restaurant delivery leaders have found success with a diverse marketing strategy. Printed materials, such as delivery menus and flyers, are a great first step. Leave delivery menus at participating restaurants, hotels, and businesses within your delivery area. Distribute flyers on neighborhood doors and in other public places around town. Partner with community newspapers and include your organization’s fliers inside each paper.
Contact your local Chamber of Commerce and other business associations. Use local networking events as an opportunity to foster relationships with potential customers and other entrepreneurs who might be willing to partner with you in the future.
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How to keep customers coming back
Your customers are counting on you to deliver fresh, quality meals in a timely manner. Accuracy is also critical. Drivers should carefully check each order to ensure all items are prepared properly and include any necessary extras, such as plasticware, condiments, and side items. For premium service, supply each driver with a “backup bin” that includes any potential last-minute requests or forgotten items.
How and when to build a team
It is recommended that you start out with at least one other team member. If you try to wear too many hats, your business will suffer, hindering you from ever really getting off the ground. You will need at least one driver, preferably two, as well as someone dispatching. Since your drivers are the face of the business, make sure they are professional and look presentable at all times. They should also have a clean driving record and reliable transportation.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a restaurant delivery service. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
Businesses are required to register vehicles which will travel across state lines for commercial purposes. Check here for a list of state requirements.
How much can you charge customers?
Before opening for business, take time to develop a delivery menu. To avoid questions and confusion, keep all food prices the same as they appear on the restaurant menu. Include a surcharge for delivery, in order to make your business profitable. This could be either a flat rate or a percentage of the total order. Since your restaurant partners are realizing increased sales and receiving “free” advertising through your organization, it is also standard to charge the restaurant a surcharge. Additionally, it is recommended that you encourage customers to tip their delivery driver.
What are the ongoing expenses for a restaurant delivery service?
Overhead costs vary, ranging anywhere from $600 to $10,000 per month, depending upon how the business is structured and the dispatch location. Items that should be budgeted for include:
- Payroll costs - To reduce these expenses, consider hiring your team members as independent contractors. There are pros and cons to both choices, so it is recommended that you speak with an attorney and/or an accountant to weigh your options fully.
- Marketing and other printed materials
- Rent and other associated costs, should you decide to lease a space for dispatch
- Phone and internet expenses
- Website maintenance
- Business management software system
How much profit can a restaurant delivery service make?
Experienced professionals have reported an annual profit of $25,000 or more the first year. Five to six years in, those same companies are reporting upwards of $4 million annually. Factors such as location, demand, and desired growth affect your overall profits.
How can you make your business more profitable?
To maximize productivity, consider the following strategies:
- Consider offering additional delivery services. This could include: wine/liquor, farmers, grocery stores, health food stores, pet stores, and pharmacies.
- Work to decrease delivery time, increasing the number of orders that can be filled.
- One industry leader guarantees his employees a minimum of $15/hour. He also holds a monthly employee meeting, where individuals can express concerns, ask questions, and receive additional training. This reduces turnover and increases workforce engagement.