Now, more than ever, online ordering has proved to be essential for restaurants. However, 3rd party ordering apps do not deliver a sustainable ROI. Here we discuss the transition to direct ordering and the value it provides.
The trend of restaurants adding digital order ahead had been well established before 2020, but COVID-19 has been a compelling force to massively accelerate the adoption of this sales channel. As such, third-party delivery platforms (3PDs for short) have become even more attractive for restaurants, as they boast the most exposure, coming from their massive user base. However, these marketplaces do come at an unsustainable cost for restaurants with frequent regulars.
Even when restaurants offset the commissions (as high as 30%) with higher prices, that is still money they could have been making or that their customer could have been saving. There is a healthy way to leverage 3PDs to acquire and gain exposure to customers. However, there is a large cost if restaurants don't promote regular guests to use a direct ordering channel.
Adding your own digital ordering channel is the first step, but promoting it effectively is what will save you on those 3PD fees. Here are some of the tactics that actually work:
- Your website should go directly to your online ordering page. Amazon isn’t a billion dollar juggernaut because the homepage told a story about Jeff Bezos… It takes you straight to the ordering page.
- Make sure your online ordering provider supports both pick-up and delivery. If your provider doesn’t support delivery it will be an incentive for customers to use a 3PD app.
- Make sure that in all your public listings in platforms like Yelp or Google, your phone numbers and ordering URLs go directly to your online ordering website, and not to any third-party marketplace (it is common for 3PDs to take over these pages without you even knowing).
- You must give a clear incentive to customers to migrate over to direct ordering. Think of it this way: if your price were to be the same on both platforms, why would customers go to your website instead of ordering from a convenient third-party marketplace? This is when a loyalty program becomes crucial.
Powering direct orders with Loyalty
Implementing a consistent loyalty and rewards programs is not only critical to incentivize and retain customers in your direct ordering site, but also to save money. Let’s look at an example of how much a loyalty program could save you:
- Let's say your locations do $100k/month in digital sales and lets say 50% of that is via third-party platforms. With a 30% cut on all 3PDs orders, you will end up paying $15,000 just in commissions!
- On the other hand, if you launched a simple loyalty program or provide a discount for customers that order directly, and as a result you are able to shift to only 25% of orders on 3PDs and 75% direct. This same business would save $7,500/mo in commissions.
Now let’s take a look at the math in detail and how using a loyalty program to promote your direct ordering channel generates a positive ROI:
Cost of paying 3PDs:
Monthly Online Ordering Sales: $100,000
3PDs commission: 30%
3PDs share of orders: 50%
Monthly cost of 3PDs commissions: ($100,000 x 50%) x 30% = $15,000
Annual cost of 3PDs commissions: ($100,000 x 50% x 12) x 30% = $180,000
ROI of More Direct Orders with a loyalty program:
Suppose you implement an incentives program like "Earn 100 points and get $5 off" and as a result 3PDs share of online orders drops from 50% to 25%.
Monthly Online Ordering Sales: $100,000
3PDs commission: 30%
New 3PDs share of orders: 25%
New Monthly cost of 3PDs commissions: ($100,000 x 25%) x 30% = $7,500
New Annual cost of 3PDs commissions: ($100,000 x 25% x 12) x 30% = $90,000
Since we now have a loyalty program, to calculate ROI we’ll need to account for the cost of loyalty incentives as well as the increased sales from existing members.
- The percentage of sales that you will give away to customers as incentives to order from your own ordering website would stand at 8% (the average range is 4%-10%)
- We estimate a sales lift of 5% as a result of improved average ticket, frequency, and customer retention. If you multiply 5% by your $100,000 monthly sales, you get a $5,000 monthly sales lift.
Having this information, and considering that 75% of your online sales now go through your own digital channel, we calculate the total monthly cost of incentives as:
($100,000 x 75% x 8%) + ($100,000 x 75% x 5% x 8%) = $6,300
Now let’s combine all our data points to calculate ROI:
Savings on 3PDs commissions: $7,500
Increased online sales as a result of our loyalty program: $5,000
Total Cost of our loyalty program incentives: $6,300
Monthly Profit Lift: $7,500 + $5,000 - $6,300 = $6,200
Annual Profit Lift = $74,400
By effectively promoting your direct online ordering channel over 3PDs you could easily gain almost an entire month’s worth of online sales back in your pocket each year!
Learn how you can drive more orders from your own digital channels.
