How Does Toast Make Money? Toast Business Model In A Nutshell

  • Toast is a cloud-based restaurant software company founded by Steve Fredette, Aman Narang, and Jon Grimm in 2012. After receiving the necessary funding, the trio was able to build a platform that revolutionized a restaurant industry plagued by archaic technology and slim margins.
  • Toast makes money by selling hardware combining point-of-sale systems, third-party payment processing, customer loyalty programs, and other value-adding features. The company also sells associated hardware such as cash drawers and receipt printers.
  • Revenue generation is split into the categories of digital ordering and point of sale. Each category features three, tiered subscription plans with varying degrees of functionality.
AspectDescription
Hardware SalesToast offers a range of hardware solutions to restaurants, including POS terminals, kitchen display systems, handheld devices, self-ordering kiosks, and more. Restaurants purchase this hardware to modernize their operations and enhance the customer experience. Revenue is generated through the sale of these hardware products.
Software LicensingToast provides software licensing for its POS system and various software modules that cater to different aspects of restaurant management, such as order management, menu customization, and inventory control. Restaurants pay subscription fees for access to Toast’s software, often on a monthly basis. These recurring fees are a significant source of revenue.
Transaction Processing FeesToast processes payments for restaurants and charges transaction processing fees for each payment transaction made through its platform. These fees typically include a percentage of the transaction value and a fixed fee per transaction. Restaurants rely on Toast for secure and efficient payment processing, contributing to Toast’s revenue.
Subscription ServicesIn addition to software licensing, Toast offers various subscription services to restaurants. These can include add-on services like loyalty programs, online ordering, and delivery management. Restaurants subscribe to these services to expand their capabilities and enhance customer engagement. Subscription fees from these services provide additional revenue.
Additional ServicesToast may offer additional services such as hardware installation, training, and customer support to ensure that restaurants can effectively use its technology solutions. Restaurants pay fees for these services, which can vary depending on the level of support required. These services complement the core offerings and contribute to revenue.
Analytics and InsightsToast provides analytics and insights tools that help restaurants analyze their sales, customer data, and operational performance. Restaurants may pay for advanced analytics and reporting services, which enable them to make data-driven decisions and optimize their operations. Fees generated from these services contribute to revenue.
Challenges and CompetitionToast operates in a competitive market with various restaurant management and POS system providers. Staying competitive, offering robust and user-friendly software, ensuring data security, and providing excellent customer support are ongoing challenges. Keeping up with technological advancements is also essential.
Future Growth StrategiesToast’s future growth strategies may involve: – Product Innovation: Continuously developing and enhancing its software and hardware offerings. – Market Expansion: Expanding its presence into new regions and markets. – Integration Partnerships: Collaborating with third-party providers to offer additional services. – Customer Engagement: Building strong relationships with restaurant owners and operators. – Data Monetization: Leveraging restaurant data for insights and targeted services.

 

 

Origin Story

Toast is a cloud-based restaurant software company founded by Steve Fredette, Aman Narang, and Jon Grimm in 2012. 

Though the trio were all recent MIT graduates, they met while working for software company Endeca. When Endeca was sold to Oracle in 2011, the co-founders embarked on a mission to revolutionize restaurant point-of-sale systems. 

However, Toast had difficulty securing early funding because many believed the industry was too complicated and nuanced.

Many restaurants were running antiquated systems that were over twenty years old because it was too difficult to upgrade.

What’s more, investors were spooked by notoriously poor margins and tight budgets within the industry.

Toast initially began as a consumer app centered on mobile payments and customer loyalty.

However, the company quickly pivoted to a full restaurant technology platform after the founders realized restaurant owners wanted something that could do more than just accept payments. 

By 2013, more than 1,000 merchants across the United States signed up to a service offering online ordering, gift cards, and consumer analytics.

Impressed by the passion, drive, and ability of Narang in particular, former Endeca CEO Steve Papa got the ball rolling with $500,000 of his own money.

Successive rounds of venture capital funding resulted after it became clear that Toast’s profit margins were sustainable and that the client base was rapidly growing.

The company now provides point-of-sale systems in more than 48,000 restaurant locations, with a recent IPO raising $870 million one of the largest in 2021.

Toast revenue generation

Toast makes money by selling hardware that combines point-of-sale systems, third-party payment processing, customer loyalty programs, and other value-adding features.

The company also sells associated hardware including receipt printers, cash drawers, and magstripe card readers.

Importantly, the Toast platform can be used in the kitchen and integrates with restaurant-specific services such as Grubhub and OpenTable. 

Revenue generation is split into two categories: point of sale and digital ordering. 

Point of sale

Customizable point-of-sale packages are available to restaurants, with several plans available depending on the growth stage of the restaurant:

Pay-as-you-go (from $0/month)

A plan ideal for smaller restaurants that want to get up and running on the Toast platform.

Features include starter kit essentials such as a point-of-sale terminal, tap payment device and router, point-of-sale software, and dedicated customer support.

Additional hardware can be purchased as required for wan upfront fee and sometimes a monthly fee also.

For example, a handheld device for drive-through and curb-side orders costs $389 plus $50/month.

Essentials (from $165/month)

For restaurants wishing to expand into off-premise channels. In addition to pay-as-you-go features, the essentials plan features online ordering and delivery, restaurant-grade hardware, and the Toast take-out app.

Growth (from $272/month)

For restaurants interested in using data to attract new clients and drive repeat visits.

Additional features here revolve around loyalty programs, marketing tools, and gift cards.

Digital ordering

Toast also offers three plans for restaurants who simply want an online presence:

  • Toast Now (from $75/month) – offering online ordering, the Toast take-out app, and contactless delivery.
  • Toast Now Plus (from $100/month) – offering all Toast Now features plus e-gift cards. 
  • Toast Now Premium (from $175/month) – offering all Toast Now Plus features plus email marketing.

For all three plans, delivery services are also available at an extra cost. While there are no upfront costs for this service, Toast charges its restaurant partners a flat per-order service fee.

Key Highlights

  • Origin and Founding: Toast, a cloud-based restaurant software company, was founded in 2012 by Steve Fredette, Aman Narang, and Jon Grimm. The founders aimed to revolutionize the restaurant industry, which suffered from outdated technology and slim margins.
  • Background and Challenges: The founders, who met while working at software company Endeca, sought to modernize restaurant point-of-sale systems. They encountered difficulty in securing early funding due to the industry’s complexity, antiquated systems, poor margins, and tight budgets.
  • Strategic Pivot: Toast initially started as a consumer app focusing on mobile payments and customer loyalty. However, realizing that restaurant owners sought comprehensive solutions beyond payments, Toast pivoted to become a full restaurant technology platform.
  • Early Success: By 2013, Toast had over 1,000 merchants in the U.S. using its service for online ordering, gift cards, and consumer analytics. Subsequent funding rounds followed as the company’s sustainable profit margins and growing client base became evident.
  • Expansion and IPO: Today, Toast provides point-of-sale systems to over 48,000 restaurant locations. An IPO in 2021 raised $870 million, making it one of the largest IPOs of the year.
  • Revenue Generation Model: Toast generates revenue through its hardware sales, including point-of-sale systems, third-party payment processing, loyalty programs, and associated hardware such as printers and cash drawers.
  • Integrated Platform: Toast’s platform extends to kitchen integration and partnerships with services like Grubhub and OpenTable.
  • Revenue Streams: Revenue generation is categorized into two main streams: point of sale and digital ordering.
    • Point of Sale: Toast offers customizable plans based on the restaurant’s growth stage, including pay-as-you-go, essentials (with online ordering), and growth (with loyalty and marketing tools).
    • Digital Ordering: For an online presence, Toast offers three plans—Toast Now, Toast Now Plus, and Toast Now Premium—each adding features like e-gift cards and email marketing.
  • Delivery Services: Toast offers delivery services as an add-on for the digital ordering plans, charging restaurant partners a per-order service fee.
  • Hardware and Services: The comprehensive approach of combining hardware, software, and services, tailored to different restaurant needs, is a cornerstone of Toast’s revenue strategy.
  • Modernization and Innovation: Toast’s approach addresses the outdated technology challenges faced by the restaurant industry, providing solutions that improve efficiency, customer experience, and revenue generation.
  • Positive Impact: Toast’s success story showcases the potential of addressing industry pain points and leveraging technology to drive positive changes in traditionally challenging sectors.

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