postmates-business-model

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

Postmates is a food delivery service built as a last-mile delivery service platform connecting locals with shops. Postmates makes money by collecting fees (commission, delivery, service, cart, and cancellation fees). It also makes money via its subscription service (called Unlimted – $9.99/month or $99.99 annually) giving free delivery on every order of more than $12.

Origin story

Postmates is a North American food delivery service. The service was founded in 2011 by Bastian Lehmann, Sean Plaice, and Sam Street after the trio unsuccessfully tried to get hot dogs delivered to their residence.

Three short years later, Postmates released a merchant interface allowing small businesses to compete for delivery of consumer goods with larger players such as Amazon. Shortly after this release, the company announced that it had completed 1 million deliveries with 6,000 drivers in its delivery network.

During the height of the COVID-19 pandemic in June 2020, Postmates was acquired by Uber for $2.65 billion. The company continues to operate under the Postmates banner today, serving approximately 3,500 U.S. cities or 70% of the total population.

Postmates revenue generation

Postmates drive revenue through the collection of various fees and a premium subscription service.

Following is a look at each.

Fees

For every order placed on the Postmates platform, the company collects a host of fees including:

  1. A commission fee – or a percentage of the total sale price dependent upon the type of product sold and the agreement with the affiliated partner. For example, a supermarket such as Walmart may pay Postmates a small fee because of its very slim margins. A family-owned restaurant, on the other hand, may pay as high as 20% on every order.
  2. A delivery fee – or $0.99-$3.99 for partnering merchants and $5.99-$9.99 for all other merchants.
  3. A service fee – which is charged for the ancillary services delivery drivers perform, such as selecting items from supermarket shelves.
  4. A cart fee – which applies when a Postmates order does not meet the minimum threshold. This cart fee equates to $1.99 per order.
  5. A cancellation fee – when a consumer cancels their order, Postmates charge a fee depending on how advanced the order process is. The fee also depends on the particular merchant and the dollar amount of the order.

Unlimited

Unlimited is the name given to a subscription allowing Postmates customers to save money on deliveries.

The company charges $9.99/month for the Unlimited subscription or $99.99 annually.

Once on the plan, the consumer gets free delivery on every order of more than $12 as well as access to events and promotional giveaways.

While Postmates claim the plan saves consumers about $185 per year, there is potential for individuals using the service frequently to make the scheme unprofitable in the long term.

Key takeaways:

  • Postmates is a North American food delivery service. It was founded in 2011 after three friends tried unsuccessfully to get hot dogs delivered to their residence.
  • Postmates generate revenue through a multitude of order charges, including a commission fee, delivery fee, cart fee, and service fee. There are also charges for those who choose to cancel an order already in progress.
  • Postmates also offers a subscription service where consumers save money on delivery and get access to certain member perks. However, whether the subscription service is ultimately profitable for the company long term is debatable.

Read Next: Grubhub Business Model, Uber Eats Business Model, Last-Mile Delivery, Instacart Business Model.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"