Delivery-first food business: the cost model

A delivery-first food business makes or loses money per order, not per dish. What you keep from each order is the price minus the app commission, the food, the packaging, what you spend on promotions and what goes out in refunds. That amount has to pay, order by order, for the kitchen rent, the wages and your own pay. Divide your fixed costs for one day by what you keep per order and you know how many orders a day you need to stop losing money.

In this guide

This is the overview. Each part has its own guide with more detail:

• Dark kitchen economics and the orders you need per day
• Delivery packaging cost per order
• Whether paid app promotions pay back
• Doing your own delivery or using the app's riders
• Order minimums and delivery fees
• Designing a menu for delivery
• How to price weekly meal prep plans
• What frozen meals really cost to sell
• Running virtual brands from one kitchen

The order is the unit

In a sit-down restaurant you think in plates. In delivery, every order drags along costs that do not depend on how many dishes are in it: the bag, the tamper seal, the flyer, the delivery, the refund when the fries arrive limp. So the sum is done per order:

kept per order = price − commission − food − packaging − promotions − refunds

This is your contribution margin applied to a whole order. Every part comes from your own records:

• Food: the recipe cost of what goes in the order, with the waste you measure yourself when you trim, portion and fry. Include the frying oil and the energy for that dish. If your cook is on a fixed wage, the wage goes in fixed costs, not here.
• Commission: the percentage the app takes from the price, as your contract says.
• Packaging: everything that leaves the kitchen with the food.
• Promotions: what you put into discounts and in-app advertising, spread across all of the month's orders.
• Refunds: money returned and orders you remake, also spread across all orders.

If an order holds two burgers and a shake, you add the food for all three, but the bag and the seal are paid once. That is why a bigger order nearly always leaves you more per dollar of sales than a small one.

Commission is charged on the price

The app takes a percentage of the price, so every dollar you add to the price also pays commission. This guide uses a 25% commission purely as an example. Each delivery app sets its own terms, they change, and the only number that counts is the one in your contract. Ask in writing what amount it is calculated on (before or after tax, before or after discounts) and whether there are separate charges for advertising or card payments.

To price on the app without losing margin, divide by what is left after commission:

app price = (cost + what you want to keep) ÷ (1 − commission)

Adding the commission percentage on top of your shop price is not enough, because the commission is charged on the new, higher price. The guide to selling on delivery apps goes through it step by step, and the delivery app price tool works out the app price that keeps your margin after commission.

Packaging is paid on every order

In a restaurant the plate goes out on crockery you wash. In delivery, each order takes a clamshell or bowl with a lid, dip pots, a cup for the drink, a bag and a seal. They are cents, repeated hundreds of times a month. If an average order carries $0.90 of packaging and you send out 800 orders, that is $720 a month that sits in no recipe.

List every item, get its unit price from the case you buy at the cash and carry, and add them up per order, as in the guide to delivery packaging cost per order. It also shows which items you can trim without the food arriving worse, and which ones you should leave alone.

Delivery: the app's riders or yours

Some apps let you use their riders or your own, with different terms for each. If you deliver yourself, every trip costs a driver's time, fuel or your own hours. If the app delivers, that cost is inside what it charges you. What matters is what you keep per order under each option.

Work out the cost of one drop with the guide to the real cost of delivery and compare it with the difference in terms in your own delivery or the app's riders. If you take direct orders by phone or through your own website, an order minimum and a delivery fee stop a single small order from eating everything you keep.

Promotions are a cost per order too

Discounts, free delivery you fund, featured placement in the app: all of it comes out of what you keep per order. A 20% discount you pay for does not take 20% of your profit. It takes far more, because it comes off whole from an amount that was already small. In the example below, a $16.00 order leaves you $5.50. Knock 20% off the price and you keep about $3.10 if commission is charged on the discounted price, or $2.30 if it is charged on the full price.

Before you join a promotion, work out how many extra orders you need just to stand still. The guide on whether app promotions pay back shows the sum and how to separate new customers from people who would have ordered anyway.

Fixed costs per day and the orders you need

Fixed costs are the ones you pay even if no order comes in: kitchen rent, wages, utilities, internet and software, the finance payment on the fryer or the griddle, and your own pay. Add them up for the month and divide by the days you open. That is your fixed cost per day.

orders a day to break even = fixed cost per day ÷ kept per order

Always round up: 45.2 orders is 46. The break-even tool gives you the units per month and per day. The guide to dark kitchen economics shows how the sum changes with rent and with the mix of app orders and direct orders.

Worked example: a burger kitchen

You run a delivery-only burger kitchen. Prices here are before any sales tax; if your prices include tax, take it out first and check your local tax rules.

Last month you sent out 800 orders, spent $360 on app promotions and refunded $240. Spread out: 360 ÷ 800 = $0.45 and 240 ÷ 800 = $0.30 per order.

What you keep per order (one burger and fries):

Fixed costs for the month:

You open 26 days a month: 6,500 ÷ 26 = $250 of fixed cost per day.

Orders you need: 250 ÷ 5.50 = 45.5, so 46 orders a day. At 46 orders you keep 46 × 5.50 = $253.00, just over the $250. That is the floor: everything is paid, your wage included, and nothing is left to replace the fryer or build a cushion.

If you raise the price by $1.00. At $17.00, commission is 17.00 × 0.25 = $4.25 and you keep 17.00 − 4.25 − 4.90 − 0.85 − 0.45 − 0.30 = $6.25 per order. Now you need 250 ÷ 6.25 = 40 orders a day. If you still sell 40 or more at $17.00, you cover the same costs with six fewer orders of work every day.

If you cut packaging by $0.20. At $16.00 you keep 5.50 + 0.20 = $5.70 and need 250 ÷ 5.70 = 43.9, so 44 orders. Two fewer orders a day from trimming cents, as long as the food still arrives in good shape.

Every line in the table moves the number of orders you need. That is why it pays to know all of them, not just the cost of the beef.

A menu built for the journey

Not everything that leaves the grill well arrives well at a flat twenty minutes away. Pizza and curries travel; fries steam soft under a closed lid; a salad needs its dressing on the side. Every dish that arrives wrong is a refund you pay for.

Keep a short menu of dishes that travel well, leave the most per order and go out fast at peak time. Add drinks or desserts that lift the order value without adding another bag. The guide to designing a menu for delivery shows how to choose them with your numbers.

If the kitchen has dead hours, there are two ways to spread fixed costs across more orders. One is a second brand with different dishes made from the same ingredients, as in the guide to virtual brands. The other is to cook something in the quiet hours that sells later, such as frozen lasagne or chili; the guide to frozen meals shows how to cost the container, the freezer and the waste.

Meal prep and weekly plans

Meal prep works differently. You know how many boxes you have sold before you shop, you cook in one or two batches and you drop several boxes in one trip. That lowers waste and the delivery cost per box, but it means taking payment up front and keeping portions exact. The guide on how to price weekly meal prep plans shows the cost per box by plan size and delivery days.

What to check every month

Five numbers tell you whether your delivery kitchen is on track:

1. What you keep per order, using the real commission from your payout statements, not the one you remember.
2. The month's promotions and refunds, divided by the month's orders.
3. The price of your big ingredients (beef, chicken, cheese, oil) and your containers. When they rise, your food cost is no longer the one in the old recipe.
4. Average orders per day against the number you need.
5. Which dishes leave the least per order, so you can reprice them, change them or take them off the app.

If the orders you need get close to what you can physically cook at peak time, selling more will not fix it. Raising what you keep per order or lowering fixed costs will.

Do it with the calculator

Put your recipe, packaging and app commission into the food cost calculator, and it gives you the price you need, with tax and channel commission included, to keep what you want per order.