How Does Postmates Make Money? Business Model of Postmates


How Does Postmates Make Money

Postmates is a popular food and grocery delivery service that started off delivering any item.

Postmates primarily makes money via service fees. The company also makes money from delivery fees, Postmates Unlimited subscriptions, and merchant fees.

Founded in 2011 by Bastian Lehmann, Postmates was initially a service that connected people with couriers. It was designed to facilitate the delivery of any item, be it food or electronics. When the initial version of Postmates was rolled out, the developers discovered that customers were primarily using it for ordering food.

The company launched a same-day delivery service later in 2011 and also released an iPhone app. By 2019, Postmates was valued at $1.85 billion.[1] In December 2020, the company was acquired by Uber for $2.65 billion.[2]

What is Postmates & How Does It Work?

Postmates is a delivery app for food, groceries, and other consumables. It is loved by customers for its wide selection of restaurants and affordable delivery prices. Postmates differentiates itself from regular food delivery apps by allowing customers to place orders from nearby convenience stores and pharmacies.

Deliveries are done by gig workers, who bring food from restaurants to consumers after they receive a notification through the app. Postmates has two versions of its app — one for consumers, and another for drivers. Drivers are notified about available offers based on their location and orders being placed from restaurants in the nearby area.

Postmates has an automated system that optimizes delivery times for consumers. It uses an algorithm that selects the best drivers for an order based on their availability and location. Customers occasionally pay ‘blitz fees’ which are added on top of regular delivery charges if they place an order from a restaurant during surge hours.

The returns from blitz fees are split between Postmates and the driver, who is paid extra for making a delivery during surge hours. Postmates was estimated to be making over 3 million deliveries each month in 2017, with an average delivery time of 35 minutes. The company has increased the number of delivery drivers and markets that it services since then, by adding new cities and restaurants to the platform.

Postmates also has a subscription-based service called Unlimited, which is similar in concept to Amazon’s Prime. With Postmates Unlimited, users can get free deliveries with a minimum order value of $15. And they don’t have to pay blitz fees during surge hours.

Not all restaurants and retailers support Unlimited. Those that do have a special icon next to their listing within the app. On top of free delivery, members also get access to special offers and discounts.

Postmates Unlimited also removes 5% of the service fee from restaurant orders above $15 and grocery orders above $30. Promotional offers stack on top of Postmates Unlimited, allowing users to get maximum value from their subscriptions. Currently, the subscription costs $9.99 per month, but users can sign up for a free trial.

To use Postmates, users must first make an account. This can be done through the website or phone app. Postmates also asks for a user’s phone number to verify their identity. Then it uses their location information to display nearby restaurants and grocery stores. The app allows users to browse from a wide variety of restaurants and sort by cuisine type or budget.

The average meal cost for a particular restaurant is indicated on the restaurant’s page. Users can also set the maximum delivery fee they are willing to pay, by changing the limit on a slider. Postmates also has filters for certain diet types like vegan, vegetarian, and gluten-free.

Each restaurant listing has a name, photo, and delivery information. Users can see the delivery fee and estimated delivery time for any restaurant with a single glance. Restaurants also have an average customer rating that goes from one to five stars.

If a user likes a particular restaurant, they can add it to their list of favorites for quick access in the future. The app also allows users to quickly filter restaurants by food type or look for restaurants that serve specific items. Categories are indicated by large icons such as pizza, Chinese, Mexican, and Latest Deals.

Postmates makes it easy for users to navigate between top-rated restaurants and find the food that they want. The app places great emphasis on user experience and makes the process of completing an order a very swift process. Once a user has entered their address and payment information, it takes less than a minute to place the order.

In addition to deliveries, Postmates also has a pickup option. Here, users can place their order at the restaurant and pick it up themselves. This feature is useful when a customer is on the road and plans to make a pickup on the way. It also helps save on delivery fees.

In 2019, Postmates was serving all 50 US states and 70% of all US households. Over 500,000 restaurants across 3500 cities were registered on the app.[3] These numbers have likely grown significantly since then.

 

Business Model of Postmates

Postmates is an on-demand delivery platform that makes its money from delivery charges and restaurant commissions. The company’s business model relies on three separate entities — customers, merchants, and delivery drivers. It attracts retailers and restaurants by offering them access to a large market with lots of repeat buyers.

Many local restaurants have a limited operating budget and lack the necessary infrastructure to create a delivery service of their own. Postmates also benefits larger restaurants that have a delivery staff but can’t keep up with demands from a large online population. By offering to take care of deliveries for merchants and promoting their restaurant on its platform, Postmates is takes a percentage of each order value.

Merchants pay this small fee as they gain increased order volume and a large number of high-value customers. These high-value customers often place repeat orders because of how convenient the ordering process is.

Postmates manages everything for the customer, from payment to delivery. Restaurants also get a reliable feedback loop through Postmates since customers can easily write online reviews. While this feature can be abused by bad actors, it often gives restaurants an idea of market trends and how they can improve their services.

Bringing orders from restaurants to consumers requires a vast network of gig workers who voluntarily sign up with Postmates through an app. These gig workers are often referred to as ‘Postmates,’ since they are like postal service workers who deliver a very personalized service experience. To attract gig workers, Postmates offers 80% of the delivery fee to their drivers and keeps the remaining 20%.

Rates can vary based on location and order volume. Making deliveries for Postmates is usually a convenient way for college students and gig workers to make some extra cash. By building a network of delivery drivers that numbers in the hundreds of thousands, Postmates is able to fulfill most orders within 30 minutes to an hour.

The final piece in the chain is the customer, who is attracted to Postmates by the company’s vast network of restaurants and swift delivery service. Customers pay a service fee on each order, which is an additional source of revenue for Postmates. As more customers sign up on Postmates, the company becomes even more attractive to restaurants.

As a result, more restaurants sign up with Postmates to take advantage of the huge userbase. Then, when more restaurants sign up, the potential work volume for delivery drivers goes up. Each element in the chain feeds the other, and generates momentum for the entire business model.

Postmates delivers food and groceries 24 hours a day, 365 days a year. It operates within a very competitive market against rivals such as Grubhub and Amazon. In March 2022, it was estimated that Postmates controlled 3% of the total online meal delivery market share in the US.[4]

However, this is not representative of the company’s overall market share as it also delivers groceries. Global and American online food ordering trends are on the rise. In 2021, the US food delivery market had an estimated valuation of $22.4 billion.[5]

Prior to its acquisition by Uber in 2020, Postmates had a market share of 8%.[6] The company spends a lot of revenue on marketing and expanding into new regions. This results in low profit margins.

Postmates’ largest rival is DoorDash, as they offer similar services. DoorDash is the leading food delivery platform in the United States and services a much larger customer base, with 59% of the market share.[7] However, DoorDash markets itself primarily as a food delivery service.

In contrast, Postmates delivers from retail chains and big box convenience stores. It markets itself as an all-in-one delivery service, even if food deliveries are its largest segment.

While Uber, Postmates’ parent company, is a publicly-traded company, it doesn’t publish separate figures for Postmates’ revenue. It is, therefore, hard to judge how successful the company’s business model is.

Even though Uber doesn’t separate operating costs and revenue for Postmates, it is unlikely that the company is profitable. It has high operating costs and low profit margins in a very competitive market. Postmates’ main expenses are platform development costs, staffing, logistics, and advertising.

 

How Does Postmates Make Money?

Postmates makes money from four different sources. These are delivery fees, service fees, Postmates Unlimited, and merchant fees.

Postmates is owned by Uber, which does not break down the revenue it generates from subsidiaries. It is not publicly known how much the company makes from each individual revenue stream.

Delivery Fees

Whenever a customer places an order through Postmates, the company charges a delivery fee. This can vary based on the distance between the customer’s location, and the restaurant. Postmates collects 20% of these fees, and the rest is passed on to the driver. The driver also keeps 100% of any tips given by customers.[8]

 

Service Fees

To account for order pickup, payment processing, packaging, and fulfillment, Postmates charges service fees on each order. In 2015, there was a 9% service fee.[9] These fees scale up with total order value and has no upper limit.

 

Postmates Unlimited

By signing up for Postmates Unlimited with a $9.99 monthly fee, customers get access to free deliveries on all orders above $15. They also get exclusive offers and 5% off all service fees. Frequent customers gain lots of value from this subscription as it stacks on top of existing restaurant deals and discounts.

 

Merchant Fees

Every time an order is placed through Postmates, merchants pay the company a one-time fee based on the order value. Postmates has a partner program through which it offers special bonuses to merchants. These bonuses include better promotion on the app, seamless POS integrations, group order discounts, and more.

 

Postmates Funding, Valuation & Revenue

Postmates is owned by Uber (UBER), a publicly traded company on the New York Stock Exchange (NYSE). The company’s stock traded for just under $25 in October 2022, giving it a valuation of $48.92 billion.

Prior to its acquisition by Uber, Postmates raised $763 million over 11 venture capital rounds between 2012 and 2019. Notable investors include GPI Capital, Tiger Global Management, London Impact Ventures, EquityZen, and BlackRock.[10]

Postmates was acquired by Uber in December 2020 at a price of $2.65 billion.[11] In September 2019, Postmates raised $225 million during a funding round. The company was valued at $2.4 billion.[12]

Postmates’ annual revenue is estimated to be $845.6 million.[13] However, there is no way to verify this since Uber doesn’t separate Postmates’ revenue in its annual reports.

However, in the second quarter of 2020, Postmates is believed to have generated $160.8 million in revenue. This was a 125.2% increase from the $71.4 million it made in the second quarter of 2019.[14]

Uber has not been profitable for a long time. In the fiscal year of 2021, it generated $17.4 billion in annual revenue with a net loss of $0.5 billion. The company also lost $6.7 billion in 2020 with a total revenue of $11.1 billion for that year.[15]

YearAnnual RevenueNet Income
2019$13 billion($8.5 billion)
2020$11.1 billion($6.7 billion)
2021$17.4 billion($500 million)

 

Is Postmates Profitable?

Postmates is likely not profitable. The company has very slim operating margins within a competitive market. It has to grow and provide new services in order to stay relevant while also keeping delivery costs and fees low for its customers.

Postmates’ parent company, Uber, is not profitable. It lost $500 million in 2021 on an annual revenue of $17.4 billion.[16] This is the lowest loss recorded by Uber since 2019, with the highest annual revenue to date. However, Uber is still expanding into new markets, and there is potential for the company to become profitable once it stops investing so much in its expansion.

 

Conclusion

So, there you have it! A deep dive into the business model of Postmates. We think it’s a fascinating company, and we’re excited to see where it goes in the future.

Whether you’re a customer who has used Postmates or an investor who is interested in knowing more about them, we hope you found this analysis helpful. If you have any questions or concerns about our findings, please don’t hesitate to reach out—we’re always happy to help!

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Sources

  1. Vox
  2. New York Times
  3. Postmates
  4. Statista
  5. Business of Apps
  6. Business of Apps
  7. Statista
  8. TechCrunch
  9. TechCrunch
  10. Crunchbase
  11. Reuters
  12. Crunchbase
  13. Growjo
  14. Restaurant Business Online
  15. Uber
  16. Uber