Delivery platforms such as Deliveroo and Uber Eats have experienced strong growth in recent years. So much so that, for a restaurant chain whose products are eligible for delivery, this represents a real opportunity to develop its sales.
However, with so many restaurants on these platforms, visibility is a constant challenge. To make your mark and stand out from other restaurants, you need to use the marketing levers offered by these platforms, such as promotional offers and sponsored ads.
But these levers add a potential additional cost to the commissions already levied on sales.
As these platforms act as business providers, the restaurant must pay back a portion of the sales generated in return for the service provided (ordering channel, delivery, etc.). This remuneration takes the form of a commission calculated as a % on sales including VAT.
So how do you make a profit on Deliveroo and Uber Eats?
Here are 4 key steps to follow to measure and optimize your profitability on platforms:
Step 1: Calculate your gross margin on deliveries 💰
The first best practice is to measure delivery performance in terms of gross margin, not just sales.
In fact, you can have a sharp increase in sales but paradoxically earn less money over the same period. How can this happen?
Because of the higher variable costs associated with each order.
It is therefore essential to calculate your gross margin on delivery platforms.
Here's the calculation:
- Gross margin = Sales incl. VAT - Platform commission - Cost of materials/packaging - Cost of promotional offers - Cost of sponsored ads
Keeping track of this indicator will help you ensure that you're not selling at a loss or overloading your kitchen teams for nothing.
Once this calculation has been made and this metric closely monitored, it's important to take the exercise a step further and look at the profitability of promotional offers and sponsored ads.
Step 2: Calculate the profitability of your marketing actions 🔍
Promotional offers 🏷️
Three indicators will enable you to accurately monitor the profitability of your promotional offer strategy:
1️⃣Le percentage of discounted orders
It's important to remember that the aim of a promotional offer is not to give discounts to everyone for the sake of it, but to gain visibility on platforms.
As Uber Eats and Deliveroo algorithms are logically programmed to highlight good opportunities for consumers, proposing an offer will boost its SEO and potentially appear in the carousels.
The challenge here is to find a promotional offer that will increase visibility tenfold, that will be attractive enough for customers not to be disappointed, but that will not be chosen every time so as not to impact margins too much.
A good indicator here is to have a percentage of discounted orders between 30% and 50% of orders placed in the offer slot.
2️⃣Le average discount percentage per order
Of all the orders placed during the promotional period, what percentage discount is ultimately granted?
For example:
- If I offer a 30% discount that has been chosen by 50% of my customers, then my average discount percentage per order is 15% (30% x 50%).
- Conversely, if I offer a 20% discount, effective on 30% of my orders, then my average discount percentage per order is 6% (20% x 30%).
Tracking this indicator will enable you to accurately measure the promotional cost of each offer.
3️⃣Le KING
For every €1 spent on promotional offers, how much additional gross margin do I generate?
For example:
- If I offer 1 bought = 1 offered (BOGO), my promotional offer cost will be the material cost of the product offered.
- If I offer a 30% discount on certain products, my promotional cost will be 30% of the material cost of the discounted product chosen by the customer.
This indicator is very important, as it enables us to compare offers with each other and measure which offers represent the best cost/sales impact ratio.
Sponsored ads 📢
There are two key indicators for setting up a profitable sponsored ad strategy:
1️⃣Le ROAS
ROAS, which stands for Return On Ad Spent, is a key marketing indicator that measures the effectiveness of sponsored ad spend. It enables us to evaluate the sales generated for each euro spent on advertising.
Example: if every time I spend €1 I generate €9 in sales, then my ROAS is €9.
There are several ways of calculating this ROAS:
- ROAS D+7: the most common indicator used by advertising experts, based on sales generated by customers who place an order within 7 days of clicking on the ad. This is the ROAS used by Uber Eats and Deliveroo.
- ROAS Direct: this takes into account only orders placed as a direct result of a click while your sponsored ad is online. The advantage of this indicator is that it shows the immediate impact of the ad. This is the ROAS we use on Flynt, while giving you access to ROAS D+7.
Thanks to ROAS, we'll be able to measure the advertising cost per order.
The advertising cost per order lets you know how much I need to spend on average to generate an order. It corresponds to the VAT-inclusive amount of my average shopping cart on the platform, divided by my ROAS.
If I have a ROAS of €9 and an average shopping basket (incl. VAT) of €27 on the platform, then my advertising cost per order is 27/9= €3.
This advertising cost per order must be taken into account to measure the precise profitability of my advertising strategy. In fact, it's this metric that we take into account at Flynt when calculating gross margin.
2️⃣Le ROAS minimum
ROAS is a good indicator, but although it gives a precise idea of the impact of ads, it doesn't take variable costs into account, and so doesn't allow me to accurately measure the profitability of my strategy.
It does not take into account other variable expenses such as..:
- Platform commission
- Cost of materials/packaging
- Cost of promotional offer
To ensure that your spending on sponsored ads is profitable, you need to calculate your minimum ROAS, i.e. the ROAS at which you generate sufficient sales to leave a profit on each order.
Take the advertising cost per order for each ROAS level, and make the following calculation:
- Gross margin per order = Average basket incl. VAT - Platform commission - Cost of materials/packaging - Cost of promotional offer - Cost of advertising to generate an order
If the gross margin per order is positive, then the strategy is profitable.
Step 3: Adjust marketing actions to maximize profitability 🎯
Now that you're able to accurately measure your profitability in delivery and the profitability of your marketing campaigns, the next step is to determine which actions, niches and audiences work best.
Here's a list of questions to ask yourself:
- Should I run promotional offers or sponsored ads, or both?
- What budget should I allocate to optimize my return on investment?
- What are the niches in which my marketing actions are most effective?
- Should I target all platform users, those who haven't yet ordered from my restaurants, or those who haven't ordered in a while?
Of course, there's no universal truth. It depends on your brand, your location and your specific needs.
As with any marketing strategy, a few tests will enable you to quickly pinpoint what responds best, so you can adjust and maximize your return on investment.
💡 For everything you need to know about setting up a local marketing strategy on Deliveroo and Uber Eats, you can check out our article on the subject.
Step 4: Automate your strategy for maximum efficiency 🚀
The last important criterion to take into account: your level of activity in real time at each of your points of sale.
In fact, there's no point in allocating the same marketing budget or targeting the same audiences between your restaurants' high and low points. You risk spending money when you don't need to, and under-spending when your restaurants need it most.
To do this, you can try to anticipate peaks and troughs in traffic, and plan aggressive marketing operations in advance.
You can also use a tool like Flynt, which can detect the level of activity at each restaurant in real time and adjust your marketing actions accordingly, to maximize your profitability.
