Complete Guide to Build On-demand Delivery Business & Service

Introduction to On-demand delivery service 

The on-demand service, also known as hyperlocal delivery business, addresses a unique problem of today: People often don’t have time to go out and make purchases of even essential items like food and grocery.

The on-demand delivery service makes a purchase of the kind of items the customer wants and delivers it at whatever local location the customer requests. With the GPS, smartphones and high-speed internet connections, this business model is being labeled one of the coolest businesses around.

What is On-demand delivery service 

On-demand delivery is the common name for the technology-backed logistics solution that integrates online ordering and payment systems to have the service-provider company arrange delivery of the ordered items at the location specified by the customer.

The service-provider company builds complex software that enables customers to order items online, through the website or the custom-designed mobile application. These items are sourced from the partnering businesses (e.g. restaurants) the customer has chosen to buy from. These items are then delivered by delivery persons or drivers. The company, mostly, doesn’t directly employ these drivers; instead, they are hired as contractors who are paid, mainly, in proportion to the value of the purchase and distance to be covered for making the delivery.

Concept of On-demand delivery service

On-demand delivery service or hyperlocal delivery service means sourcing items from a local business, like a restaurant, as demanded by the customer and delivering to a location specified by a customer (“doorstep delivery”), within a relatively small area. If there’s something you want that’s not very far from your current location, you can have the on-demand delivery service to deliver it to you.

Doesn’t sound very promising?

Sample this: GrubHub, a food delivery service, was valued at US$ 2.7 billion. It came out with an IPO. Apart from raising funds through the IPO, GrubHub has received funds of over $284 million from venture capitalist firms and investors.

When you realize GrubHub isn’t the largest player, you only begin to grasp the size of the on-demand delivery industry.

No wonder the on-demand hyperlocal delivery business is rightly considered a major disrupter in the digital economy.

On-demand delivery Business model

There is practically no limit as to which business can that be. For instance, grocery stores, pharmacies, laundries, restaurants, bakeries and a host of similar businesses have successfully exploited the tremendous opportunity technology has come up with. 

There are five elements that, when put together, comprise the business model of the on-demand delivery business. They are

The customer

The customer wishes to get some item – food, medicine, grocery, anything – but somehow is unable or unwilling to travel to the point of sale and get the item themselves. They are willing to pay a certain delivery price to have the item delivered at their doorstep.

The partnering business

This is the business setup – a restaurant, a grocery store and so on –   that has the item the customer wants but does not have the logistics network to deliver the item at the doorstep of the customer.

The delivery person

These are the important link between the customer and the partnering business. They collect the item from the business enterprise and deliver it to the customer. They work as independent contractors and paid on a per-order basis.

The payment processor

When the customer places an order over the website or a mobile app, the payment processor accepts the payment. The payment method is seamlessly woven into the website or mobile app.

The integrated software

It is a complex but well-designed, robust and user-friendly software that is central to the entire business. It accepts orders, directs delivery persons to their nearest pickup point, supports payment gateways and works with partnering businesses. The on-demand delivery software must be designed by an organization with proven expertise.

Technology behind the On-demand delivery business

The most critical element, as you might have guessed, in the entire business is the software that runs on the website or the smartphone.

Let’s say the customer is looking for some Italian food home-delivered. She first checks out all the Italian restaurants on the mobile app. She first selects the restaurant from which she’ prefer ordering, chooses the dishes and makes the payment. The software records and acknowledges the order and swings into action.

Firstly, it informs the restaurant about the order, with special packaging instructions, if any.  Simultaneously, it notifies delivery driver who’s closest to the particular Italian restaurant. The driver, over the app in his smartphone, accepts the assignment and collects the food.

The app, using the integrated GPS, guides the driver through the shortest route to the delivery location. Till the time the driver makes the delivery, the app also allows the customer to track the delivery status. Using the app, the customer rates the service as well as the food. (Depending upon the nature of service, e.g. a cab, instead of food delivery, the delivery driver can, in turn, rate the customer.)

Simultaneously, the software keeps building the customer profile, based on their preferences, choice of food, delivery instructions and so on. This allows the system to get smarter and serve everyone better and more profitably.

A strong technology partner

It is important that the technology be designed by a company that has proven expertise in developing ordering app solutions.

That’s because of two reasons: one, the success the entire business rests on how well the solution operates, and two, there so many integrations that a company that’s not fully skilled will likely commit mistakes that could lead to bugs time and again.

Our ordering app development process, evolved over time, is unique on at least three counts. Firstly, our experience in designing such solutions ensures your project hits the ground running. Two, our modular approach to projects helps us cut the time to market and help launch the solution better and faster. And three, our forward looking solutions are built to be fully scalable without wastage of current usages.

Revenue model of the On-demand delivery business

How does the on-demand delivery business make money? The hyperlocal instant delivery business depends upon four streams of revenue to keep itself profitable.

Delivery fees

The customer has requested for the delivery of something. Towards that service, they pay a delivery fee, over and above the cost of the item. One part of this fee is used in paying the delivery driver while the other part is retained by the service-provider who runs the on-demand delivery business.

Commission

The partnering business establishment pays a commission that is a certain percentage of the total order value. This percentage varies, depending on the kind of item sold, total turnover, total business volume and so on. On an average, this percentage is around 20% of the total order value.

Advertisements

The on-demand delivery business has an app and a website from which to order various deliveries. All partner businesses are listed there. If a particular business wishes to promote their products they can buy advertisement space in the website or the app for a certain fees. This gives them better visibility.

Surge pricing

Cab aggregators like Uber use this. At whatever part of the day the number of cabs available is far lower than the number of people looking for a cab, prices are raised so as to generate bigger revenue against the same service. This model is not suited for all verticals; cab aggregators seemed to have been more successful with this model.

How everybody wins

The business model is so aligned that everybody wins with the on-demand delivery service.

Drivers / delivery persons

The driver is typically a person who is looking for some side income by making deliveries. How much the delivery person makes cannot be said with certainty, but various estimates place the figure around U$25,000, including tips.

Partner businesses

The partnering business, say, a pizza joint or a salad bar, gets access to customers from different neighbourhoods. It does not have to maintain a fleet of delivery persons and yet can serve its guests outside its own establishment.

Customers

Customers can have items delivered at their doorstep for a nominal delivery fee. It saves them time and efforts, apart from peace of mind to have the items reach them rather than the customers having to go out to get the items.

Increase Sales by Offering Same-Day Delivery

Even with the excellent opportunities out there, you will still have to work hard the old style – no one is promising you easy money.

The difference lies, however, there are many marketing and sales opportunities all around that we don’t fully utilize. Not to be overlooked is the fact that just having on-demand delivery as an option presents opportunities for you to stand out and reach customers in new ways.

Consider this: a recently conducted survey revealed that 49% of the shoppers agreed they’d be more inclined to shop if there was a same-day delivery service.

And now see this: only 15% of the global retailers are known to offer same-day delivery, which means 85% don’t.

What does that mean for your business: you have a scope to make available a service that 85% of the global retailers, your main competition, does not offer.  In other words, you’ve just discovered a significant area where your service alone can beat 85% of the other retailers, even for the same product.

Build and run local campaigns

So what is it that you can do better but a large, relatively bureaucratic big-boy, giant retailer cannot do? It’s being agile.

As a relatively smaller business enterprise, you have the advantage of moving quickly and responding swiftly. A bigger business will have to go through long, deliberate processes, by which time you would have already made the move.

Understand better the community you are serving and provide a better experience. One of the best ways of doing this is making the most out of local events.

Let’s say there’s an arts exhibition for which you expect a sizeable number of tourists.  Figure out their tastes and tailor something accordingly. Make their visit truly memorable and make same-day delivery to their hotel-rooms. You not only generate good revenue but also build a stronger customer-base who will take your brand to their hometowns.

Fully use email marketing

A little while back, Campaign Monitor had reported that email marketing might as well be the king of the marketing kingdom – email marketing has a stunning 4400% ROI. In other words, for every $1 invested in email marketing, there is a potential return of $44!

It’s important to keep in mind segmented campaigns produce results that are substantially better than unsegmented campaign. The ‘slice-and-dice’ approach,  MailChimp confirms, is more effective.

Consider a customer who has just made a purchase. You can send them offers for complementary products or add-ons that will improve their overall user experience while using the original product.

Offer and promote same-day shipping

Unless you are working in a super-niche market, customers do not like to wait. Begin by learning the context of use of your product. Next, identify the keywords prospects use to search for the products and see how you come up in their searches by stressing same-day shipping. 

Keyword-based search engine ads carry a huge potential of satisfying the demand of the local customer base looking for same-day shipping. Don’t forget to use this.

Capitalize Facebook ads

We live in an age where we can’t ignore social media, no matter what form of business we run. Facebook ads, in a single swipe, can present your product, highlight the feature and help customers have the product delivered in a day, or sometimes, in a matter of hours.

Facebook carousel ads are easy to set up and point to your target audience.  With the right copy-and-image combination, you can get great mileage out of Facebook ads.

Exploit flash sales – smartly

Flash sales – sale of items with great prices for a very short time – may sound like something that’s been overused.

Not fully correct.

When paired with the swift delivery promise, flash sales can actually generate tremendous revenue streams and help businesses gain considerable market shares, apart from creating a lot of buzz.

Additionally, flash sales lead to:

  • Provide pricing insights: For products that aren’t an absolute necessity, flash sales tell you what price levels prove attractive enough to find buyers. 
  • Foster customer loyalty: Flash sales give an opportunity to build customer loyalty by offering best prices and letting customers and prospects know you really care about them.
  • Help up-sell: Flash sales are known to have been successful in selling items that are priced slightly above the original budget of the buyer.
  • Encourage cross-sell: Flash sales provide an opportunity to sell allied items and help customers make purchases that enhance or extend the performance of products they had originally purchased.

Flash sales accommodate a lot experimenting opportunities. For instance, if your analytics tell your sales dip between 20th and 25th of every month, you can experiment with flash sales or free shipping or some combination of the two. See where you can help customers get an amazing deal. 

Absorb Shipping Costs

Changes in shipping costs can bring in – or drive away – customers. Shipping costs have been identified, in various studies, as one of the key considerations in online purchase decisions.

The question is: what can you do to reduce this pain?

The answer lies in a tradeoff. You can experiment with the levels of shipping costs you can absorb to encourage enough volumes that will offset your costs. Alternatively, you can try and find what attracts more buyers: lowered shipping costs or better discounts.

Remember that it is not possible to fully generalize the cost of shipment per mile because it depends on a variety of factors, including some non-obvious stuff like whether the product carries a battery. However, reasonable estimates place the cost per mile of regular delivery within the US in the range of $5.5 to $8.5. 

That means you will need to work on a lot of detailing before you can come up with actionable data, but it’s fully worth the efforts.

Final words

The on-demand business is, in many ways, what the future is going to be like. Technology enabling hyper-local delivery, the changing preferences of customers who are hard-pressed for time and  a service inclination that rewards its partners (delivery drivers and business partners) who are swift and willing to go the extra mile to please the customer.

The best part is, however, that even the small businesses will stand to gain from the advances of technology. Smaller businesses that couldn’t afford an independent technology solution or a dedicated fleet of delivery drivers will now be able to stand at par with larger businesses with funds to manage both these features. That’s why a growing number of entrepreneurs are jumping into this business. 

There could come a stage where there would be more delivery businesses than the market can support. And that is where how flexible your technology platform is will suddenly become important. Which means it’s important to choose the right technology partner at the very beginning, someone who has the right amount of experience and vision.

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