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How Postmates Work: Postmates Business Model and its Revenue

How does DoorDash work

When you think of how Postmates works and what is the business model of Postmates, you realize these businesses owe their very existence to the proliferation of the smartphone and high-speed internet.

A large number of such business models, focused on logistics, deliveries and travelling, depending on the GPS. As a matter of fact, in its article on how GPS delivery is changing shopping, BBC News notes: “We have seen the future, and it is wearing a GPS device.”

What is Postmates?

Postmates is an on-demand logistics platform that leverages its technology to connect customers with local couriers to deliver anything from local stores, business establishments or restaurants to a location of customer’s choice, in exchange for a fee. Postmates aims to enable people to shop and businesses to get things delivered with practically no waiting time.

The core business model of Postmates has often been compared to that of Lyft and Uber in that it receives orders as well as communicates with its couriers on mobile phones.

There are differences, however. For instance, Postmates’ couriers, a part of the Postmate Fleet, actually ‘purchase’ the goods on behalf of the customer, wherever payment is required to get the items.

A Brief History of Postmates / How Postmates Started

The origin of Postmates has an exciting history. One of the co-founders, Bastian Lehmann, was looking for a way to send snowboards from London, where he was then based, to his parents, who were in Berlin – a distance of a little over 1,100 km. He checked around with various services like FedEx as well as other couriers and found they were highly expensive and often inconvenient.

A couple of days later, a friend dropped by at the place where Lehmann was staying and said he was driving down from London to Berlin and would be happy to carry the snowboards for Lehmann. He began toying with the idea of creating something where logistics wouldn’t have to be very expensive, and that people would carry the stuff because they were already travelling to a destination in any case.

Soon, however, Lehmann and his friends thought it wasn’t the best way to pursue the idea. Over the next four years, during which Lehmann moved to the US, they kept refining the concept. In San Francisco, they roped in all the messenger companies and the model matured.

Founding and Funding of Postmates

Postmates was founded on 1st May 2011 by Sam Street, Sean Plaice, and Bastian Lehmann. It is headquartered in San Francisco, California, Postmates serves in Mexico, in addition to the USA.

As StartupGrind put it brilliantly, it took five years for Postmates to be an overnight success. In other words, what looks like overnight success to a casual observer takes years of careful planning, lots of careful decisions, making the right choices, and of course the proper old hard work.

AngelPad first brought in $60k to Postmates in 2011. Since then, Postmates funding has come a long way. Taking into account the latest Series D funding in September 2016, Postmates has received a total of $278 million, of which more than half, $140million, was brought in by Founders Fund. Other investing companies include Tiger Global Management, Harmony Partners and Spark Capital.

The valuation of the company stood at $600 million in 2016 after the latest Series D funding. At the same valuation, in March 2017 they filed to raise another $190 million in Series E funding.

Earlier, two of the three co-founders, Lehmann and Street, had co-founded Curated.by, a platform that lets curators collect and organize news in real-time. Curated.by is currently in a closed beta stage now, which means their versions are restricted to a selected group of individuals only.

In addition to this, Postmates has made three acquisitions till date, namely Sosh, Bold and Hey! Inc.

The Three Stakeholders of Postmates

As can be understood easily, Postmates, like all other delivery-focused companies deals with three stakeholders as follows:

Customers

Target customers are those individuals who want a particular item – grocery, a mobile phone cover, anything – in a short time, typically 1 hours. Further, customers want the item to be delivered to a particular location.

In exchange for this, customers pay ‘a little extra’ as fees to Postmates. A variety of factors decides these fees. As part of its promotional offers, Postmates is currently (as of March 2018) offering $0 delivery charges for orders above $20, to generate trials. So if you’re wondering how much does Postmates cost, it can be nil, subject to the terms of the offer!

Delivery Persons also called Postmates

Postmates has a Postmates Fleet app which the delivery persons access to confirm acceptance of the order.

When required, they ‘purchase’ on behalf of the customer. This is done by prepaid cards issued by Postmates, which are used to make purchases for the customer.

If someone wishes to be a Postmates delivery person and is trying to find how much does Postmates pay, what is the Postmates base pay or what is the Postmates hourly pay, there is no fixed answer, since there are many variables. Quora users and Glassdoor estimates place the estimate between $4 and $25.

The earnings of a delivery person include an amount for each pick-up and drop-off, per minute wait time, a per mile rate of the distance and flash bonuses, called blitz bonuses.

Tipping is standard for most services and Postmates is no exception. As to how much you should tip Postmates, the general custom applies. If you go by the Postmates app, it recommends 20% of the order value as a tip, but you are free to tip any amount. Postmates (delivery persons) get to keep 100% of all tips they earn.

The next obvious question is how often postmates pay. The answer is: Payments are processed 4-7 business days after a successful delivery.

It must be noted that Postmates doesn’t need to pay employee benefits to the delivery persons since the relationship is that of a contractor and not one of employer-employee. That also means Postmates doesn’t withhold taxes from the earnings.

Merchants and Businesses

The technology platform and the delivery mechanism of Postmates give an edge to the partner businesses, something they could probably not have achieved on their own. Postmates operates in more than 250 cities. Postmates began venturing outside of the US when they started operations in Mexico city in November 2017.

Business pays a certain percentage of the billed value to Postmates as commission. With over 16,000 businesses partnering with Postmates, it is apparent Postmates has been able to offer them an unbeatable value.

How does Postmates Work: The Postmates Business Model

Under the deceptive simplicity of the Postmates model lies a reliable business model. An often-asked question is how does Postmates work. This section will give you a clear understanding of how Postmates makes money and how the Postmates business model operates.

It begins when a customer decides to get something from somewhere and would like Postmates to do it on their behalf. For that service, they are willing to pay a small fee.

The customer makes a delivery request through the Postmates app or over the website. Then they make payment: The cost of the product to be purchased plus a service fee. The Postmates formally accepts the order once the payment is made.

Now the execution part begins. Using its technology that is integrated with the GPS, Postmates can swiftly determine which delivery person is closest to the point of origin – the location from where the order is to be collected.

The delivery person, travelling by car or a motorbike will collect the item or purchase on your behalf if required. The Postmates payment method does not support cash-only restaurants. Next, the Postmates delivery person app will guide the delivery person to choose the shortest path to the destination.

This is the model that Postmates uses to make 2.5 million deliveries per month.

How Postmates Makes Money

For anyone looking forward to understand the Postmates revenue model or how Postmates make money, here is the complete story.

Merchant Commission

A substantial portion of Postmates revenue comes from the Postmates commission that the merchants pay in exchange for the business that they could bring. Merchants don’t mind paying this since they get access to neighbourhoods they haven’t served earlier.

Postmates Delivery Fees

If you are wondering what is the delivery fee for Postmates or Postmates delivery cost, here’s the answer: customers pay a certain sum of money to get the item delivered to their doorsteps. Customers typically tip the delivery persons; 100% tip is kept by the delivery persons.

Convenience Fees

In addition to the delivery fees, Postmates charges a convenience fee. TechCrunch reports that Postmates collects 9% fees of the cost of the items it delivers.

How Much Money is Postmates Making

Postmates is still a privately held company. That means it is not obligated to disclose its financials to everybody, so you can’t get the exact figure of how much Postmates make.

On March 9, 2017, Postmates co-founder Lehmann told Forbes that Postmates “ has already achieved an annualized run rate of $1 billion gross merchandise volume (GMV), or the total sales volume of food and other goods ordered on the Postmates platform projected over a full year similar revenue run rate for the same period is $250 million, made up of delivery fees paid by customers plus commission percentages...”

Final Thoughts

The competition in the delivery segment has already heated up, but there is immense potential. Of the $1.4 trillion food and grocery market in the US, less than 2% is addressed on mobile. You can imagine How big opportunities lie ahead for companies that can get the technology to serve this significant opportunity in the delivery industry.

Once the technology is in place, expert digital marketing services can be used by businesses to attract more customers and build a great company. As of today, the market is pretty open, and the businesses that move fast will be at an advantage.

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