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Re-Thinking Delivery Charges

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RobT:
Also, when a customer complains, i explain its a service that we provide for an added fee. 99% of the time, we can have your food at the door in 30 minutes. We have a very good reputation for providing a good service.
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What about the people that don’t complain? The ones that are just mad and take their business somewhere else that “doesn’t” (even though they really do) charge a delivery fee?
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This is just something that we all deal with. We all gain and lose customers for various reasons.
How do you handle it on the phone when you give the total? Do you tell them their total include a delivery charge -or do you just give them the total and then explain it if they ask?
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We say “Your total with tax and delivery is … We will be there in about 30 minutes” At that point they either question the charge or hang up. If they ask about the charge, a simple explanation is given. 99% of the time, they understand. The explanation may or may not affect the drivers tip .
I think that giving the total on the phone speeds up the process anyways. Driver gets to the door, and money is ready most of the time.
 
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If I was running a business that focused on delivery (upwards of 90%) I would probably be doing free delivery. My stores only do about 15% delivery, so we charge a fee. I’m not going to raise the price across the board to subsidize my delivery service. If you want us to deliver it, the service costs $2.50 plus a tip (the entire delivery charge goes to the driver.)

Yes, the delivery charge was added to offset increased prices… but I would argue that the biggest increases we have seen is the cost of delivering pizza. I was a driver in college from '97 to '00. Fuel was about $1.30 per gallon and I received 50 cents per order to deliver. Today fuel is well over $3.00, insurance costs have gone through the roof and the required hourly has jumped significantly. When I delivered I was paid $6.00 per hour, and now my guys are at $8.00 (mirroring the inflation rate, for the most part.)

If you assume a driver is taking 1.5 deliveries per hour, just the increased hourly rate is adding an extra $1.33 per order. On a 4 mile round trip, fuel is an extra 30 cents or so on a 25mpg car. Maintenance costs have increased with inflation, so has the price of cars, and then there’s the insurance which is borderline astronomical.

It’s costing a pizza place at least an extra $2.00 per order to deliver than 10 years ago, and I guess much more. And wouldn’t you know it, the average delivery charge has increased by about that much.
 
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When a post wanders off topic we can help the moderators by clicking the exclamation point that appears in the upper right hand corner of every post and selecting “off topic” from the drop down menu.

I, for one, would like to see a little more active moderation to move posts and threads to appropriate areas and to help keep threads on topic when they seem to get hijacked.

(yes, I realize this post is off topic. feel free to report it)
 
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Registered Guest:
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bodegahwy:
To respond to the initial post; you are nuts to drop the charge. There is no way to get that $$ back in the current price enviroment with a price increase. If you feel that you have a couple of dollars per order to use to increase business (that is really what we are talking about here) then consider keeping the delivery charge but spending in on marketing rather than not charging it. Just handing it back is not an investment; the only thing for sure about that idea is that you are out those dollars. On the other hand, if you invest those dollars to reach new customers and reinforce your product message, you stand a good chance of getting a multiple of that expenditure back in the form of increased sales!
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Thanks for the reply. You’ve addressed the issues with the $$, but what of the issues with the customers I talked about in my initial post?

My main concern here is customer perception.

You mention that a delivery charge makes sense, that is why most places use them. However, they haven’t always. No too long ago, most places had free delivery. What changed at that point to cause it to “make sense” - and why did it not makes sense before?
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Customer perception is a perceived value not neccessarily cost. Unfortunately somethings that are offered as free the customers don’t understand that it actually costs you money to provide. Take napkins for example, how many people come in and take half a container of napkins for 1/2 a sub?

For the longest time, I was able to offer free delivery and no minimums to my business customers. A couple of years ago when gas prices skyrocketed, we made the decision to change this. I sent out a note to the businesses that due to costs increases to provide this service we would now have to charge a 50 cent delivery fee on orders under $10.00.
The strangest thing happened, just letting them know that there are costs involved with the delivery, tips went from keep the change to $1.00-$2.00 plus change. Why because the perceived value, before it was something that wasn’t costing us anything to provide this service.

Also, on your original post you say you have a 10% sales tax this is also to your disadvantage, even with free delivery customer perception could be that you are ripping them off because they ordered the $9.00 pizza and charged $11.00. ($9.99 isn’t $10.00 in customers eyes, but only getting a penny back is $11.00 in their eyes).
 
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Been mulling this over since the thread started. There are several good points on both sides. I think some of the ‘solutions’ to issues are not the only solutions out there.

I find that most customers want to be informed and have no surprises when ordering delivered food. The “customer perception” can be managed effectively if a BUSINESS DECISION is made to have a delivert charge, regardless of the amount or the reasons for having it. Clear, unequivocal statement that the company charges the fee will make for far less anger due to “hidden fees” sinc ethe fee isn’t actually hidden. De-escalating the customer is really rather simple, though takes finesse and practice. Customers will LOVE when you take off the delivery fee for an enticenment or apology offer, for example. Making a business decision about removing or not adding a delivery fee for lack of skill in managing agitated customers is a really bad habit to begin with.

Business model and % of orders being delivered comes into play for me. We are doing now about 30% deliveries, and I find it objectionable to charge higher prices to my dine-in customers so that the delivery ones get fee service. Delivery is far more expensive than dine-in for me, so a fee makes comeplete sense. And we have to explain to the customer that fact, and they appreciate HAVING THE CHOICE to pick-up and have no fee, or take delivery and pay the fee. The nofee-higher price model gives no choice to the customers . . . any of them. Yes, sometimes customers are snippy about not realizing there was a fee, and we are active in waiving that fee once if it a surpise. If is a part of our doing business, though, and we set about educating the customers.

In your market, if all others are charging a fee, then you are leaving money on the table. Charge less than the other guy and get a fee/ Less marketing leverage, but that $$$ will offset the delivery costs. If there are fewer charging, then you do what it takes to be competitive. I empathize with the customer, but I also expect them to pay for the cost of whater goods and services I provide. It is my HUGR DUTY yto manage those costs to klkeep them as low as possible . . . but custiner pays the costs for the goods and services they request. That is how my thoughts run. If your market toleraes it, then do it.
 
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In a reasonably busy delco, (~500K sales, $22 ave ticket, 70% delivery) the delivery charges at $2.00 per delivery might total 32K per year. Since there is no cost of goods or labor savings associated with removing this fee (as there would be if one simply sold 32K less product) the 32K comes right off the bottom line.

What portion of the profit of this store would 32K represent?

How much of a sales increase would dropping the fee have to generate before you break even on the idea?

My guesses: 32K will represent about 40% of the net for a store like this - a VERY hard number to just swallow

This store would need to increase sales by about 100K to offset the loss of bottom line $$ JUST TO STAY EVEN.

Is this really the best way to use that $$ to increase sales?
 
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Take the thread back on topic. Delivery fees and business implications of same. To wit: customer perceptions and impact on sales, profitability and sales volume.
 
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This was part of my thoughts on things that I sent to RG a little bit ago:

“I am still thinking it out as too how I would feel as a customer…but here it goes: What about a little breakdown sheet that shows exactly what it costs for you to deliver a pizza to a customer. Also include on that sheet a list of what the competition charges for the same delivery and pizza. I know this opens up a whole world of possible questions about cost and product quality… but I think the level minded customers that question the charge will see the costs of things and understand. The ones that do not will never accept anything less than free. My opinion on raising prices to cover delivery and offer free goes as follows: I do not think you can offer free delivery and only the most naive really believe they are getting it when it is offered anywhere. Can you charge the true delivery cost… really would not go over well…probably 3-4 dollars per run. So how to do it…my thought would be to add say 50 cents per pizza across the board for everyone to help cover the big picture and still charge the 2-2.50 charge as normal. On paper you are charging what everyone else is so you do not look like you are overcharging…and in reality you are doing what they are doing also… adding a little across everyone to cover the balance.”
 
Sure wish sometimes there was a “thumbs up” or “thumbs down” button available on these posts, as I really, really agree with a lot on this thread and really, really disagree with some of the rest of it.
 
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At the end of the day, the way a business raises its revenue is up to the business owner.

There are plenty of example of delivery companies other than Pizza who operate successful ‘FREE’ delivery and plenty who charge. Assuming that the cost of the goods, delivery, overheads, profit etc are the same then the overall cost to the customer will be the same. There are marketing benefits to both approach and at the end of the day successful marketing can have much more effect that purely price.

To change from one approach to the other would be very hard IMO and something I’d rather not do.

I’m in the ‘FREE’ delivery camp, and it works for me, others on here state that ‘Delivery charge’ works for them. Great that what make business so interesting and challenging - what works for some doesn’t necessarily work for the rest of us!
 
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Typical costs of delivery for a delco:

Assumptions:
  1. 500K store sales
  2. $22.00 Ave ticket
  3. 70% delivery
  4. Drivers make $6.00 per hour wage
  5. Gas $3.00 per gallon
  6. Store vehicles cost $1500 per year to own in lost value
~16,000 deliveries per year

$5,000 vehicle insurance
$4,000 gas
$4,500 vechicle depreciation
$4,000 repairs, tires, oil changes etc
$47,000 driver wages

$64,500 delivery expenses
$4.03 per delivery cost

A $2.00 delivery charge covers about half the costs of delivering pizza compared to a carryout transaction. If your average order is 1.5 pizzas, you would need to add $1.33 per pizza to cover the delivery charge if you choose to drop it, OR you would have to assume (as demonstrated elsewhere) that dropping the charge would result in a greater than 20% increase in sales.
 
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bodegahwy:
Typical costs of delivery for a delco:

Assumptions:
  1. 500K store sales
  2. $22.00 Ave ticket
  3. 70% delivery
  4. Drivers make $6.00 per hour wage
  5. Gas $3.00 per gallon
  6. Store vehicles cost $1500 per year to own in lost value
~16,000 deliveries per year

$5,000 vehicle insurance
$4,000 gas
$4,500 vechicle depreciation
$4,000 repairs, tires, oil changes etc
$47,000 driver wages

$64,500 delivery expenses
$4.03 per delivery cost

A $2.00 delivery charge covers about half the costs of delivering pizza compared to a carryout transaction. If your average order is 1.5 pizzas, you would need to add $1.33 per pizza to cover the delivery charge if you choose to drop it, OR you would have to assume (as demonstrated elsewhere) that dropping the charge would result in a greater than 20% increase in sales.
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Do you have your own fleet of vehicles? There is much more to think about regarding delivery charges if the company owns the vehicles.
 
I have just spent the last 2 hours cleaning up this this tread. If you are wanting to discuss the OP then feel free to do so here. Other wise go to the delivery driver forum and discuss the compensation aspect of things there. I will not move any more posts to the other side I WILL SIMPLY DELETE THEM.
 
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oh my I am so sorry I mentioned I am not an owner operator I did not know this was required to be part of this discussion board. How bout this if you are losing money delivering your product then why would you continue to operate under those circumstances. Get rid of the company vehicles and require your drivers to carry their own commercial insurance. Then pay them a rate that makes you break even at least you have made up the difference of negative asset relationship. Oh and BTW vehicle depreciation is a positive aspect not a negative one at least thats how I learned it in economics 101. ANd I am not trying to be a smart butt here just making a response to your delema
 
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g.luczak:
oh my I am so sorry I mentioned I am not an owner operator I did not know this was required to be part of this discussion board. How bout this if you are losing money delivering your product then why would you continue to operate under those circumstances. Get rid of the company vehicles and require your drivers to carry their own commercial insurance. Then pay them a rate that makes you break even at least you have made up the difference of negative asset relationship. Oh and BTW vehicle depreciation is a positive aspect not a negative one at least thats how I learned it in economics 101. ANd I am not trying to be a smart butt here just making a response to your delema
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We don’t have company vehicles, the drivers us etheir own.
We pay them $16 per hour and upwards of $2.50 per delivery to $4. Our delivery fee ranges from $.50 (driver gets $2.50), $6.50 ($3.00), $7.50 ($3.50) and $8 ($4.00). On our lowest fee the drivers are away a minimum of 15 minutes which cost us $4 in hourly rate plus $2.50 for delivery fee re-imbursement to the driver, a total cost of $6.50 against a fee of $5.50.
I know our wages are completely different to the US as we cannot have tip make up rates. We are required to meet a minimum set by the federal government and tipping is not a big thing in our society.
I have often looked at owning delivery vehicles as we could possibly save a few dollars or break even. This would help our drivers who are mainly uni students who use their own vehicles. But in the end of the day it is a well proven fact (here at least) that drivers trash the daylights out of company owned cars, don’t care if they scratch or dent (and never volunteer to say they did it at the time) and generally abuse it.
That is why we have stayed with drivers own vehicles and pay them well for the use of them.
But in the end of the day we have to charge a delivery fee and we still don’t cover costs. We could never do deliveries for free under our wage system. But some customers cannot understand why we charge for delivery, but most are agreeable to the charge for the convenience to them.
D
 
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I deal with many of the same problems all the time at my shop. I always quote prices followed by “plus tax & delivery” and when I get complaints about the delivery charge I explain that they are requesting an additional service from us & that comes at an additional charge.If that doesn’t resolve it I ask them if they think it would be fair for me to charge everyone for delivery even if they don’t want it because thats exactly what i’d have to do to offer “free” delivery & then politely explain that they can always pick their food up if they are unhappy with the delivery charge. That usually ends it for most customers but some are never going to be satisfied until the whole order is free & I’ve learned not to be concerned about those customers because your better off without them (but you won’t get that lucky, they’ll call back because as you mentioned everyone is charging a delivery charge & once they realize that they’ll call the place they prefer most.)
 
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We have store owned vehicles for several reasons:
  1. I can hire people who do not own cars which about doubles my pool of available employees in this resort town.
  2. I am in control of maintanance therefor, I do not have employees calling in that they can not work because the car is in the shop.
  3. I KNOW the cars are insured… and so am I
  4. Marketing value from signage on cars
Depreciation is a cost not a benefit. What you learned in econ 101 is that it is a deduction on your taxes and reduces your taxes (exactly like any other expense) When you buy a piece of equipment for $10,000, use it for a few years and sell it for $2,000 the $8,000 in lost value is an EXPENSE. Depreciation is how you report it. Any variation in the actual amount depreciated and the amount “lost” in use is reconcilled when you sell the equipment or it reaches the end of it’s usefull life and is disposed of. It is simply a means of spreading the expense of a capitol purchase over the lifetime of the item purchased.

The expenses of owning, maintaining and replacing vehicles is not really very different than reimbursing for mileage but it gives us a lot more flexibility and accountability.
 
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Due to the inability to stay on topic … this thread has been locked. Please respect the moderators’ requests.
 
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