Third-party delivery apps are platforms that empower business owners to sell their products online. They often work by charging commission fees to enable online sales, sales execution, delivery drivers, consumer insight tracking, loyalty programs, and third-party services.
While these apps have many features and are convenient, there are risks associated with them that should be carefully considered. This post will discuss both risks and benefits of using third-party apps for your business and discuss crucial factors that small businesses need to consider before integrating these apps into their business operations.
What are the benefits?
Logistics: Third-party delivery apps offer many benefits for small businesses. Logistics is a primary benefit of using third-party delivery apps. They handle driver management and order fulfillment.
Visibility: Third-party delivery apps expand brand visibility through their extensive audience reach. The visibility provided by third-party delivery apps simplifies customer acquisition by allowing the app’s users to discover and try new businesses.
Labor Savings: Business owners save on labor when using third-party delivery apps because they do not have to pay for wages, training, or insurance.
What are the risks?
Product Quality: When using third-party delivery apps, business owners have no control over quality. While this is harmful for any business, it is especially dangerous for food service businesses. If the product arrives cold or damaged, customers will blame the business, not the third-party delivery service. It only takes one bad experience to hurt your reputation and weaken brand loyalty.
Dispute Resolution: Even though customers will blame your business if there is a mistake, they will have to contact the third-party delivery app for dispute resolution. This means that orders may get refunded without your consent. Even worse, you might not know why the order was refunded so you cannot avoid the problem in the future.
Reduced Profit: Commissions as high as 30% can eat into your profit margin. This means that you are losing money while the third-party delivery provider is raking it in. On top of commissions, many third-party delivery apps charge a service fee just to use the platform. Again, this means less profit for the small business owner.
How to mitigate the risks
Third-party delivery apps provide a particularly useful service to small businesses and that allows them to compete with larger businesses and franchises. There are steps that you can take to mitigate the risks.
Use an alternative: You have several options when it comes to alternatives to third-party delivery apps. The first is to offer online ordering though your website. This can be used alongside or instead of the third-party delivery app.
Another a POS that includes online ordering. Some even have options for managing drivers and other logistics.
A really good alternative is to focus on in-store pickup rather than deliveries. Many customers would rather pick up than pay delivery and service fees. In addition, some customers choose to support small businesses by shopping directly with the small business, not through a third-party.
Build loyalty: Add some flyers or coupons to the bag when you send out your delivery orders. Make sure to seal them inside the packages, not on the outside. This lowers the chance of the delivery driver removing the flyers and coupons.
Toggle your usage: The biggest benefit of third-party apps is that they bring new customers. However, if you are already busy, you might not need new customers at that moment. Turn off the third-party orders on busy days and only use them on slow days. This means you are not paying commission fees during what should be a period of high profits for your business.
Making the right decision
Marketing reach: If you need to expand your marketing reach, incorporating third-party apps may benefit you. If you have a loyal customer following, you do not need an app for that.
Labor costs: If you are short-staffed or otherwise need to save on labor costs, this is where third-party apps can actually save you money. On the other hand, if staffing is not a challenge for you, there is no benefit in this category.
Budget: If can afford commission fees of 6%-30% per order, the benefits of using a third-party delivery service might outweigh the fees. If you operate on a tight budget, do you really need an app draining your profits?
Trust: Third-party apps might be a good fit If you can trust non-staff delivery drivers to provide a good service and do not sell products that require special handling.
Data: If you are not tracking customer data like emails, then this is not a factor when deciding to use these apps. If you use customer data to drive marketing and loyalty campaigns, a third-party delivery app might hinder your efforts.
The Bottom Line
Third-party delivery apps offer several advantages for small businesses. By partnering with these platforms, businesses gain access to a wider customer base through the app’s extensive reach. While there are commission fees associated with using third-party apps, the potential benefits in terms of customer acquisition and operational efficiency can make it a worthwhile investment for many small businesses.
While third-party delivery apps can offer benefits, they also present several risks for small businesses. The most significant is the high commission fees charged by these platforms, which can significantly impact profit margins. Additionally, businesses relinquish control over customer data and the delivery process, potentially leading to issues with order accuracy, customer satisfaction, and brand reputation.
Reliance on third-party apps can also make a business vulnerable to changes in platform policies or fees, affecting their bottom line.
Would you like to explore specific third-party delivery services or discuss alternatives in more detail? Contact us today to get started.