Online ordering platforms are ripping off restaurant owners
Percentage commissions are having a huge impact on the bottom line of the restaurants. The question is, if people who are affected are aware of this?
We have been talking a lot about eradicating commissions from the restaurant industry, to give an idea about what is actually happening right now, in every country some huge online ordering platform acts as the middlemen between the customers and the restaurant owners and charging commissions for every single order that is being placed to the restaurant.
In Australia, Menulog has listed 10000 restaurants, in the UK it’s JustEat and in US it’s GrubHub and list goes on …
Something that is common to all of these players is that they all charge commissions for every transaction. It is extremely important to understand why this is dangerous for the restaurant owner.
Usually restaurants operate in a much lower profit margins, but to be conservative let’s assume that the restaurant operates on a profit margin of 30%, let’s also assume that the restaurant that has 3 partners (with equal share of 33% each) and look at an order for $100 placed via. one of these platforms.
For this example, it would appear like each of the partners would take home more than twice as much as Menulog, because after all the platform charges 15% while the partner’s share is 33%.
But it’s far from the truth. Let’s do the math:
Order value: $100Menulog (15% Commissions): $1510% GST: $10Remaining Amount: $75Profit @ 30%: $22.50Partner share @ 33%: $7.50
So remember this, for every single order, Menulog takes twice as much as each one of you
Something is not right, isn’t it? What’s happening here?
The reason why this simple idea is so counter intuitive to understand is because of the difference between revenue and profit. If there is one take away from this post, then that is this:
Menulog charges 15% on your revenue, which you take home 33% of your profits
In other words, while the platform get’s it’s share first, you get your share last. So Be mindful of this fact, and remember it is as important to cut down on this expense as it is to focus on every other area of your business.
Right way to calculate commissions
What I’m about to tell you could blow your mind. Alright. If 15% commissions is very misleading as an indicator of what is being paid to Menulog, then what’s is the right way to look at it? The right way to to look at the numbers is from the bottom up.
In this example,
- Net profit = $22.50
- Partner’s pay = $7.50
- Menulog’s charge = $15.00
So what percentage of $22.50 is $7.50? — 33%. You know this, it’s on the table, it’s the share owned by each partner.
Similarly, what percentage of $22.50 is $15?— ?? Will you say 15%, nope.
It’s a whooping 66.6%, this is the true cost that you are paying for each order. If you still believe that you are paying 15%, you are in trouble. Take this to your accountant and get your math straight
Inclusive of wages:
The profit margin of 30% in a restaurant industry usually occurs for owner operated stores, which means this profit margin is inclusive of the wages of the partners who are actually working there.
The sad news is that you will be liable to pay income tax on the $7.50 as well
So percentage commissions is not a trivial issue, it is a serious problem that needs to be addressed. If you are a restaurant owner then it is extremely important that you take the first steps to avoid paying commissions to ensure better survivability of the business and honestly it is not worth paying this insanely high amount just for the privilege of online ordering.