Here's how much Grubhub really costs restaurants and what it brings to the table.
To stay relevant and reach a broader audience, many independent restauranteurs are jumping on the online ordering bandwagon. However, partnering with third-party sales processing and delivery companies, such as Grubhub, isn’t a cut-and-dried matter. The best way to determine if an online ordering and delivery service is right for your restaurant is to understand how these types of deals are structured and how the actual ordering process works.
For the sake of simplicity, we will use Grubhub as the primary example; it is by far the leader in market share and has been eating up the competition for years. Thus far, Grubhub has purchased Seamless, Yelp's Eat24, Delivered Dish, Restaurants on the Run, LA Bite, Dotmenu, AllMenus, campusfood and more. There are other services out there, like DoorDash and UberEATS, but they are significantly smaller and only really used in select regions. Thus, if a business owner is considering a restaurant delivery service, they are (or should be) looking at Grubhub.
Here's how the restaurant partnership program works.
Commission rates + sponsored listings
While many online services claim that their restaurant partners increase sales by using such platforms, there's a tendency among the major online restaurant-delivery players to highlight how much sales will be boosted and completely avoid the topic of commissions. In this fashion, Grubhub does not list commission rates or averages anywhere online. Generally speaking, most software and tech services that don't list prices online are targeting enterprise-level businesses that can afford to spend large sums of money for custom products (and because pricing may vary based on a corporation's size). Grubhub-type services, on the other hand, target smaller local businesses with lower budgets.
To get a basic idea of how commissions are structured, I called Grubhub and asked about their options for restaurant partners. The first thing I was told was that my rates would be impacted by my restaurant's location, and more specifically, by how many other restaurants were in my area. I explained that I was in New York City in a neighborhood densely populated with restaurants, and the sales rep said the lowest commission for a sponsored listing would be 20 percent. After pressing for the lowest possible rate, I found out that restaurants in my area can get on Grubhub for as low as a 15 percent commission rate, but that's for a non-sponsored listing.
Here's the difference between a non-sponsored listing and a sponsored listing:
- Non-sponsored listing: For a 15 percent commission rate (again, this is in my area of New York City; check your local rates) your restaurant will be posted on Grubhub, and customers will be able to place orders digitally. However, since the commission rate is nonsponsored, your restaurant will not be prioritized in searches. It's possible that your restaurant will appear several pages in on any search. This may not be a problem if your restaurant is extremely popular in your area and people know to look for you on Grubhub, but if your goal in adopting a food delivery service is to increase publicity, it may be an issue. It's also worth noting that non-sponsored listings may work better for restauranteurs in rural areas or small towns, as there will naturally be fewer restaurants listed and less competition, which means odds are higher your non-sponsored listing will be seen.
- Sponsored listing: For a commission rate of 20 percent or higher, your restaurant will be posted on Grubhub and it will be prioritized, meaning it will show up earlier on search pages. However, where your restaurant lands on the page depends largely on the competition for listings in your area. For an even better position, many restaurants offer well more than the 20 percent commission, and if a lot of restaurants in your area do that, you may end up paying for a sponsored listing without getting the desired results. You're essentially bidding against other restauranteurs for top spot, and according to the representative I spoke with, it is not uncommon for restaurants in densely populated areas to spend 30 percent or more for better spots on the page.
The best thing about the sponsorship program is how flexible it is. There are no long-term contracts and restaurant partners can increase or decrease their sponsored listing rate at any time.
It is possible to be listed on, and process orders through, an online ordering site without paying for delivery. Restaurants with their own delivery personnel do not have to pay for delivery services, but those without them will pay an additional fee to a service for delivery.
Grubhub charges a whopping 10 percent per order for delivery services, which brings the total cost to a minimum of 25 percent of each order for restaurants that use Grubhub's ordering and delivery services in my area. Local restaurants that opt for minimal sponsored listings, in addition to delivery services, will end up paying a minimum of 30 percent commission on every purchase, at least where I live.
The only way to figure out if Grubhub is a good move for your business is to do the math. On its website, Grubhub claims a "fifty percent increase in average monthly orders after a year on Grubhub." The company also states, "Restaurants who join Grubhub see six times growth in revenue annually versus restaurants without." It's reasonable to assume these are sunny numbers, so using a more conservative approach is likely advisable when digging into the numbers. Of course, you'll also need to reach out to a Grubhub sales rep to find out what the commission rates are in your area.
Processing delivery orders
There are many order processing options for restaurants that sign up with Grubhub, and having a point-of-sale (POS) system is not a requirement. In fact, Grubhub only integrates with one POS system on the market (Breadcrumb). Once an order is received and confirmed, it must be manually entered into your POS (if you have one) or otherwise copied into the format your restaurant uses for orders.
Editor's Note: Looking for a POS system? We can help you choose the one that's right for you. Use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:
At no extra charge, restaurants may add an Order button to their existing websites, which automatically allows orders to be placed and processed. For restaurants with a big following and a high-traffic website, this feature can be invaluable because Order button orders are not charged commissions, just delivery fees (if applicable).
Processing and payment from Grubhub
The workflow for paying Grubhub commission and receiving payments through Grubhub is simple. At the end of each week, Grubhub participants receive a direct deposit in the amount of the total orders received, less the cost of website display (and delivery, if you opt for that). The representative I spoke to said that tips are clearly outlined for each transaction so staff can be compensated properly. Restaurants that decide to work with Grubhub should consider how this payment process may affect other business-related payments.
Grubhub, and services like it, offer tremendous functionality to restaurants (including some light analytics), but since costs vary according to location and sponsorship level, it's impossible to make a blanket recommendation.
As with any business service, the more hands-on you are as a business owner, the more you will get out of the product. If you join Grubhub at the lowest non-sponsored subscription level, add a buy button to your website and then proceed to promote your online ordering capabilities to legions of already established adoring eaters, you will probably make a lot of money using Grubhub.
If you think getting your restaurant on Grubhub will pull you out of a slump or replace other marketing and promotional avenues, you will likely be disappointed. The best course of action is to sign up at the lowest level of service, work independently to promote your business and perform a cost-benefit analysis after a few months.