Doordash’s 3 laws of deception
By: Rahul G
Tags: Business Strategy, Fool, Delivery, DoorDash, On Demand

A lot of debate has recently taken place on the pricing model of Doordash and its payout to drivers. If you think the debate is over with their new pay model, it’s a far cry, for Doordash is far more deceptive and apt at fooling customers and dashers than just making their tips irrelevant.

In this post, I’ll detail how Doordash makes money and how it has taken everyone — drivers, restaurants, and customers included — for a ride. I list out three blatant deceptions and ask you to implore, if you’re a Doordash customer or dasher, how you’ve been fooled.

First, I’ll list out the components that collectively comprise Doordash’s business model:

Delivery fees. Doordash charges customers a delivery fee. This is explicitly listed when you place an order. Delivery fee is $0 if you have a Dashpass, but you can safely assume that Dashpass’s subscription fee is amortized over 5–10 orders so there is a fee, no matter what.

Service fee, aka. Doordash’s first law of deception. Doordash charges customers a flat 11% service fee. Yep, you heard it right. This is different from the delivery fees and has always existed. Never seen it before? If you look at the receipt below, notice how Doordash has an item for fees and taxes, as if the fee is imposed by the government.

Never ever had I previously seen a receipt in which the government imposed fees or taxes are combined with the merchant, aka. Doordash, imposed fees. Merchants who do not want to deceive customers are very open about it. Take Taskrabbit for instance which clearly declares its 15% fee.

Get the jist?

Restaurant fee. Doordash charges restaurants between 20–30% of the order amount. By the way, they charge this even if you pickup the order. It is what they call a business fees, or a lead gen fees, telling the restaurant they wouldn’t have gotten the order had it not been for Doordash. Sure, we believe you Doordash.

Customer tip. Customers tip dashers, or at least they believe they do. Customer tip varies quite a bit and was one of the big reasons why Doordash jumped to the new pay model. Arguably, as I show below, they now make a bigger mockery of customer tips.

Dasher payout. Doordash pays dashers a certain amount. In the old model, this was the maximum of either $6.00 or $1.00 plus customer tip. In the new model, this is $2.00 plus customer tip, which Doordash claims is much higher than the old pay :-)

Next, let’s do some calculations on how much Doordash makes on the old pay model. For starters, you should know that Doordash in its first pay model sort of tried to replicate the restaurant-server pay model, in which a server is paid less than government imposed minimum wage, aka. guaranteed wage, which is supplemented using tips; and if it the total payout falls below the guaranteed wage, the restaurant tops it up to make sure that the server still makes at least the guaranteed minimum wage. In the world of Doordash’s old pay model, the dasher is paid $1.00 per delivery, and the guaranteed wage for is $6.00 per delivery. So if $1.00 plus customer tip falls below $6.00, Doordash would top it up to ensure that the dasher makes $6.00.

Take an order worth $15.00. Typically Doordash would charge customers a higher delivery fees for orders below this amount, so for now let us assume $15.00 to be the average order size on Doordash. Let us run through how much Doordash makes on this order.

+$0.00 Delivery fee

+$1.65 Service fee

+$3.75 Restaurant fee 25%

+$0.00 Customer tip

- $6.00 Dasher payout

- $0.60 To Doordash

When both the delivery fee and customer tip are below 60c, only then does Doordash really loose money. Of course this is relatively rare, especially given the fact that we used the most conservative numbers on restaurant fee, delivery fee, and tip. Given that most restaurants we’ve talked to said they’ve been coaxed into a 30% fee, and given that most of the times there is a delivery fee, the numbers in normal course of business look more like the following:

+$0.99 Delivery fee

+$1.65 Service fee

+$4.50 Restaurant fee 30%

+$1.50 Customer tip 10%

- $6.00 Driver payout

+ $2.64 To Doordash

The “we take the risk argument”, aka. Doordash’s second law of deception. $2.64 on a $15.00 order. This number is freakin insane, especially given that the risk for Doordash was capped at $0.60, while the normal case earns them $2.64. Notice that had they passed the entire tip to the customer in the old pay model, they would have still made ($0.99+$1.65+$4.50-$6.00) = $1.14 on the order, so their entire argument that they “cover up” when tips are low pretty much falls flat on its face. Had a customer tipped $5.00, Doordash would have made $5.14 on a $15.00 order, while the dasher would have still only made $6.00.

I believe customers started to see through some of this, although not numerically but because they felt deceived, and demanded a change. In my surveys with both customers and drivers, it was pretty obvious that the new pay model was mostly driven by customers and not drivers. But this is where Doordash decided to make an even bigger fool of the customers, and to a large extent, also drivers.

Let’s run through the numbers above again, with the new pay model. Take the same $15.00 order in the conservative scenario.

+$0.00 Delivery fee

+$1.65 Service fee

+$3.75 Restaurant fee 25%

+$0.00 Customer tip

- $2.00 Driver payout

+$3.40 To Doordash

When a customer does not tip, there is a high probability that no dasher would accept that order. But according to this interview by Tony Xu, he says that customers MUST tip if they want their food delivered. So basically Doordash is asking its customers to pay a delivery fee, a service fee, an extortion fee aka. tip. If a customer refuses to pay the extortion fee and if by some stroke of (bad?) luck a dasher does accept such an order for the base $2.00 payout, Doordash stands to make way more than the dasher.

“We give the tip to the dasher in the new pay model”, aka. Doordash’s third law of deception. Doordash is sort of forcing the customers to tip for a dasher to accept their order — making it not a tip, but an “extortion” fees, or a bid, or a bribe to get their food delivered. Disguising this as tip is the 3rd deception that Doordash commits. In the more realistic case with the new model, a customer, to have any shot at getting the food, has to shell out about 27% tip for an order.

Numbers, in the normal case, they look amazing:

+$0.99 Delivery fee

+$1.65 Service fee

+$4.50 Restaurant fee 30%

+$3.00 Customer tip

- $5.00 Driver payout + tip payout

+$5.14 To Doordash

Doordash again made more than the dasher. Effectively, by introducing the new pay model, Doordash just pushed all its liability to the customers, while trying to make them feel “good” that their tips made it to the dashers. They also managed to make a fool out of the dashers, by claiming that customers are paying a low amount while customers continue to pay exorbitant amounts in delivery fee and service fee. On average, these two fees are already 18% of the order amount. For dashers to make the same amount as the previous model, customers will now have to give an average of 27% tip on top of the 18% fees that they already paid, all while Doordash makes it a merry day.

Customers, here is where your money goes, when food costs $15.00, and you tip say $3.00.

$20.64 You pay (not including tax)

$10.50 Restaurant gets

$5.00 Dasher gets

$5.14 Doordash gets

Dashers, the customers think that they are already paying a heavy overhead. Expecting them to tip on top of the delivery fee and service fee is simply impractical.

Still want to order and/or work for Doordash?