Postmates, the $600 million 35-minute delivery startup that lets you purchase restaurant food and other items from merchants through its app, today makes more than three million deliveries each month across its footprint in the U.S.. Now, as it looks to hit $1 billion in revenues by 2018 from its network of 100,000 delivery people in 200+ cities, the startup is ramping up its service.
Unlimited, Postmates’ Prime-style loyalty program that gives subscribers free deliveries for $9.99/month, will cover all 250,000+ restaurants and other merchants listed on its app, and it has lowered the minimum order value to $20.
On top of this, Postmates is also lowering fees outside of Unlimited. Those who order from Postmates’ Partner merchants (which number 12,000) now pay $3.99 with no service fees nationally. Any purchase outside of that network — that is, the most basic Postmates service — will cost $5.99, with a maximum $20 service fee that will vary based on basket size (in other words, distance will no longer be factored into the delivery price).
This is a significant expansion for the company: it comes about 18 months after Postmates first launched Unlimited (at the time called Postmates Plus Unlimited), initially covering only 10,000 merchants with a minimum basket size of $30 (it was lowered once before to $25 before today).
Today, about 10 percent of Postmates’ customer base is subscribing to Unlimited, according to Kristin Schaefer, Postmates’ SVP of finance and strategy, with 50,000 subscribers getting added each month. The average basket size is just under $35, she said, or 30 percent higher than a basket for a non-Unlimited customer.
Many like to talk about how Amazon runs Prime as a loss-making service, but Schaefer said the same does not go for Unlimited.
“Unlimited is absolutely not a loss leader. This product was meant to be a lower-margin service to bring in more customers, but we found that it became our highest-margin service,” Schaefer said in an interview, with margins for Unlimited customers at 40 percent.
Part of this comes from the fact that Unlimited users tend to be habitual Postmates users, because they largely use it to order food and that has a very regular rhythm to it.
“It’s not like ordering a toothbrush every three months,” she said when comparing it to Prime. (This also gives you some idea of why Amazon is also moving so aggressively into restaurant and grocery delivery.)
“We’re taking a page out of Amazon’s book,” Shaefer said. “But we have compared stats and what’s interesting is that our customers use Unlimited than Amazon customers use Prime. It makes sense when you think about it because 80 percent of our Gross Merchandise Value (the total number purchases on its platform) is food and restaurant delivery.”
That margin gave the company some leeway in expanding the service to all of the merchants that sell and deliver through Postmates, and she said it plans to reduce the minimum basket size and all delivery charges more over time as it grows. “We will lower it even more over time,” she said.
The highest margin service at Postmates now is the company’s out-of-Partner network deliveries, which include service fees on top of delivery charges, which Schaefer calls the company’s “mini-monopoly” because it’s unlike anything any other company offers, and is more complex logistically.
Postmates raised $140 million nearly a year ago, by many accounts with a lot of blood, sweat and tears. Schaefer said the startup is “not actively fundraising right now,” because it has cash in the bank, but it seems the tide may have turned for delivery startups for the moment and funding might be a little easier to come by right now.
“We may be opportunistic because there is a lot of interest in the space right now,” she said.
In the meantime, the company continues to iterate around what is the best model its business, with not all changes necessarily as good news as the ones being announced today. Last week, we learned and confirmed that Postmates laid off all its city managers, affecting about 15 employees, as it cut costs and centralised more reporting to a smaller group of general managers.
The company has yet to expand beyond the U.S. although Schaefer said it would be launching in “a significant number of new markets soon,” with “some international news” coming in a couple of months.
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