What is Postmates?
Postmates is an e-commerce business based on the on-demand business model to deliver goods in more than 100 metropolitan areas in the USA. It has enabled people to buy anything from local stores and get it delivered at their doorsteps for a minimal fee. The business model of Postmates is quite similar to that of Uber. Postmates has a human courier network that enables faster and more secure delivery of goods by processing orders through mobile devices. This allows consumers to order goods from anywhere at any time. The company uses GPS to match the demand and supply in the shortest possible time.
Postmates business idea amazed venture capitalists that fetched a good amount of funding for the expansion of the business. Postmates was launched in the year 2011 and in just 4 years it became a huge success. It now has tie-ups with Apple, McDonald’s, Starbucks, Walgreens, Chipotle and many other well-established worldwide businesses.
Postmates was founded by Sam Street, Sean Plaice, and Bastian Lehmann and the headquarters are located in San Francisco, California. As of November 2015, Postmates received a funding of $138M. They process almost 7500 orders every day with the average order size of $40.
How Postmates Survived and Thrived Despite the Naysayers
In the world of tech startups, it is deadly to imitate your competition. Solve an everlasting problem and there are always copycats who would not even apply a bit of their own brain to the problem and build the exactly similar business and then fail miserably. There was a time when Postmates faced the same issues. Rather than getting disappointed, Postmates became even stronger and showed its capitalists that Postmates is the kind of a company they would want added in to their portfolios, a fast-growing business that would lead to imminent profitability in near future.
How Postmates Works
Postmates is a group of human couriers who deliver anything at consumers’ doorsteps. The company works on a partnership model just like other on-demand business. Another thing that separates Postmates from other on-demand startups like Instacart and Uber is allowing the customers to order from the non-partner stores as well.
The Delivery model of Postmates
The Postmates delivery model is a 5-step model; let us look closely into it:
Step 1: Browse
Postmates enlists every store on the platform on the priority basis, as the partner stores are given priority. The customers can browse their favorite stores from the list using the mobile application or website.
Step 2: Pay
The order is only placed if the customer pays for it. The customer pays the total amount, which includes the cost of the product, the delivery fee, and the service fee.
Step 3: Match
Postmates algorithm is designed in such a way that the Postmate stationed nearest to the specified store is notified about the product to be bought along with the delivery address, as soon as the payment is received. The Postmate has to buy the product and deliver it within one hour, using his car or bike.
Step 4: Track
Just like Uber, Postmates allows its customers to track the order and get a real-time notification about it. The consumers get a notification showing every step that a Postmate takes. Customers can even track the exact location of the Postmate on the map integrated within the app.
Step 5: Deliver-Rate-Tip
The products are usually delivered in less than one hour. The customer is requested to rate and tip the Postmate if he wants. The company has no share in the tip that is given to the Postmate.
The Pickup Model of Postmates
The pickup feature was introduced recently to beat its competitors. The idea was to enhance the retail experience of the partner merchants. This feature allows customers to order and get the food ready even before entering the restaurant/store. Its functioning can be explained in 3 steps which are –
Step 1: Order
Postmates platform allows the customers to order the food and other items they want to be prepared when they reach the store. Pickup orders do not carry any extra fee.
Step 2: Track
This helps the customers to get the real time updates about how much time will the order take to get prepared or if it is already prepared.
Step 3: Reach
This step informs the customer when he/she should arrive to pick up the order. This is helpful if the customer is in hurry and cannot stand in long line, and expects minimum waiting time.
Postmates Business Model
Postmates is just like any other on-demand startup that we know about. It works on a partnership model instead of the employee model, as it has more than one customer segment. The Postmates Business Model is 3-tiered customer segment; let us understand what it actually is:
- Customers: They are the end consumers who use Postmates to order goods from a store listed on the Postmates application or website, with a small delivery fee. The products are then delivered to the consumers’ doorstep.
- Merchants: The local restaurants, grocery stores, and other stores are included in the list of merchants associated with Postmates. Postmates creates a win-win situation for both the merchants and the consumers by saving time and cost for both.
- Postmate: The name given to the delivery personnel is a partner with Postmates to deliver the products. A Postmate is free to choose his own working hours and is paid 80% of the delivery fees for every order they deliver, and the rest 20% goes to the company.
Revenue Sources of Postmates
Postmates does not markup its goods it sells through its platform. Therefore, fees play an important role in generating revenue for Postmates. Following are the different types of fees that Postmates charges:
- Delivery Fees: Postmates allows you to buy from non-partner merchants as well. It charges a delivery fee of $3.99 if you order from a partner merchant and $5.99 to $9.99 for all other merchants. The company only takes 20% of the delivery fee and rest is given to the Postmate.
- Service Fees: The service fee is usually from 9% to 19.99% and is charged on every order. It is not shared with anyone and goes entirely to the company.
- Small Cart Fee: If the order is less than $12, Postmates charges a small amount of fee i.e. $1.99. This feed is charged so that the customers always get what they want.
- Surge Pricing: Just like any other on-demand business, Postmates uses the concept of surge pricing where the cost of delivery can increase if the demand increases.
The company also has incorporated a subscription-based structure.
- $0 delivery fee on all orders over $20
- No blitz pricing
- No minimum basket fee
- No service fee when you order from one of the partner merchants
This strategy is not only useful for the subscribers, but this also helps in earning loyal customers who will order from Postmates because of the subscription. Customers can subscribe to Postmates Unlimited at a cost of $9.99 per month or $95.88 per year.
- Commissions: The restaurants and other stores get outstanding exposure because of Postmates. Collaborating with Postmates opens doors to a completely new digital on-demand world for the restaurants and other stores. They get more orders; ditch the credit card processing fee (all orders are processed by Postmates) and are able to concentrate on their core activities as the delivery is outsourced to Postmates.
Postmates has different contracts with different merchant partners. However, one thing that remains common is that the company charges a percentage for every order that comes from its platform. Postmates usually charges a commission between 15 and 30% on the pre-tax amount of the total product sold. The commission, however, varies for every partner depending on the contract they signed with the company.
Partnerships
Postmates has released its API, which helps to integrate Postmates functionality in the existing applications of the partners. This API also allows the partners to utilize Postmates’ fleet of couriers to deliver their products within Postmates’ geographic zones.
Growth of Postmates
The Postmates business idea and model might seem appealing, but the biggest challenge for any startup in the delivery sector is to attract more users and make some transactions. This raises a question that how Postmates finds customers?
As Postmates has become a popular on-demand delivery startup by now, it has reached a stage where customers come automatically (through word of mouth and recommendations). In earlier days, Postmates used digital marketing, offline advertisements and other marketing methods to spread the word.
Future of Postmates
Postmates has numerous competitors like Uber, GrubHub, Amazon, and even the relatively new on-demand startups. However, because of its well-defined business model and business plan, it has made its way so far and has become the most influential on-demand delivery startup of all time.
After the launch of its API, Postmates created numerous options for other startups and itself. The company is even thinking of a merger with Doordash to move ahead of Uber, GrubHub, and Amazon. The company’s partnership with Instacart and Walmart has turned in favor of Postmates, making it number one in its own niche.
Conclusion
Postmates is an inspiring on-demand startup. Despite all the troubles that came in its way, Postmates just kept moving by analyzing its areas of improvement and grabbing the opportunities that came along. It looked for new areas where it can collaborate and bring profits to the business.
