To answer the question of whether to charge your customers a fee for delivery, let us begin by reviewing the history of pizza delivery from the 60s through today.
DO: Learn about the history of delivery fees
In 1965, a man by the name of Tom Monaghan not only put pizza delivery on the map but set the standard of pizza delivery for the next 35 years. As founder of Domino’s Pizza, Monaghan introduced FREE delivery. He did this by charging more per pizza ($1-$3 more) than was standard at the time. In other words, he called it FREE delivery, but incorporated the cost of delivery into the price of the pizza. This brilliant strategy gave Domino’s a powerful marketing strategy that forced many pizza operators to follow suit and provide FREE delivery.
DO: Know that FREE delivery is not truly free
FREE delivery took its first real setback due to the 9-11 attacks and the subsequent insurance restructuring. Prior to 9-11, a pizzeria owner’s business insurance covered the drivers using their own vehicles for delivery. After 9-11, insurance companies created a new type of insurance called ‘Non-Owned Auto Insurance’. The regular business insurance excluded coverage of non-company-owned vehicles. Pizzeria owners were required to purchase this additional insurance if their drivers used their own personal vehicles. Also, as part of this insurance restructuring, personal auto policies excluded coverage for work use. In other words, without non-owned auto insurance, if a driver gets in an accident on the job, you may lose your pizzeria.
DON’T: Deliver without non-owned auto insurance
This added expense for pizza delivery caused most national pizza chains to begin charging the customer for pizza delivery. FREE delivery, although never truly free, quickly became a thing of the past. The fees started as low as 50 cents and grew over the next 20 years to reflect increasing costs of delivery.
The next historical moment in pizza delivery fees came with the advent of third party delivery. Companies like GrubHub and Doordash added a whole new level to delivery charges. Delivery fees, handling fees and higher menu prices for delivered products are fees passed on to the customer. It became the new norm that if you purchased food through a third party delivery company, you may pay up to double the price of picking the food up at the pizzeria. The great news about third party delivery companies is that they ‘trained’ consumers to expect to pay more for delivery.
So, where does this leave you, the pizzeria owner/operator? To Fee or Not to Fee?
DO: Charge enough to make a profit
Consider the costs, which vary depending on the type of customer. Dine-in, Take-out, and Delivery.
- Dine-in. Counter and table servers, rent on the seating space, dishes, maintenance, restrooms and parking
- Take-out. Your most profitable customer
- Delivery. The added expenses of third party companies, or if you DIY (Do-It-Yourself) delivery, you have the added expenses of delivery drivers, non-owned auto insurance, driver gas/mileage reimbursem*nt, delivery packaging and heat/cold retention.
Given that the costs of delivery exceed the costs of your other types of customers, it stands to reason that you are forced to either charge a delivery fee or have a delivery menu that is priced higher. It is much more transparent (read: better for the customer) to have the same menu prices and charge a delivery fee.
DO: Have consistent menu prices
There is one alternative to explore, however. If you increase your menu prices across the board, and offer discounts for take-out or dine-in, you can duplicate what Tom Monaghan did last century. If you take this route, take advantage of what Monaghan did and market the heck out of FREE delivery.
DON’T: Offer FREE delivery unless you include the cost of delivery in your menu prices
Forgoing the FREE delivery alternative, how much should you charge as a delivery fee? Your POS system should allow you to select fees (and driver reimbursem*nt) based on different areas. This allows you to charge more for deliveries that are farther away from the store. You should charge the customer a delivery fee that is more than you pay your driver in reimbursem*nt. The extra amount collected will contribute to your other delivery expenses. For example, if you reimburse a driver $3.00 for a delivery, you may charge $5.00 as a delivery fee to that customer. Your delivery fee will change as your costs associated with that delivery go up or down.
DO: Have a separate, clearly identified charge for delivery
One of the costs to identify relating to DIY delivery is how much to reimburse your driver, referred to as ‘mileage’. Mileage must be enough to cover your driver’s actual expenses, or you may have legal problems with the Labor Board. Every year, the IRS posts the required compensation for persons using their own vehicles for work. Although they rarely change it mid-year, 2022 is the obvious exception due to gas prices. The mileage rate for the second half of 2022 is 62.5 cents per mile. If your driver averages four miles round-trip on deliveries, you must reimburse them a minimum of $2.50 per delivery. If you pay less, the Labor Board says that means you used part of their hourly wages to reimburse, which may put the employee below minimum wage, subjecting you to a class-action lawsuit. This would require you to pay every driver back-wages as well as penalties and interest. The only way to accurately calculate the mileage you pay your drivers is to take a month and document their actual miles driven and divide into the number of deliveries.
DON’T: Underpay mileage reimbursem*nt
All prices are subject to market competition and delivery fees are no exception. Research the delivery fees charged by 3rd Party Delivery Companies in your area and the delivery fees charged by your competitors who DYI.
DO: make sure your delivery charge is competitive
Or, if you are too busy to read this, skip the entire article, and charge $4.99 per delivery.
DAN COLLIER is the founder of Pizza Man Dan’s in California and a speaker at International Pizza Expo.
