Commissions or Monthly Fee?

When looking at an online ordering system for your takeaway or restaurant, you will be faced with the decision of paying a commission on every order or paying a monthly fee, plus a small card fee per order.

Each payment method has its positives and negatives, and it is very important you understand these upfront, as once you have committed, it could end up costing a lot more than you expected.

First, we need to look at the Pro’s and Con’s of both payments methods;

Commissions– Only pay when you get orders
– You know the cost per order
– No fees paid up front
– No direct debit required
– Shorter contract typically
– Cost increases with every order
– Commissions typically rise
– Could cost 10-20% per order
– Can take longer to receive funds
– May not include card fees
Monthly Fee– Know your costs up front
– Receive more from every order
– Small fee on card payments
– Funds paid faster to you
– Direct debit is needed
– Fee is paid every month
– Can have a longer contract
– Initially may cost more

Next, we need to consider what stage your business is at, which we break in to 3 types:

New business with nothing

When you first start out as a virgin business you have no customers, no reputation and nothing to base your expected income on.  At this stage you are highly likely to go for the commission model, it comes with the least cost upfront, little risk in terms of ongoing costs and the contract length means they are not committed long term if things don’t work out.

Existing business without own system

This is an established business who may rely on walk-ins, phone orders and probably the major platforms. Because they already have a good customer base then the cheapest option would be the monthly fee option, but some business owners are still worried about how easy it is to get your own ordering system to work and may opt for the ‘less risky’ option of the commissions model, even though they already know its more expensive in the long run.

Exisitng business with an existing system

This business has already adopted their own system, they may not have seen the results they wanted, but they realise they need to fix their costs where possible, minimise fees and find a solution that delivers. This business knows that the monthly fee is much cheaper in the long run and wants to get away from paying commissions.

Finally, we need to examine what the costs can be on each of these payment models. To do this we will use the three different business types identified above, over a 6 month period, using average data taken from a sample of existing App4 businesses.

New businesses
Month 1Month 2&3Month 4-6Totals
Total Orders502008251025
Value of Orders£1,050£4,200£17,325£21525
Commission @ 10%£105£420£1,733£2153
App4 Fees£154£357£795£1305
Existing without own system
Month 1Month 2&3Month 4-6Totals
Total Orders753501,1251,475
Value of Orders£1,575£7,350£23,625£30,975
Commission @ 10%£158£735£2,363£3,098
App4 Fees£166£431£943£1,540
Existing with own system
Month 1Month 2&3Month 4-6Totals
Total Orders1507501,7252,475
Value of Orders£3,150£15,750£36,225£51,975
Commission @ 10%£315£1,575£3,623£5,198
App4 Fees£203£629£1,239£2071

(Figures based on average order value of £21. App4 fees include monthly fee and card charges. All fees exclude VAT)

So, which is better?

Whilst commissions offer a short-term financial gain for some, in the long-term, paying a monthly fee and small card fee is considerably better for all businesses of any type.

As a new business it may be cheaper to start on a commission only model, but within 3 months, you are better off on the monthly fee, and after just 6 months you could be £800 better off.

For existing businesses trying their own system for the first time, commissions may seem better in month 1, but after 6 months you could be £1500 better off on a monthly fee.

For those looking to move away from their current provider and commissions full stop, the difference is huge. You could be 250% better off by paying a monthly fee within the first 6 months and by 12 months, you could have saved over £8000 in commissions.

You could say that 10% commission is too high, but in every case above, even at 5% commission, you would be better off with a monthly fee within the first 3 to 6 months.

To find out more about how App4 can help you significantly reduce the cost of your online orders, provide a complete online ordering service, and is proven to deliver for businesses across the UK, call us 01332 418 573 or click here for a call back

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