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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on February 25, 2022
Investment range
$2,250 - $5,100
Revenue potential
$40,000 - $200,000 p.a.
Time to build
0 – 3 months
Profit potential
$30,000 - $80,000 p.a.
Industry trend
Growing
Commitment
Flexible
Here are the key factors to keep in mind when launching your food delivery business:
Starting a food delivery business has pros and cons to consider before deciding if it’s right for you.
Trends in food delivery include:
Challenges in the food delivery industry include:
Since this article relates to chefs who cook and deliver home-cooked meals, personal chef statistics are provided.
Startup costs for a food delivery business range from $2,200 to $5,000, assuming that you already have a fully equipped kitchen and a vehicle.
You’ll need a handful of items to successfully launch your food delivery business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150-$200 | $175 |
| Business licenses and permits | $100-$300 | $200 |
| Business cards and brochures | $200-$300 | $250 |
| Initial Supplies | $700-$1,000 | $850 |
| Insurance | $100-$300 | $200 |
| Website setup | $1,000-$3,000 | $2,000 |
| Total | $2,250-$5,100 | $3,675 |
Prices for online food delivery vary depending on ingredients and the number of people served. This will assume the average delivery is $50. Your profit margin after the cost of ingredients should be 75%.
In your first year or two, you could work from home and deliver 15 meals a week, bringing in almost $40,000 in annual revenue. This would mean $30,000 in profit, assuming that 75% margin. As your brand gains recognition and you get repeat customers and referrals, sales could climb to 75 meals per week. At this stage, you’d rent a commercial kitchen and hire staff, reducing your profit margin to around 40%. With annual revenue of nearly $200,000, you’d make a tidy profit of $80,000.
There are a few barriers to entry for a food delivery business. Your biggest challenges will be:
Now that you know what’s involved in starting a food delivery business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research food delivery businesses in your area to examine their products and services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a gluten-free food delivery business.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as vegan dishes or high-end meals.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You’ll need to decide if you want to make custom meals or offer a menu, or both. You can make a specialty menu like vegan food or fine dining or offer a variety. You could also boost your revenue by delivering wine and spirits, although you’ll need a license to do so.
If you’re not a chef, you have other food delivery options, such as building a food delivery app and delivering from restaurants, supermarkets and specialty shops. You could also deliver prepared meals that just need to be popped into the oven, like the popular service Blue Apron.
Your prices will depend on the type of food, the number of portions, and the distance for delivery. You should try to markup your food costs by about 400% and add a delivery fee.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will tend to be more established people who will be willing to pay a premium for a delivered home-cooked meal. You should market on sites like Facebook and LinkedIn.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out a commercial kitchen. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Discover over 320 unique food delivery business name ideas here. If you want your business name to include specific keywords, you can also use our food delivery business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to food delivery businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your food delivery business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a food delivery business. You might also try crowdfunding if you have an innovative concept.
Starting a food delivery business requires obtaining a number of licenses and permits from local, state, and federal governments.
You may need the following licenses and permits:
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your food delivery business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Trackin, POS Bistro, or Castiron, to manage your recipes, orders, deliveries, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your food delivery business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your food delivery business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a food delivery business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in food delivery for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in food delivery. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a food delivery business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Food delivery is booming, which means this is a great time to put your kitchen skills to good use. You can start from home for a very small investment, and eventually rent out a commercial kitchen and maybe open your own restaurant. The key is getting in on this $70 billion industry.
Now that you’ve got the business part down, go ahead and prepare your menu and start cooking and delivering your way to success!
Yes, a food delivery business can be profitable. You just need to markup your delivered meals enough from the cost to make them to have a healthy profit margin.
To deliver food safely, use insulated containers to keep hot foods hot and cold foods cold in your vehicle. Also, ensure your vehicle is secure at all times.
Pizza has long been a delivery favorite, but with the emergence of food delivery apps, items like burritos and tacos are taking over. Burgers are also becoming a favorite.
You can differentiate your food delivery service with speed and reliability. You could also position your company as a lower-priced alternative.
You should provide them with specific guidelines about how to handle food and how to provide the best service to customers.
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