How does Doordash make Money?

DoorDash, a leading food delivery service, has significantly impacted the way we order food. As part of the gig economy, it offers convenience to customers, flexible employment to drivers, and outreach for restaurants. 

This article delves into the various revenue streams and business strategies that contribute to DoorDash’s financial success.

Introduction to DoorDash

DoorDash, a food delivery giant that started in 2013 as a local service in Palo Alto, California, has transformed into a dominant force. 

Initially focused on delivering from restaurants without their own drivers, DoorDash has exploded in reach, now operating across countless US cities and even internationally.

Primary Revenue Streams

Delivery Fees

When you order food through DoorDash, a delivery fee is applied to cover the cost of getting your meal to your doorstep. 

This fee isn’t fixed – it takes into account how far the restaurant is, how busy DoorDash is at that moment, and any special deals the restaurant might have with the platform. Part of this fee goes directly to the Dasher who delivers your food, while the remaining amount helps DoorDash run their service.

In a strategy mirroring ride-sharing services’ surge pricing, DoorDash utilizes dynamic pricing to adjust delivery fees based on real-time demand. This ensures a balanced marketplace by dynamically adjusting the cost of delivery to incentivize enough drivers to fulfill orders during peak periods.

Commission Fees

DoorDash generates revenue by taking a commission on each order placed through their platform. This commission, typically ranging from 10% to 30% of the total order value, acts as a key income source for the company and applies to every restaurant delivery or pickup facilitated by DoorDash.

DoorDash offers restaurants a tiered partnership program, allowing them to customize their involvement based on their needs. 

Restaurants can choose a level with a lower commission rate and forego some promotional perks, or opt for a higher tier with increased visibility and marketing opportunities on the DoorDash app,  all while paying a slightly larger commission fee.

Advertising and Promotions

DoorDash offers restaurants the option to increase their visibility in search results through promoted listings. These placements, similar to paid ads on other platforms, put restaurants in prime spots within the app, potentially leading to more customer traffic and orders. 

Unlike some advertising though, DoorDash doesn’t charge restaurants for simply being seen (cost-per-impression), but rather for each click that converts into an order (cost-per-click). This means restaurants only pay for the results they’re looking for – more sales.

DoorDash teams up with major brands to create unique delivery experiences. These collaborations go beyond just getting food in your hands. They involve co-created marketing campaigns, special promotions, and sponsored advertising that blankets both the DoorDash app and the wider web.

Secondary Revenue Streams

DashPass Subscription

DoorDash’s DashPass subscription program entices customers with the perk of free delivery on qualifying restaurant orders. This not only generates recurring revenue for DoorDash through subscription fees, but also incentivizes subscribers to order more frequently, creating a win-win scenario for both the company and its loyal customers.

Catering and Corporate Orders

In addition to individual meal deliveries, DoorDash caters to businesses by handling large group orders and events. They manage the logistics of coordinating with restaurants that offer catering menus, ensuring a smooth delivery experience for corporate lunches, meetings, or any other large gathering that requires food.

Operational Strategy

Technological Innovation

DoorDash is at the forefront of delivery innovation, utilizing advanced data analysis and machine learning algorithms to optimize every step of the process. By crunching vast amounts of data on traffic patterns, restaurant locations, and delivery personnel availability, DoorDash can intelligently design efficient delivery routes. 

This not only minimizes delivery times for customers, ensuring their food arrives fresh and fast, but it also helps streamline operations for both DoorDash and partner restaurants. 

By strategically matching deliveries with Dashers and optimizing routes, DoorDash reduces overall costs, which can translate to lower delivery fees for consumers and potentially even better menu pricing from restaurants. This data-driven approach fosters a smoother customer experience, where both affordability and timely deliveries are prioritized.

Expanding Market Reach

In a period of exciting growth, the company is rapidly expanding its service offerings, venturing beyond restaurant delivery to encompass the convenient delivery of groceries and everyday essentials from convenience stores. 

This strategic move goes hand-in-hand with geographic expansion as the company enters new markets, extending its reach to serve a wider customer base and establish itself as a comprehensive one-stop shop for on-demand deliveries.

Challenges and Considerations

In the ever-evolving world of food delivery, DoorDash finds itself at the crossroads of intricate challenges and considerations. Government regulations pose a hurdle, demanding constant navigation of the legal landscape. At the same time, fellow delivery services are fierce competitors, vying for the same customer base and restaurant partnerships. 

Striking a balance is paramount,  as DoorDash strives to cultivate positive relationships with both its independent contractor delivery drivers, who form the backbone of their operations, and the restaurants they collaborate with to provide a diverse selection of culinary options to their customers.

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DoorDash leverages a multi-pronged strategy to turn a profit. The company generates revenue from delivery fees charged to customers and commissions from restaurants on each order.  Additionally, DoorDash strategically places advertisements to boost restaurant visibility for a fee, and offers subscription services like DashPass for recurring customer revenue. 

Through ongoing innovation and adaptation to market demands, DoorDash not only ensures the longevity of its business model but also actively pursues industry leadership. However, navigating operational hurdles and fierce competition will necessitate continued innovation and exceptional service quality to secure long-term profitability and expansion.

Frequently asked Questions 

What’s the secret sauce behind DoorDash’s profits?

DoorDash makes money through several channels. The biggest earners are commissions from restaurants on each order and delivery fees paid by customers. They also offer additional revenue streams like subscriptions and advertising.

Do restaurants pay to be on DoorDash?

Yes, restaurants don’t just get free exposure. DoorDash charges a commission fee, typically a percentage of the order total, for listing on their platform and connecting them with customers.

How much do restaurants pay DoorDash?

The commission rate can vary depending on the restaurant’s chosen plan and order volume. Some plans offer lower commission fees in exchange for a monthly subscription.

Besides commissions, how do customers pay for delivery?

There’s usually a delivery fee tacked onto the order total. This fee can fluctuate based on factors like distance and demand.

Are there other ways DoorDash makes money from customers?

Yes! DoorDash offers a subscription service called DashPass. Subscribers pay a monthly fee for exclusive benefits like waived delivery fees on certain orders.

I’ve seen restaurants advertised prominently on the app. Does DoorDash make money from that?

Absolutely! Restaurants can pay to have their listings prioritized in search results, giving them more visibility on the platform.

Does DoorDash have any hidden fees?

While the base price and delivery fee are usually clear, some restaurants might have additional service charges on the app. It’s always a good idea to review the order breakdown before checkout.

Does DoorDash take a cut of the driver’s tips?

No, thankfully! The tips customers leave go directly to the Dashers who deliver their food.

Are there other ways DoorDash generates revenue?

DoorDash offers a service called DoorDash Drive, which essentially acts as a delivery logistics partner for businesses that aren’t restaurants.

I heard something about DoorDash convenience stores. Do they make money from those too?

Yes, DoorDash has begun operating DashMart convenience stores in some areas. These stores stock essential items and groceries, and delivery fees apply to orders placed there as well.

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