Perusing the Menu: An Overview of GrubHub
GrubHub is currently the most popular choice for restaurants seeking to partner with an online food delivery service. GrubHub offers restaurants the opportunity to gain exposure to its network of approximately 8.75 million “active diners”, who GrubHub connects with approximately 50,000 partnered restaurants. By facilitating both the ordering and delivery components of the food service process, GrubHub eliminates inefficiencies for both restaurant clients and consumers. In addition to pleasing consumers, GrubHub satisfies restaurants by requiring no upfront costs to be included on the GrubHub site or to create an online menu. Restaurants only pay GrubHub fees on orders that are placed using the GrubHub platform.
Today, we will be working through a three course meal as we examine what a GrubHub partnership means for a restaurant in regards to costs and accounting ramifications.
Appetizer: Reviewing GrubHub Fees and Payment Methods
We’ll begin by learning about how GrubHub gets paid and, more importantly, how they pay restaurants.
Delivery Fee: Partner restaurants can choose whether they want to provide their own delivery services or use GrubHub’s delivery services. If a restaurant wants GrubHub to deliver, the restaurant must pay a delivery fee of 10% of the order value. Additionally, GrubHub can set the minimum order value and delivery radius, hours, and fees. (Note: Minimum order value, delivery radius, hours, and fees are determined individually by GrubHub.) However, if the restaurant provides its own delivery, it can determine the minimum order value and delivery radius, hours, and fees.
Marketing Fee: A great advantage of GrubHub is that it provides access to new clients without upfront marketing costs, so that restaurants only pay for each new customer added through GrubHub. Each time a GrubHub customer orders from a restaurant for the first time, the restaurant must pay either 15% or 20% as a marketing fee. The difference is that those paying the 20% fee gain more prominent positioning amongst the restaurants featured on GrubHub. Restaurants can regard this additional expense as a marketing expense, which is paid to increase a restaurant’s exposure to GrubHub customers.
Payments From GrubHub: GrubHub pays restaurants net of delivery, marketing, and credit card fees (GrubHub deducts credit card fees in the amount of 3% per transaction + $.30). Thus, a restaurant receives cash that is equivalent to the amount of sales less delivery, marketing and credit card fees. Additionally, GrubHub collects sales tax from consumers when they pay for their food. GrubHub adds the percentage of the sales tax to the bill, which increases the fee for the consumer. The tax is not remitted to the government, rather the money is given to the restaurant, which sends the money collected from sales tax to the government at a later date.
Discounts: If a restaurant offers a discount on an item, fees that are calculated as a percentage of the order will be determined using the discounted price as opposed to the regular price. This policy saves restaurants money because GrubHub receives less commission, which helps to maintain the profitability of discounted items.
Note: All fees are deducted before tax.
Entree: A GrubHub Invoice
Let’s examine an invoice to determine how much cash a restaurant would receive for 3 transactions amounting to $60 in sales.
From the $60 in orders, the restaurant would receive $51.80 (which includes $4.60 in sales tax that was collected by GrubHub but sent to the restaurant). Meanwhile, if these sales had occurred in house, the restaurant would have received $62.80 (including sales tax collected) and the $11 difference is attributable to the fees to GrubHub. While it may appear as though GrubHub is eating into the restaurant’s profits, it is important to recognize that $5 of the fees to GrubHub are only a one time charge for a first time order on GrubHub. If this is a new customer for the restaurant, then the fee can be likened to the cost of acquiring a new customer. However, if the customer had ordered from the restaurant before he started using GrubHub, then the restaurant is essentially incurring this expense for the increased customer convenience of ordering through GrubHub.
Dessert: A Restaurant’s Journal Entries
Now, we’ll demonstrate how a restaurant would enter the journal entries to record the aforementioned transactions.
As you can see, the sales tax is collected by GrubHub but sent back to the restaurant, which increases the total value of the transactions from $60 to $64.60. The restaurant receives cash in the amount of $51.80, which includes the $4.60 sales tax that the restaurant will eventually pay to the government.
Restaurants can choose to receive their payments from GrubHub through either direct deposit (receive payments each Friday) or check (receive payments at the end of each month). From a cashflow perspective, receiving payments every Friday is better as the cash is available sooner as opposed to having to wait until the end of the month. Additionally, the fact that GrubHub sends the sales tax back to the restaurants is beneficial, because restaurants can use this cash in the interim period before they must pay the government.
We’ve finally reached the conclusion of our three course meal. Now that you have learned how to account for orders through GrubHub, make sure to properly upload these transactions in the POS system and Quickbooks by entering sales revenue through delivery services as a method of payment. This process is much easier with an automatic daily sales entry program, such as POS Link, which can save time and increase accuracy.