Delivery platform commission at Trattoria da Mara
Trattoria da Mara is a 40-seat pizzeria in Sliema. Last month it sold 1,400 orders at an average selling price of €24. Food cost is 30% of selling price; packaging and card fees add 5%; fixed costs are €18,000 per month. The owner is considering joining a delivery platform that charges 25% commission on the selling price and requires a separate packaging standard costing an additional €1.20 per order. The platform forecasts 500 extra orders per month, but the owner fears discounting. Current profit is €3,840. The landlord has warned that rent will rise by €1,200 next month. The menu has 22 pizzas; the four best sellers account for 60% of orders, and two slow sellers use expensive ingredients. Staff are already working at capacity during Friday and Saturday service.
1. Calculate the current contribution per order and the contribution per order on the delivery platform. Explain each deduction.
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Current order: selling price €24.00. Food cost is 30%, so €7.20. Packaging and card fees are 5%, so €1.20. Total variable cost is €8.40, leaving a contribution of €15.60 per order, or 65% of selling price. At 1,400 orders, total contribution is €21,840; after €18,000 fixed costs, profit is €3,840, which matches the setup.
Platform order: the same €24.00 selling price, but now deduct food €7.20, the existing packaging/card €1.20, the additional platform packaging €1.20, and commission of 25% of €24.00 = €6.00. Total variable cost is €15.60, leaving a contribution of €8.40 per order, or 35% of selling price. The commission is not a small fee here: it removes €6.00 from a product that only had €15.60 contribution before. The extra packaging is also incremental because the platform requires a different standard. The key judgement is that the platform order is not 'the same sale with a fee'; it is a different, much lower-margin sale.
2. Assuming no existing orders move to the platform, how many platform orders are needed to cover the rent increase while preserving current profit? Then assess the platform if 30% of existing orders migrate.
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With no cannibalisation, the existing 1,400 direct orders still generate €21,840 contribution, so current profit is preserved before the rent rise. The rent increase is €1,200, and each platform order contributes €8.40. Required platform orders = €1,200 ÷ €8.40 = 143 orders. The forecast of 500 would comfortably cover the rent rise, adding 500 × €8.40 = €4,200 contribution.
But if 30% of existing orders migrate, 420 orders move from €15.60 to €8.40 contribution. The loss is 420 × €7.20 = €3,024. The platform must now cover the €1,200 rent rise plus that €3,024 loss: €4,224 ÷ €8.40 = 503 platform orders. The forecast of 500 is therefore essentially break-even: 500 × €8.40 = €4,200, which is €24 short of the required €4,224. My recommendation would be not to sign on these terms without either a lower commission, a price increase on platform items, or evidence that migration will be well below 30%. The forecast sounds large, but it is not large enough to absorb cannibalisation and the rent rise together.
3. What menu and operational changes would you recommend before agreeing to the platform?
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First, protect contribution rather than chase order volume. Put the four best sellers at a platform price that preserves at least €10–€11 contribution per order; test whether customers accept it. Remove or re-engineer the two slow sellers with expensive ingredients, because on a 25% commission they are likely to lose money on every order. Build bundles around high-margin items such as garlic bread, soft drinks and simple desserts, which improve the average order without adding much labour.
Second, set a minimum order value and a delivery radius, and cap the platform menu to items that travel well. A pizza that steams in a box and generates complaints is worse than no order. Third, protect direct sales: put a card in every delivery box offering a direct-order incentive, and keep phone or website ordering visible. Fourth, check capacity. Friday and Saturday are already at capacity, so platform orders should be encouraged earlier in the week or limited during peak service. The decision is not 'join or don't join'; it is 'join only with a menu, price and capacity plan that keeps contribution above the break-even line'.