The Financials Behind Instant Commerce
There was once doubt about adoption, but the instant commerce industry has seen enough sustained demand to create new businesses & adapt established ones. The question now is "Can instant commerce be a profitable business?" Our answer is a resounding yes.
Since Gopuff’s inception nearly 9 years ago, the company has gone through many growth phases: from start-up, to expansion, to hypergrowth, to now focusing on becoming profitable. Throughout the journey, Gopuff never jeopardized its ability to prove this model can be profitable. This sustained focus on the financial integrity of our model has positioned us well for the current climate of the instant commerce industry.There was once doubt about adoption, but the industry has seen enough sustained consumer demand to create new businesses and adapt established ones. The (very valid) question being asked is, “Can instant commerce be a profitable business?” We are coming off a time where VCs were funding growth and multiple companies were jockeying for market share. News articles speculated that instant commerce companies were losing a sustainable amount of money per order. All of this can scare media outlets and investors, and ultimately, force a seismic shift like the one we’re experiencing now.
Today, Gopuff generates more than $4 in contribution profit per order, and this number continues to increase. Our unit economics remain strong because of our deep understanding of the business, and because of our relentless focus on two areas: Revenue Per Order & Cost Per Order.
Revenue Per Order: Revenue per order, or Average Order Value (AOV), must remain high to ensure profitability. Gopuff has steadily increased its AOV with expansions in assortment and use-cases to levels that allow for profitability. While we will always strive for larger orders, we also want to prevent small orders which can be extremely detrimental to our economics. To combat these small orders, we enforce a minimum order value (MOV). AOV comes from three main types of revenue:
Product Revenue - Dollars that Gopuff generates from selling products that we own and keep as inventory.
Advertising Revenue - Dollars that Gopuff generates from partner campaigns that span on and off-platform advertising, product sampling, and experiential marketing.
Customer Revenue - A collection of Dollars that come from subscriptions and delivery fees. This does not include tips as 100% of tips are passed through to driver partners.
Costs Per Order: Providing the exceptional customer experience of an instant commerce platform in a cost-efficient way is not easy. One key to reducing our costs is leveraging technology. Because our routing, binning, and batching softwares allow for grouping of orders with similar destinations, there are increased efficiencies and driver partners are able to deliver a greater number of orders. Scaled processes allow our MFCs (micro-fulfillment centers) to operate at high-levels of productivity, with benefits ranging from warehouse employees being able to pack orders in minutes efficiently, to how MFCs are laid out. Some category metrics we use when calculating Cost Per Order at Gopuff:
Cost of Goods - Dollars that Gopuff spends to purchase inventory that is sold at retail prices with margin.
Operations Associates Cost-Per-Order - Dollars that Gopuff spends to pay MFC employees to pick and pack orders.
Delivery Partners CPO - Dollars that Gopuff spends to pay Delivery Partners to deliver orders.
Even with the industry’s shifting climate, Gopuff is answering the question,“Can instant commerce be profitable?” with a resounding “yes”.