Many VCs consider the Unit Economics of an on-demand platform startup to be critical to success....

 

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Many VCs consider the Unit Economics of an on-demand platform startup to be critical to success. This is because an analysis of the unit economics of a startup's business model takes into account the lifetime value of each paying customer, the retention (or churn) of that customer-so how long that customer stays and pays the startup, the frequency of transactions and the amount of those transactions. All of these assumptions determine the revenue (often a commission) that the startup will make from that customer on average for an order. Then, assumptions need to be made about the costs of servicing that customer. To help you understand how the business model of three on-demand platform startups can vary from unprofitable to profitable, we do an analysis of the unit economics of GrubHub, Spoon Rocket and DoorDash. GrubHub is an on-demand food-ordering marketplace software app. DoorDash is an On-Demand Food Delivery Company. Spoon Rocket is an On- demand Kitchen Hub Food Delivery Company Retention and LifeTime Value Calculations. • Assume that only 20% of your 1 million app download customers become loyal customers. This means your retention is 20% and your churn is 80%. And once these customers become loyal customers, they stay 1 year with you. On-demand food delivery tends to have a frequency of 1.5 times/week for these loyal customers. The Average Order Value for GrubHub is $35. For DoorDash it is $50. For Spoon Rocket, the Average Order Value is $50. • To calculate the profitability, use the following COGS (Cost of Goods Sold). The higher costs reflect labor costs-either payments to the driver or assembly/driving. GrubHub COGS = $2 ■ DoorDash COGS = $10 Spoon Rocket COGS = $9 (a) In 52 weeks, how much does each of your loyal customers spend (AOV) at GrubHub, DoorDash and Spoon Rocket and what is the "take" that the online service receives? (b) What is your annual revenue stream from your loyal GrubHub customers? DoorDash customers? Spoon Rocket customers? (c) What is your annual profit at GrubHub? DoorDash? Spoon Rocket? (d) Which of these companies would a VC invest in and why? Many VCs consider the Unit Economics of an on-demand platform startup to be critical to success. This is because an analysis of the unit economics of a startup's business model takes into account the lifetime value of each paying customer, the retention (or churn) of that customer-so how long that customer stays and pays the startup, the frequency of transactions and the amount of those transactions. All of these assumptions determine the revenue (often a commission) that the startup will make from that customer on average for an order. Then, assumptions need to be made about the costs of servicing that customer. To help you understand how the business model of three on-demand platform startups can vary from unprofitable to profitable, we do an analysis of the unit economics of GrubHub, Spoon Rocket and DoorDash. GrubHub is an on-demand food-ordering marketplace software app. DoorDash is an On-Demand Food Delivery Company. Spoon Rocket is an On- demand Kitchen Hub Food Delivery Company Retention and LifeTime Value Calculations. • Assume that only 20% of your 1 million app download customers become loyal customers. This means your retention is 20% and your churn is 80%. And once these customers become loyal customers, they stay 1 year with you. On-demand food delivery tends to have a frequency of 1.5 times/week for these loyal customers. The Average Order Value for GrubHub is $35. For DoorDash it is $50. For Spoon Rocket, the Average Order Value is $50. • To calculate the profitability, use the following COGS (Cost of Goods Sold). The higher costs reflect labor costs-either payments to the driver or assembly/driving. GrubHub COGS = $2 ■ DoorDash COGS = $10 Spoon Rocket COGS = $9 (a) In 52 weeks, how much does each of your loyal customers spend (AOV) at GrubHub, DoorDash and Spoon Rocket and what is the "take" that the online service receives? (b) What is your annual revenue stream from your loyal GrubHub customers? DoorDash customers? Spoon Rocket customers? (c) What is your annual profit at GrubHub? DoorDash? Spoon Rocket? (d) Which of these companies would a VC invest in and why?

Answer rating: 100% (QA)

a In 52 weeks the AOV for GrubHub loyal customers is 35 x 15 x 52 2940 The take ... View the full answer