Determining Profit

You open up a grocery delivery startup. The start-up partners with a local grocery store and delivers groceries to your customers on-demand through orders placed through an app. The first year of business was successful and you are looking to grow your business.

Below is data from your first year of operation in the city Dupont: You now want to exapand from serving last year city, Dupont, to also serving a nearby city, Logan. You also want to start differentiating delivery fees and are considering two options. Using the below information:

a.) What is the annual profit if you use Option A?

b.) What is the annual profit if you use Option B?

Profit Structure Fee Revenue Annual Membership Fee Delivery Fee (per order) $50 $5 Grocery Revenue Mark-up (per order) 20% Costs Driver Compensation App Maintenance $15/hour $50,000/year Demand Number of customers Avg. orders per customer Time per ordeir 1,000 20/year 20 mins Order Breakdown Avg. Order Cost (excl. mark-up) $20 $50 # of Customers 500 500