Now more than ever, food delivery businesses are an important part of the U.S. economy. They’re playing a critical role in helping restaurants and food service professionals reach new customers in a constantly changing marketplace.
Companies like DoorDash and Uber Eats have become go-to options for diners who eat at home. However, there’s still an opportunity for aspiring entrepreneurs to carve out a niche in their communities by starting a food delivery business.
In this article, we’ll cover:
- The different types of food delivery businesses
- The benefits of starting a food delivery business
- How to start a food delivery business in 4 steps
- How to protect your food delivery business
The different types of food delivery businesses
There are two types of food delivery services — restaurant delivery services and meal delivery services.
A restaurant delivery service makes money by charging restaurants a commission for working with them and charging customers a service/delivery fee.
A meal delivery service delivers pre-made meals or home meal prep ingredients to homes or businesses.
The benefits of starting a food delivery business
Starting a food delivery business is an opportunity to impact your community by supporting small food service businesses and providing residents with flexible dining options at home.
Food delivery businesses help restaurants expand their reach beyond foot traffic. They can also help restaurateurs who no longer have a physical space available to customers.
You’ll be competing against some established players in the space, like Uber Eats, GrubHub and DoorDash. However, your local connections and partnerships could create a competitive advantage with more appealing commission and delivery fees. (Many restaurant owners are struggling with existing service fees imposed by large delivery platforms, according to WIRED.)
4 steps for starting a food delivery business
How can you start a food delivery business from home? Here are four steps to get you started:
1. Make a plan and a budget
Creating a food delivery business plan and securing funding are the two biggest steps to getting your business up and running.
When writing a business plan, you’ll want to consider your target customer base, your startup and ongoing costs and how long it will take to be profitable.
This is also a great time to pick your business name and develop an initial plan to market it.
To start a food delivery business, your startup costs could range from $3,000 to $25,000. Your investment will need to include:
A workspace: The costs of where you operate your business can vary greatly depending on where it’s located. Many entrepreneurs launch their businesses out of their homes, reducing initial expenses.
Technology costs: Most small businesses need a computer, phone systems, internet access and possibly a printer or scanner. You can use your personal devices at first but plan to invest in technology after your initial startup costs.
Business license and insurance: Ensuring your business is adequately covered is of utmost importance. Most small businesses will need liability insurance, and as a food delivery business, you’ll need commercial auto insurance. In most states, you’ll need worker’s compensation insurance as soon as you hire an employee.
Marketing materials and a website: You need to promote your business to gain clients with local restaurants and the customers you plan to serve with food deliveries. Start with building a social media presence and a simple, attractive website. It’s also a good idea to distribute flyers to restaurants and neighborhood homes. Consider offering discounted fees for new restaurant partners and customers to help get the word out.
Delivery-specific vehicles and tools: Many delivery businesses provide transportation for their drivers and food service bags designed to maintain freshness and temperature. This is where commercial auto service comes into play – your personal auto policy most likely won’t cover business-related accidents or other claims.
2. Research your target market
Knowing your audience increases the chance of success for any business. Look at the area where your business will operate — are you near a university, business district or suburban families? The demographics of your audience can help determine what you name your business, your marketing strategy, and the kinds of meals that you deliver.
You can research your area with local business bureaus to see where there might be a need in your community. You can also conduct research by going into the community and asking/observing what people need.
3. Plan your food delivery menu and services
Once you understand your target market, you can begin to plan your menu and service offerings. This will vary depending on if you are working with a meal-prep service or local restaurants in your community.
Will you focus on quick meals, easy snacks, lunch, dinner, or meals for families or singles? A clear theme will help you as you get started with your delivery service.
If you are planning on partnering with local restaurants, partner with a mix of eateries to ensure your customers have appealing options.
4. Cover your legal and financial requirements
There are a few things every small business needs:
Form a legal entity: Setting up a business structure can protect your personal assets. You can choose from different options, such as a sole proprietorship, a partnership, an LLC or a corporation.
Register for taxes: Apply for an employer identification number at the IRS website. Make sure you’ve met your state and federal tax requirements before you open your doors.
Open a business bank account: By opening separate banking and credit lines for your business, you protect your personal assets. It also makes filing your taxes easier. Also, be sure to set up an accounting system to understand your finances and be ready to file taxes annually.
Get permits and licenses: Check with local, state and federal small business agencies to make sure you have all of the permits and licenses required for a food delivery service in your community.
Get business insurance: Find small business insurance coverage to protect yourself from liability risks and unexpected out-of-pocket expenses.
How to protect your food delivery business from risks
Once you decide to start a food delivery business, you’ll have to pay close attention to business risks. Small business insurance can cover many of the most common accidents that occur with a delivery service.
For example, general liability insurance for food delivery businesses can cover:
Third-party injuries and medical expenses
General liability coverage can protect you if you’re held responsible for an injury to someone other than your employees.
For example, general liability insurance could cover expenses if you are found liable for delivering food that makes a customer ill and they sue you for medical costs. General liability insurance could also protect you financially if a delivery worker knocks over and injures someone who then demands compensation for their hospital bills.
Third-party property damage
General liability insurance can cover you if you’re liable for damaging property you do not own.
For example, if a delivery worker accidentally breaks a sprinkler outside a customer’s home and it causes significant water damage, the customer could decide to sue you. Your liability insurance could cover the associated legal costs up to your policy limit.
Personal and advertising injury
A general liability policy covers personal and advertising injuries, such as invasion of privacy, libel, or slander. For example, a customer could sue you for invasion of privacy if you share their image on social media without permission.
Other policies to consider are commercial auto insurance, which can protect you while you are driving for business purposes, and workers’ compensation insurance, which is required in most states as soon as you hire your first employee.
How NEXT helps your business thrive
Running your own business can be a 24/7 job. At NEXT, we give you 24/7 DIY access to manage your coverage on your schedule.
Complete our online application to see coverage options, get a quote, and purchase a policy in a matter of minutes. When we receive payment, you’ll get immediate access to your certificate of coverage.
Our licensed, U.S.-based insurance professionals are ready and waiting to help if you have questions during the process.
Get started with your free online quote today.
