The Gig Economy, doing initial calculations as a #startup – #gigeconomy #uber #deliveroo #justeat

I rarely have dreams, but I do get words in my head when I wake up. Though, I don’t know why I woke up with the initial thought of, “Alcohol delivered to your door”. Everything is great at work, my life is good and I’m not on the lookout for a bottle of anything. It was an idea that just entered my head and when that happens I note it down and have a look at it.

So, let’s tear it to bits, Buckfast on Demand.

The Idea

Connecting off sales to customers. That’s all it’s about. I could call it the Uber of Booze or the Just Eat of Binge Drinking* or even the Hungry House of Liver Damage, but right now it’s just about getting something from a retailer to a consumer. It’s just delivery.

So “as a customer I want to order a couple of bottles of Jacob’s Creek CabSav and have it delivered within the hour.

* Interestingly, Just Eat dropped their alcohol delivery service. And if I was an over excited entrepreneur then I’d be asking one simple question, “WHY?!

It’s All About the Numbers

Once you’ve figured out some key numbers then you can look at whether to proceed. I need a calculation to figure out how many drivers I’ll need to service an area of n population.

Where I live has a population of about 12,000 people. Off the top of my head I can think of four off sales sites that can supply. Notice I’m keeping away from the how-do-we-keep-the-stock-items-up-to-date-on-the-app argument, that’s only a discussion once I’m past this point, is it really worth doing?

I’m estimating that 2% of the local population will use the service twice a week. The peak will be two days of the week, Friday and Saturday over a six hour period 5pm-11pm. Let’s assume that 80% of the order volume will be on those two days. I’m trying to find the number of delivery drivers I’ll need to service the local area.

12,000 x 2% = 240 x 2 = 480 x 80% = 384 / 12 = 32 orders per hour on peak time.

With an average trip time of 20 minutes per trip and we are looking to fulfil orders within the hour I need 10 drivers in theory. Now that doesn’t account for multiple orders originating from the same retailer. Pick up time is reduced, in theory I could save 20% of the time. Also order patterns are never uniform, they may bunch up right after work, between 5:30pm-6:30pm, or just before closing at 10:45pm.

I’m going to settle on 8 delivery drivers.

To Employ or Self Employ that is the question?

This is where things get sticky. Especially if you’re a Guardian reader. You want to pay the workers fairly but that does come at a cost. Right now my mini operation covers one town. Settling on a minimum wage rate to start off with let’s have a look at the numbers.

First assumption, the workers are over 25, so the minimum wage is £7.50 an hour. it’s going to be a part time gig as my peak times only cover the two days. These bits would need work and refining. Second assumption, employment with this company would have the expectation that this is a second job.

The calculation I’m using is minimum wage multiplied by the number of contract hours, multiplied by number of drivers (8) and doubled for employer contribution costs and so on.

7.50 x 16 = 120 x 8 x 2 = £1,920 a week

Now that’s revenue my service needs to earn just to pay the delivery workers, that doesn’t take into account my costs, marketing, hosting, up front development costs, payment gateway percentages and so on.

Can We Get the Revenue to Balance Up?

We’ve already calculated that 480 orders a week is a working average based on 2% of the population. Assuming that the order total is £16.90 + £1 local delivery, that gives a per order total of £17.90 giving us a total retailer revenue value of £8,592 a week. We, though, are nowhere near out of the woods yet.

I’ll be taking a percentage off the retailer, that’s my fee for handling this whole pickup/delivery operation. Ballpark figure, 7%, once again this could change especially if it’s wipes out the profit margin on the retailer’s side.

£8,592 x 7% = £601.44

So on paper the 8 delivery driver plan is out of the window. Now I could be crafty and only use 18-20 year old drivers and reduce the minimum wage down from £7.50/hour to £5.60/hour.

5.60 x 16 = 89.60 x 8 x 2 = £1433.60 a week

A decent reduction but still nowhere near what I’d need for a break even. And the thought of “if we raise enough runway” hasn’t entered my head yet. I could have all the runway I wanted and still burn through it at a rate of knots.

Now for the Flipside

Now then, that’s if I was employing them. If they were self employed then I can avoid all that and pay per trip. So we need to look at the average sale again.

I said £17.90 for my two bottles of CabSav plus delivery in the local area. Once I take the mythical 7% I’ve got £1.25 revenue per sale. I agree to pay the driver 65% of the revenue or 81p – now it doesn’t look worth it at all but the more deliveries you can do the more you’ll make. Now it becomes a sport to fulfil as many orders as you can. And if you’re really smart you could make over £300 in two days just on the peak orders.

For me as the entrepreneur then the self employed driver model just wins hands down. They’re making some money and I’m making some money (currently 43p an order). As a model it’s wide of the mark.

The model is too basic

Right now everything is based on averages. These are baseline assumptions now I need to look variations.

Seasonal – Christmas, New Year, Wakes, Births, First Communions, Confirmations and right down to “it’s wine o’clock” – you’d expect peaks of order volume and you’d have to adjust manpower to suit.

Event Driven – Any sporting event…. get the beers in. Done.

Order Type – So far I’ve worked the model off one drink, wine and that’s a low order retail volume. What if a customer orders six bottles of vodka instead? £12 a bottle is a £72 + £1 order (£5.11 revenue with £3.32 to the driver and £1.78 to the startup). You may want to start an Ambulance as a Service at the same time if customers are ordering six bottles of vodka regularly.

Ultimately I’m curious on this baseline 2% figure which I outlined at the start. What if it was 3% of the population of 12,000 ordering?

12,000 x 3% = 360 x 2 = 720

Your order volume increases 50% to 720 orders a week and theoretical retailer order book from £8,592 to £12,888, with your 7% becomes £902.16 for the week.

Scaling Up

To make it you need to operate in as many cities as possible. Hundreds of them, with as larger populations as possible. Rolling out in small areas is usually not representative of how the model will behave. Where I live is certainly not the target market I think, even the next major city wouldn’t have the volume.

So, even though I had no notion of doing such a business, I’d pass on it. Too variable to my risk aversion. Though it’s been an interesting exercise on the numbers. And I’m not saying this is right, it’s very open to interpretation and would need another four or five iterations and kicking about a bit before thinking it was worth pursuing.

Further Reading

If you’re interesting in the modelling aspects which I’ve lightly scraped up above then it’s worth looking at John Adam’s book, “X and the City” which models various city scenarios, some sensible and some not. Here’s an Amazon link to it.

If you’re really interesting in City Modelling then check out Witan which is Mastodon C’s city modelling platform. (Not a paid endorsement by the way).

Tell Me, What Did I Miss?

So, I’m not a genius, I’m not a maths whizz. This is a mix of simple numbers, common sense and a calculator. So if you think there’s anything that I’m way off the mark with then I’m all ears, feel free to leave me a comment. I’m here to learn from you just as much as you’re reading this to learn from me.

If we can learn from each other then perhaps we can improve things all round for the better.

….So how I will I get my beer?

I’ll drive to the shop, it’s just down the road.





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