Rs. 100 in revenue but just Rs. 2 in profit, what exactly is Zomato’s revenue model? Its CEO explains.
📹: BeerBiceps
📹: BeerBiceps
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00:00We can't make money on an order of Rs. 200.
00:0250% off up to Rs. 80.
00:04It's not 50% off, it's Rs. 80 off.
00:12How does Zomato earn money from exactly one delivery?
00:17So, there are some customer charges.
00:21And we get a commission from the restaurant as well.
00:24Because orders are being generated for the restaurant.
00:26So, this is the marketing fee in a way.
00:28And we have to pay the rider as well.
00:31So, some money is coming and some money is going.
00:35The whole goal is that the money that is coming should be more than the money that is going.
00:39If a customer has spent Rs. 100 on Zomato.
00:45On food or on delivery charges.
00:50Okay, let's say Rs. 200 total spend of customer.
00:53We can't make money on an order of Rs. 200.
00:56Okay, what about Rs. 1000?
00:58We can make a decent amount on Rs. 1000.
00:59How much?
01:00On Rs. 1000, we can make an average of Rs. 300.
01:08We can make an average of Rs. 300 to Rs. 400 depending on the city.
01:12So, let's say an average of Rs. 400.
01:14If the average order value is Rs. 400, then our commission will be around Rs. 80.
01:20Okay.
01:21The commission is around 20%.
01:23It will be around 17-18% within that range.
01:28So, let's say around Rs. 80.
01:30And the customer delivery charges will be around Rs. 20-25.
01:36Correct.
01:37So, the revenue is around Rs. 100.
01:39Nothing else.
01:41And the delivery cost will be around Rs. 60-70 depending on the city.
01:49Correct.
01:50And distance.
01:52If the distance is more, then the cost will be more.
01:53If the distance is less, then the cost will be less.
01:56Then the customer support charges.
01:58If you chat, then the cost of our agent.
02:01Payment, gateway fee.
02:04If you don't like the food, then you have to refund.
02:09Okay.
02:12How do you give such big discounts sometimes?
02:15The discounts are very less.
02:17But they used to be there earlier.
02:18They used to be less earlier as well.
02:19Okay.
02:20It seems like it's more.
02:2150% off up to Rs. 80.
02:23It's not 50% off.
02:25It's Rs. 80 off.
02:27There's an order for Rs. 400.
02:29It will be 20%, right?
02:30Yes.
02:31Nice.
02:32I want to change it.
02:33But I don't call this discounting honest.
02:37Discounting should be honest.
02:39If you're telling something to the customer, it should be honest.
02:42It should be Rs. 80 off.
02:44It should not be 50% off up to Rs. 80.
02:46But if the competition keeps doing this, then I won't be able to do it.
02:50You're basically roughly making Rs. 80 to Rs. 100 off an order.
02:53That's revenue.
02:55Then from that...
02:56All the costs are gone.
02:57So, it's difficult to make Rs. 5-10.
02:59There are profits.
03:01But Rs. 5-10 all over the country...
03:03I mean, where do you make Rs. 5-10?
03:05After that, there's a fixed cost.
03:06All the team, all the tech, server cost, all this and that.
03:09It's difficult to make Rs. 1 or Rs. 2.
03:11Wow.
03:12But at scale,
03:14out of the core profit of Rs. 1-2,
03:17how have you become profitable?
03:19If I start making Rs. 1-2, will I become profitable?