Amazon's Prime membership is quite a clever business strategy: Customers get free two-day shipping for millions of products while the company gets extra sales because people inevitably place more orders. Now delivery startup Postmates is borrowing the idea.
The San Francisco startup on Thursday debuted its own membership program that waives certain fees when customers order from merchants in its "Plus" category. For $9.99 per month, Plus Unlimited subscribers can avoid the $2.99 or $3.99 delivery fee for orders above $30 and the additional 9% service fee for any order from these merchants.
Plus Unlimited is available in all markets that have the Postmates Plus category, which includes more than 300 merchants in cities like San Francisco and New York.
"We assumed that anyone who orders two times or more per month from Plus, will benefit from this,” Postmates vice president of growth and strategy Kristin Schaefer told Fortune in an interview.
According to Schaefer, an Amazon Prime-like membership is a natural addition to Postmates' own service, and the company estimates that roughly 10% of its customers will be interested in subscribing (whether they actually do is another question). According to some analyst estimates, almost half of Amazon's customers are Prime members.
Right now, Plus orders account for about 40% of Postmates' orders, the company says.
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On the surface, this new service seems like a money-losing scheme for Postmates. Customers who place just a couple of orders in a month will save money while Postmates will be left footing the delivery bill for any additional ones.
But it's not quite so. Though Postmates normally collects its delivery fees from Plus merchants and its service fee, it also takes a commission from each order. That cut is usually at least 20%, according to Schaefer, and that is how Postmates will finance its membership service.
Moreover, as Schefer explained, many of Postmates' customers who order from its Plus merchants also order from its more premium merchants, which command higher delivery fees and aren't included in the new unlimited membership deal. Postmates' expectation is that while customers who subscribe to Plus Unlimited will likely continue to order frequently, if not more often from participating merchants, they'll also continue to place these pricier orders.
For Postmates, an increase in orders from these Plus merchants is actually a good thing because its couriers can often skip their lines or pay more easily, leading to greater efficiency. Increasing the business that Postmates brings them can also help the company negotiate higher commissions or other advantages, Schaefer explained.
Over time, Postmates plans to "add more benefits" to its Plus Unlimited membership, as Amazon has with Prime, which now includes access to its video and music streaming services, among other perks.
With that said, the on-demand delivery space continues to be an increasingly tougher race. In the food space, Postmates competes with the likes of Caviar, DoorDash, GrubHub/Seamless, and even Amazon and Google. Uber, which has so far been focused on hot meals with its UberEats service, also now provides delivery for other types of merchants and along with Amazon, could become Postmates' biggest rival.