One of the ways Instacart makes money is by charging commissions on every transaction made on behalf of its clients. The company currently has revenue-sharing agreements with over 1,100 retailers in the US and delivers products from more than 80,000 stores.
Thanks to its innovative business model, Instacart has managed to disrupt the grocery industry and make a significant impact capturing 73% of the US digital grocery sales. However, the question remains, how does Instacart make money?
Read on as we delve into the various revenue streams of Instacart and examine how the company has created a profitable business model in the competitive world of online grocery shopping.
The Instacart Business Model Explained
Instacart’s business model is based on the concept of grocery shopping online. Its primary goal is to provide same-day grocery delivery to customers but also to enable easy setup for grocery stores and extra income for personal shoppers.
Here is a breakdown of the key participants in the business model of Instacart.
Customers
The value proposition of Instacart to its customers is that they can order groceries from the comfort of their homes and have them delivered to their addresses.
Instacart charges for the delivery and the service, which is a cost that can sometimes be higher than what a person would actually spend in a grocery store, but at least they won’t have to deal with crowded stores and waste time waiting in queues.
It’s a convenient service considering the average American goes grocery shopping eight times a month and spends at least half an hour per trip.
Grocery Stores & Retailers
More than ten million people use Instacart, which provides a fantastic opportunity for retailers and grocery stores to leverage it so they would gain more exposure for their products and services.
Another great thing about the Instacart model is that it offers a variety of options for its partners to organize their delivery services, which can also help them grow their customer base.
Shoppers
Nearly a third of American online shoppers use Instacart at some point because it’s a great side hustle and an ideal money-making option for college students. Moreover, at the moment, Instacart relies on a network of over 600,000 people who pick up items from stores for customers.
Shoppers are divided into in-store and full-service, both of which enable them to earn additional income while maintaining flexible working hours.
In-store shoppers get the orders through the Instacart app and then the groceries in-store. Full-service shoppers also get notified about an order via the Instacart app, but the difference is that they shop for the items ordered and deliver them to the customer’s doorstep.
How Does Instacart Make Money?
Instacart makes money through several different revenue streams. These include commissions, delivery, other fees, subscriptions, in-app ads, interchange fees, and product markups.
And since retailers or the commission earned from them are Instacart’s most substantial assets, let’s begin by exploring how these contribute to the company’s earnings.
Revenue Share
Every time a product is processed and sold via Instacart, the company receives a commission from the retailer. This is possible thanks to the revenue-sharing agreements Instacart signs with its partners. As per the data, the number of Instacart partnerships with retail and grocery companies at the end of 2021 was 750.
However, the company does not earn equally from all retailers. Instacart commission rates are individually negotiated and mainly depend on the retailer’s sales volume.
Fees
Instacart charges a standard delivery fee of $3.99 for same-day orders exceeding $35. Additionally, the costs for one-hour scheduled delivery and orders under $35 vary and are shown to the user upon checkout.
Unofficially, fees range from around $6 to $10, except for Instacart+ members who get free delivery on orders over $35 or more per retailer. Other fees include:
- Heavy fee – charged when the order exceeds 50 pounds.
- Service fee – depends on the location and the number and types of items in a user’s cart, and may range from 5% to 10% of the total value.
- Priority fees – not applicable to all orders but usually start at $2.
- Bottle deposit and bag fees – variable in accordance with location.
Note that Instacart does not have a service fee on pickups which begs the question: how does Instacart make money on pickups? Pickup fees vary per retailer, some have them, and some don’t. The ones that do charge it as equivalent to a delivery fee.
Subscriptions
Instacart+, formerly known as Instacart Express, is a subscription service that, among other things, provides customers with free delivery. It can be purchased as a flat annual membership which costs $99, or a monthly fee which comes at $9.99.
As a concept, it’s very similar to how Netflix makes money from subscriptions, and as a recurring revenue stream, it provides a predictable source of income for the company.
Some of the benefits of Instacart+ users are that they get to save $7 per order on average, have unlimited free delivery on orders of $35 or more, have family shopping features, reduced service fees, access to exclusive offers, and more.
Advertising
Just like Twitter, which makes money by leveraging its user base, Instacart uses its popularity to sell advertising space on its website and mobile app to brands and retailers.
Instacart ads come in different formats and can appear in search results or product pages. Sponsored listings are the most popular and appear whenever an Instacart user searches for a certain product. Instacart also has coupons, brand pages, display ads, and as of 2022, shoppable videos, all available to advertisers who pay the company for each click or impression.
According to statistics, in 2021, Instacart made $580 million from advertising. Projections are that its advertising revenue will increase to $1 billion by the end of 2022. Other sources state that Instacart accounted for 1.4% of the US ad spending in 2020, and is expected to reach 2% by 2023.
Interchange Fees
In 2022, the Instacart revenue model got an additional boost when the company partnered up with Chase and Mastercard and introduced a new credit card for its customers. Using the Instacart card, users can earn cashback rewards of up to 5% on various purchases.
Interchange fees are charged to the merchant that accepts payment with the card and typically ranges at around 2.5%, plus an extra flat fee of $0.10. Instacart shares the revenue with credit card vendors in exchange for issuing the cards, similar to the business model of Fetch rewards.
Markups on Products
Instacart sometimes marks up the prices of the items it sells. This allows the company to profit from everything it sells, even if it doesn’t charge customers a delivery fee.
According to some estimates, the average markup is around 15%. However, different markups apply for different products and stores. For some products, Instacart markups prices by almost 50%.
Is Instacart Profitable?
At the end of 2022, Instacart reported a positive net income of more than $100 million. In 2020, Instacart’s profits stood at $50 million, noting a significant boost from 2019 when the company reported losses of over $300 million.
Also, Instacart recently announced that its full-year revenue in 2022 increased by 39% to $2.5 billion. The company achieved such great results thanks to its focus on advertising which, in a way, compensated for the fact that Instacart’s order volume reduced after the pandemic.
The above results and the scheduled Instacart IPO, which has now been pushed to 2023, prove that Instacart stands its ground and will continue to wear the title of a profitable and successful private startup. They also show that diversifying revenue pipelines may be the only solution during turbulent market conditions.