If you hadn’t heard of Instacart in 2016 or 2017, you weren’t alone; but by mid-2020, it seemed the name was on everyone’s lips.
But you might be wondering: How does Instacart make money? Where does it pull its now-gargantuan profits from? If you’d like to find out, continue reading to see what I learned!
How Does Instacart Make Money In 2023?
Instacart makes money from a variety of profit points in its business model, including item upcharges, membership subscriptions, delivery and service fees, retail partnerships, and in-app advertising in 2023. Reportedly, these revenue streams have netted the company over $2 billion annually, with a valuation now at $39 billion.
Let’s look more closely at the ways Instacart makes its profits, and whether or not it has anything to do with worker pay, so keep reading for more facts!
Does Instacart Make a Profit?
Instacart does indeed turn quite a tidy profit, though according to Entrepreneur, as of 2021, the company seems to be plateauing.
In any case, Instacart derives its profits from four major sources, which I will outline below:
- Item Upcharges
The sticker shock is real and it’s not your imagination- some items on Instacart are priced higher than they are in stores.
Grocers like Wegmans may charge as much as 15 percent more on Instacart than in its brick-and-mortar locations.
Even discount king Aldi upcharges on some of its items (though not all).
While it’s debatable how much of that upcharge goes directly to Instacart, it’s more likely that these higher prices allow grocery stores to stay on Instacart.
In turn, Instacart profits by having desirable grocery chains participate with its app and bring in more customers.
- Membership Subscriptions
It’s never a bad idea for companies big or small to find a regular, passive revenue stream, which Instacart Express is.
Express memberships cost $10 per month or $99 annually, and the monthly subscription auto-renews until the customer cancels.
What I appreciate about Instacart Express, though, is that it really does add value to the Instacart experience- it’s not an empty subscription at a bloated price point.
If you use Instacart at least three times a month, it starts to pay for itself, while Instacart has the guaranteed revenue stream.
- Delivery & Service Fees
There is a reason you can pay as much as $8-10 for a quicker delivery with Instacart- it’s profitable for the company.
As long as people are willing to pay to not have to leave their house for a stocked fridge, Instacart is going to charge it.
This also applies to its service fees, which can include anything from a Heavy item fee (for orders that weigh over 50 lbs) to a bag fee.
- Retail Partnerships
Grocery stores on Instacart enter into a partnership with the company. The stores gain access to Instacart’s wide audience and Instacart receives steady profits in return.
While the amount might fluctuate month-to-month or year-to-year, it’s still a stable source of revenue.
- In-App Advertising
In-app advertising operates a little bit differently than you might be used to on Instacart.
For example, if you search for a specific item (ex. carrots) when you get the list of results, you might see potato chips in the mix.
In the corner, it will say “Sponsored,” meaning that Instacart knows it has nothing to do with your search query, but the potato chip company paid to have its product appear there.
What Percentage Does Instacart Take From Stores?
A few sites suggest that the 15 percent mark-up on some retailers’ items on Instacart goes directly to Instacart.
However, Instacart’s website explains the upcharges as the retailers’ decision, which it opts to do to remain operational on the Instacart marketplace.
Also, Space Technologies does mention that the equivalent of about three percent of every order goes to Instacart as profit.
Do Grocery Stores Pay Instacart?
Grocery stores do pay Instacart to use the platform and sell on the marketplace; it’s almost like rental fees, where the companies pay to occupy the digital space.
Instacart not only widens the audience of shoppers who might otherwise skip going to a certain store, it helps create and cement brand loyalty.
For example, shopping at Aldi via Instacart is a totally pleasant experience, instead of customers resenting going because the carts are so big and bulky, and the stores are so crowded.
For this kind of customer appreciation, most grocery stores would find the fees charged by Instacart well worth the price.
Do Instacart Shoppers Get Paid Well?
Some companies are more successful and earn more money because they don’t pay their employees what they’re worth.
Luckily, Instacart does not benefit in this fashion, and shoppers on average earn the equivalent of + per hour.
In fact, some of the most efficient shoppers can earn in excess of $45/hr.
Therefore, the gig economy aspect of working for Instacart does mean that the company isn’t investing in its workers as it would full-time employees.
However, its relatively fair pay structure ensures that shoppers/drivers aren’t necessarily being exploited for profit, either.
(That said: Remember to tip your drivers well! Instacart does pass on some of the burdens of paying employees fairly to the customer.)
To know more about Instacart, you can also read our posts on what is Instacart, why is Instacart so expensive, and what is Instacart Express.
Instacart has a profitable business model that includes pay streams from a variety of sources, notably its delivery and other services, and its retail partnerships, too.
2021 was the company’s most successful year yet, and it will be very interesting to see how this relatively young company continues to expand and innovate.