Why On-demand Start-ups have Failed in India

Source | Entrepreneur : By 

In the last few years, we have seen a lot of start-ups emerging in the area of on-demand services. With the advent of technology & app-based services, everything from cabs to groceries is being delivered to your doorstep with a click of a button; but still, the market for on-demand services like plumbers, electricians & other maintenance services remained un-cracked. We have also witnessed a considerable number of shutdowns along the way.

So is it a Failure?

Well, I wouldn’t declare it a failure right away, but the simpler explanation behind this is good old unit economics. Take a case study: An average plumbing service costs about INR 400. While on-demand marketplaces operate within the margin of 10-20% commission from third party service providers to cater to these requests. Assuming the maximum commission of 20%, the company is earning only INR 80 per lead while the present customer acquisition cost is somewhere in the range of INR 700-1000. Simply put, in order to break-even on a particular lead, a customer should come back for at least 10 jobs around the year averaging INR 400. This is, of course, ignoring the administrative & infrastructure costs on top.

 Now the question is: Would he? Most likely, not. There are a lot of factors in play. First of all, expecting every customer to come back to your platform for a minimum of 10 times/ year is pretty high, to begin with. Secondly, for maintenance services like plumber, electrician, there is a considerably low loyalty factor due to lack of personal connection & customers are mostly motivated by cheaper cost points & discounts; which is definitely not a sustainable strategy for any company. This is unlike an on-demand beauty service, which ensures a good repeat as well loyalty among customers. Hence you see a lot of on-demand services startups focusing on beauty services instead.

Read On….


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