Part 2: The Cost of Customer Acquisition in Numbers — Analyzing the $1,000 Lyft Promotion
Last week the unprecedented $1,000 Lyft incentive inspired a lot of questions about the cost of customer acquisition. Today, I present the numbers.
Looking at the graph, you will see the incentive details per city along with the average driver income per ride; this was pulled from SherpaShare and ranges between $9 to $15, except one outlier in New York, where Lyft’s commission is also drastically higher (SherpaShare’s data seemed the most reliable; however it’s users might be more or less apt to be full time drivers, but it is hard to say.) I could not find with similar conclusiveness the average number of miles per ride, which probably was a factor in Lyft’s varying incentive amounts and ride requirements; I postulate that this was also based on internal metrics ranging from the demand for drivers and Lyft’s perspective on their potential for expansion in cities of varying size.
I tried to make the analyses as real as possible, so it comes with some well-researched estimates — for example Lyft has a car inspection cost of $35 — but I also was forced to make some assumptions such as a general administrative overhead onboarding cost of $10, for a total of $45.
Below is the breakdown of the first three months a driver is on the road driving 25 rides, 50, 75, 100, 200 and 225 consistently and a final scenario of drivers completing the ride requirement and then 50 rides the subsequent two months.
The chart means Lyft would be at a loss; so, the first takeaway is that in the real world not everyone will complete the promotion — and Lyft is depending on this.
The intimidating 200 rides in San Francisco is hard to attain — and I can personally attest to this. In fact, maybe that is why they’re offering the $1000 — the only city that is — so they can get buzz around the promotion. It’s possible that Lyft is depending on cities with low incentive amounts to balance it out, and the payoff for Lyft might just be that rewarding — for example getting more drivers in Silicon Valley — where the incentive is $750 — may increase the number of riders and therefore become exponentially valuable, growing the company as a whole.
I personally do not have a problem with the high ride requirements: it is doing what many incentives and promotions do — opening you up to something you wouldn’t otherwise be open to, i.e. buying a product, driving for Lyft — and if that’s what it takes to be open minded then I’m okay with that.
Despite possibly unattainable promotions, Lyft sends text messages and even calls you to get you to drive more (it worked on me!) once you sign up to drive; from a quick $200 to do 10 rides in two days, they also continue to give incentives to drivers through the Power Driver Bonus, which varies by city — for example in San Francisco for 10% bonus you would have to do 80 rides, 30 during peak hours, and for 20%, 100 rides, 40 of them during peak hours. I personally find Lyft to be very fair.
What’s more, you can cash out everyday, a minimum of $50 at a time. Why don’t they advertise this? I mean, how many employers with the potential to pay you hundreds everyday actually pays you everyday too?
And naturally, I was curious about the numbers on the other side — is it really worth driving? For this analysis I considered 30% of each fare to cover miles and wear and tear, which the government presently has at .55 cents per mile. There are variable and fixed costs depending on what car you drive, how much gas is in your area, if you’re driving out of the way to pick up people as a full time gig or if they’re right there and you’re taking them where you’re already going, as explained in the post How to Never Pay for Gas Again. Of course you are wearing in your warranty and other extraneous though important factors. Ultimately every situation is unique; this is just a guide.
Paralleling the same hypothetical scenario of completing the ride requirement and then 50 rides the subsequent two months you see the income of drivers: for example in San Francisco with the highest ride requirement of 200 a driver will bring home $3,818 and in Chicago where the ride requirement is only 50 you will pocket around $1,321. None of the numbers in any column includes sporadic incentives and the Power Driver Bonus you receive get after completing a certain number of rides, nor does it include a substantial perk Uber drivers do not enjoy — tips through the app. Lyft asks riders if they want to leave a tip and gives you 100 of them (in over 50 Uber rides two or three people have given me $2).
Furthermore, this chart does not include the perks you get from the Accelerate Premier Driver Reward program, with everyday needs like Verizon, health insurance, Doctors on Demand, to Intuit and roadside assistance — all useful though things you may already have set up with a preferred price. Another nice touch, which can more easily be qualified — and that passengers can also take advantage of — is Shell Fuel Rewards. Again, it’s possible you already have a fuel reward program or your local Costco and Safeway gas beat these prices anyway. Actually I had no idea about this incentive, which goes to show the lack of communication that is bound to happen.
Yes, I’m a Lyft and an Uber driver — and also a professional. As for my driving habits, I drive when I’m on the way to places or if I’ve been home a couple days in a row staring at my computer screen and need to interface with civilization, doing about 30 rides per month. I may not be Lyft or Uber’s ideal driver, but surely they would like more drivers like me who don’t qualify for extra perks but who are essentially brand evangelists, and of course, more drivers means more convenient pickups for riders — which will feed the company twofold. In summary, I think the $1,000 is not that “crazy” after all, and I hope it will inspire people to join the car sharing movement.
If you do decide — and maybe you need to read “10 Reasons to be an Uber or Lyft Driver — Even if you are Rich” to put you over the edge — don’t forget to use the Lyft promo code here. I’m a Lyft driver, and I didn’t get any ‘incentive’: I fell through the cracks inbetween promotions and my cost of acquisition — according to some definitions — was just the general marketing costs, which was probably in the thousands anyway.