Understanding the true costs of driving for Uber…

Having driven for Uber and Lyft for the past 2 years, it seems pretty clear many people do not understand the costs that drivers incur; Lyft and Uber included. If they did, the standard rate would not drop below $1.25/mile or $0.25/minute… even then, the minimum may vary based on a city’s cost of living, the commission the TNC pockets, and the type of vehicle used.

Be careful when you hear Uber state that drivers are making $40/hr.. or even $20/hr. The way that they tally that number is misleading.

(1) it does not factor the operating costs the driver incurs.

(2) they are basing those figures on either app time or trip time only, not actual time spent driving / looking for passengers. [App time = time the driver app is online. Trip time = time only during a trip. Actual time = app time + ‘dead’ time]

Dead time and dead miles: These are the minutes and miles expended while looking for passengers and/or returning to a hot spot without a passenger on board. In many cases, drivers will turn off the app while returning to a hotspot to prevent receiving a request outside of an area they are trying to work. This is especially true during a surge period. (Take note, as I will return to how this impacts the availability of drivers in areas less prone to surge periods, etc.)

Dead time is important, in that it affects how many trips can be completed in 1 hour. Whereas Uber would have you believe that a driver can make $36/hr, simply because a 12 minute trip may pay the driver $7.20 after Uber’s cut. However in reality, that 12 minute trip may have in fact used 15 minutes or more (driving to the pickup, waiting for the passenger to enter the car, waiting for the next request after dropping off the passenger, etc).

Thus in reality, the driver is making $28.80/hour after Uber’s cut and $7.20/hour after operating costs. [60 minutes divided by 15 (12 min trip + 3 min dead time) multiplied by $1.80 net pay per trip after costs = $7.20/hour]

Note: My examples assume a 25% dead time / dead mile rate, which is very modest and probably lower than most drivers see. In many areas, it may average much higher, even above 50%.

The operating costs can be fairly easily factored by utilizing rates that have been determined and vetted by AAA and the IRS for cost of operating a vehicle ($0.54/mile for 2016). Keep in mind, this is a composite average, based on different car types:

For more information about how these numbers are determined, go to: http://exchange.aaa.com/automobiles-travel/automobiles/driving-costs

By using this composite number instead of the varying costs of each driver, we can determine a fairly accurate baseline for most drivers that will not leave them in the red at the end of the year.

Here is a spreadsheet that breaks down the costs and pay based on different examples (Detroit and Dallas, Uber, Lyft). It also includes what the suggested minimum standard fare might be in Any City. However, please note this is just a suggestion at this point and there may be reasons to adjust it slightly based on driver / rider feedback, additional operating costs unique to different cities, and types of vehicles used.

Be sure to take special note of the breakdown of percentages for each portion of the total fare (customer’s price), to include what the TNC made, the net pay to the driver, and the operating costs. The Any City column divides it pretty evenly in comparison to the other columns (current and recent pricing). So while the driver is providing his own car and taking on far greater risk, he/she is currently receiving a much smaller portion of the fare. Does that seem fair?

Again, the goal is to establish the baseline minimum fare. A price that should not drop below an established amount and that is sustainable by itself without the need for surge (or tips) to cover the operating costs. Because rates are currently so low, drivers that have stayed with Uber rely solely on surge fares. Uber suggests the intent of surge fares is to entice drivers to be where the demand is. However, the design results in a disservice to customers and drivers alike. It only benefits Uber.

Currently, surge pricing has no limit and has risen above 8.5x in Dallas during New Years and reportedly, even above 13x in California after certain concerts. The problems with surge pricing as it currently exists are many:

(1) It creates a love / hate relationship with our clients. When they get cheap fares, they love the service. When they get hit with a heavy surge fare, they despise us and will even rate the driver lower for it (even though the driver does not control the pricing - Uber does.)

(2) Drivers rely on surge to survive. Current standard pricing is too low to cover costs and that impacts drivers and their ability to maintain their vehicle. It also does not allow them a buffer to set aside money to upgrade or replace their car down the road. This results in an unsustainable environment that relies on new drivers as the experienced drivers fall to the wayside due to costs.

(3) Riders find ways to circumvent dynamic pricing, often resulting in drivers that get requests that are later cancelled as they approach the pickup area, because the rider found the price had dropped in that time. This aggravates drivers, wastes gas and put additional miles on their vehicles with zero compensation.

(4) It creates a disservice to the customers who do not live near those surge areas, by greatly reducing the number of available drivers in an area.

(5) It creates inconsistency for both drivers and riders, who must hope things work in their favor, but often times it does not for either party. Sometimes resulting in pitting drivers versus riders, while Uber benefits regardless.

Perhaps a better model would be to:

(1) Utilize a sustainable standard fare (discussed above)

(2) Establish modest price increases (set amount) during the following:
- rush hour
- major events
- bar close

These price increases may only apply to a certain area, or may be far more broad, depending on the impact. Example: Rush hour in Dallas results in heavy traffic ALL over the greater Dallas Metroplex (North Dallas areas included due to the growth of cities like Frisco, etc). Thus the area impacted by that ‘surge’ period would be much larger than say a basketball game letting out at the American Airline Center (AAC) in uptown Dallas.

In addition, ‘risk’ factors might be something to consider that would impact increased price (such as after bar close — drunks who may become belligerent or vomit in a driver’s car)

Again, the price increase would be modest (perhaps 3x or less, depending on the scenario), though the intent would be that they are sufficient enough to entice drivers to make themselves available during those periods, yet still allow drivers to make a decent profit even if they get a ride outside of a surge area.

This improves the availability of drivers, even in less populated areas while keeping both the driver and the rider happy with better service and fair pricing.

Something to think about…