There is no need to go into a lot of explanation about Uber the company. Their origin, the service they provide and most of all the controversies surrounding the company which range from driver strikes, to murder, rape, rider abuse by drivers, and driver abuse by riders, are all well known. In fact, one thing you can always count on is an article on Uber. Some positive some negative. Recently I read one about how much Uber drivers actually make which I found not to be very accurate or even coming up with a conclusion grounded on facts.

The vast majority of people know quite a bit about Uber; even Lyft for that matter, the other TNC or Transportation Network Company. What most people don’t know, including many of the drivers themselves, is how much money a driver really makes. Nets in other words.

This might come as a surprise, but it is true; most drivers themselves oftentimes don’t know the true cost of operating a motor vehicle within the context of driving for any of these TNC’s. Understanding the operating cost of a car is a crucial component in understanding how much money drivers really make. In other words, net.

The reasons why some drivers and anyone trying to figure out how much drivers earn is lack of knowledge in two areas. Number one — not all cars are created equal. Some cars are more expensive than others to operate and knowing exactly how much it costs a driver to operate a car is difficult to ascertain. Number two — lack of “number-crunching” experience. Not everybody is willing or able to dig deep into this process. There are other factors, but these seem to be the most common.

What makes matters worse is that even with a lot of research on one particular type of car, and good number crunching skills, there are so many other factors that come into play that complete accuracy is nearly impossible. Instead it’s best to understand that there is a margin of error of plus or minus 5% on any figure that is gleaned from this process.

Back at the beginning of the year I started with this process in order to help my nephew, (who at the time was driving for Uber) figure out if it was worth it for him to be a driver. He had just received notification from Uber that a new “winter promotional fare pricing” would be going into effect during the second week in January. The note stated that due to slow ridership, fare prices were dropping from $1.50 per mile and $0.30 per minute to $1.05 per mile and $0.15 per minute. In typical Uber double-speak, the email claimed that this move would be beneficial to drivers, as they would get more rides and “naturally” make more money. Intuitively I immediately knew this was a complete spin. Total hogwash.

As soon as my initial conversation with my nephew was over, I began to look into the question of profitability regarding driving for Uber. Actually I had wanted to do this from the time my nephew originally started driving for Uber since I was somewhat intrigued as to whether this could be a good business proposition. I thought of either driving, or buying a couple of used cars that I could rent to students from the local university who could be interested in driving for Uber, but who did not own cars. In any case, my motivation was such, that I delved into this analysis and came up with some facts and figures that I will share in this post.

Before providing the results of the analysis I conducted, the following are some bullet points that are important in understanding what driving for a TNC such as Uber is all about.

  • Uber drivers are independent contractors. They receive no health insurance benefits, social security, unemployment, disability, or compensation. All of this, although difficult to quantify, comes at a cost to the drivers.
  • Uber drivers get paid based on the fares charged to riders. Every city charges riders different fare amounts. Tampa riders pay $0.65 per mile and $.09 per minute. N.Y.C. riders pay, if I remember correctly, $1.79 per mile and $0.40 per minute. (Please correct me if I am wrong on this). Uber charges drivers a commission of 20% or 25%. That means that a driver in Tampa gets paid out of the combined miles plus minute fare, which amounts to approximately $0.70 per mile. After commissions this drops to somewhere around $0.54 per mile.
  • Although Uber provides decent insurance coverage to the riders, the drivers have limited coverage. It is incumbent upon drivers to have the additional insurance needed to cover for the blind-spots of the Uber policy. Making matters even more complicated, car insurance companies will not cover TNC drivers and will go as far as dropping coverage entirely if they find out a policy holder drives for one of these companies. In some states car insurance companies offer a hybrid policy that covers drivers for personal driving as well as for TNC driving. In some states these hybrid policies are not offered and TNC drivers must buy a commercial insurance policy which can be quite expensive. I have heard of commercial policies costing upwards of $150 dollars monthly in addition to regular coverage. (Again any comments and/or updates on this is welcomed).
  • Another expense to consider is “dead miles”. These are miles driven to pick up customers or driven after a customer is dropped off and the driver must go back to a viable waiting area. This happens when a rider is dropped off in a place that the driver knows will not yield any business. This happens often and it’s what I call triangulation. These dead miles can represent double the amount of the “paid” miles. In other words, a driver can go 6 miles to pick up a rider, go 6 miles to take the rider to the drop-off destination, and then drive back to the starting point another 6 miles. In essence the driver incurs 12 dead miles and 6 paid miles. Total of 18 miles, while only being paid for 6 miles. If the driver nets let’s say $0.90 per mile after commissions, but has a car operating cost of $0.45 per mile, this driver just lost $2.70 on this trip. This example is a little exaggerated but drives home the point that dead miles must be counted when figuring out net profit at the end of the day or week.
  • The IRS gives a flat deduction of $0.54 per mile on anyone operating their cars while conducting business. TNC drivers qualify for this deduction. However, keep in mind this is not necessarily your car’s specific or actual operating cost. All cars are different. There is a big difference between the cost of driving a big 8-cylinder four-by-four pick up and a 4-cylinder sub-compact or a Prius.
  • Edmunds.com offers a “True Cost to Own” calculator. In my opinion it is not entirely accurate since it seems not to take into account the true replacement cost of a car with extreme high miles driven. It is based on the total cost of owning a car over a 5-year period and 15,000 miles per year driven. This most likely will not apply to a TNC driver. The website will give you a total cost of ownership at the end of 5 years, which the user will have to divide by 5 years and divide again by 15,000 miles in order to get a per mile cost. As an example, the total cost of owning a 2013 Honda CR-V (which is what my nephew drove) after 5 years came up as $27,073. The per mile cost for this car, once the division is done, comes out to $0.36 per mile. However, because of the high miles a TNC car will drive which translate to higher maintenance, repair costs, and a severely depleted equity value at replacement time, my estimate is closer to $0.43 per mile operating cost not including hybrid auto insurance or commercial auto insurance. If you add either hybrid or commercial insurance to the mix, the operating cost can then rise to approximately $0.60 per mile. In spite of these deficiencies, the website is worthwhile visiting in order to get a feel for what a given car’s operational cost is. The link is: http://www.edmunds.com/tco.html
  • Estimated operating costs assumes that a TNC driver will not get into an accident during work hours, especially an accident that is the drivers fault. It also assumes that the driver will not receive a summons for a traffic infraction. If either one of these occurs, operating costs will go up depending on insurance cost increase, insurance deductible, etc.

With all this in mind, my nephew and I created a spreadsheet that contained a dozen scenarios which combined miles and time driven, number of surges, hours driven, etc. The following were the parameters:

  • These scenarios were based on Gainesville, Florida rider fares of $1.05 per mile and $0.15 per minute which combine roughly translate to $1.17 per mile.
  •  Most scenarios took into account a total of three rides per hour. This is usually the most a driver can do. On very rare occasions a driver can do four rides per hour, but this implies very short trips and short distances between drop off of one rider and pick up of the next. Again, this would be an extremely rare occasion.
  • Some scenarios assumed average trips of 6 “paid’ miles and 6 “dead” miles. Some scenarios assumed less dead miles while some more. We tried to create a legitimate mix based on my nephew’s actual trips which we accessed through the app.
  • These scenarios also assumed an operational cost of $0.46 per mile which is less than the $0.60 per mile or more that would include commercial insurance. It naturally assumes that the driver is taking a chance in not getting into an accident or having the auto insurance company find out about the driver’s occupation.

The following are four examples of results.

A.- The best case scenarios involved those drivers working until 3:00 AM on Friday, Saturday or holidays. If the surges are 2X or 3X these drivers can “net” up to $15.00 per hour on those days and times only. If the surges are not there, the per hour rate drops down substantially. Keep in mind that savvy riders know to wait for surges to go away or go down before hailing a ride. The problem with working these hours is dealing with drunks, drunks vomiting in the car, potential violence and overall crazies. Very few drivers are willing to work these hours.

B.- The second best case scenarios included 5% of fares being surges, and some longer trips than the average. This scenario yielded $8.90 per hour. This would not be a typical day, instead something occurring on a Friday or Saturday between the hours of 4:00 PM to 10:00 PM. Basically dropping off students before they get drunk. Once they are good and drunk, allowing someone else to take them home.

D.- The average scenario generated $6.90 per hour, and was based on no surges, 3 trips per hour, and an average of 6 paid miles and 6 dead miles. We mixed the miles up in order to create realistic trips. When we went through my nephews earning history in the Uber app, this would have been typical days from Sunday to Thursday with some hours in the morning, some hours around lunch time and some around the time people go home from work.

D.- The worst case scenarios in which trips were short and infrequent, the per hour pay went down to $2.00 per hour. These type of days happen, and the smart TNC driver goes home.

My nephew experienced the combined scenarios B, C, and D. He refused to work past 10:00 pm so scenario A did not apply to him. After the fare drop of January 2016 we figured he averaged about $6.50 per hour. The only problem being that he put an incredible amount of wear and tear on his car, which he is paying for now. Bottom line, I would have to do more crunching of numbers to see how he really did.

One final note:

How much do Uber drivers actually make? That is a difficult question to answer. In the cities where Uber’s fares are less than $1.00 per mile and $0.15 per minute drivers are most likely losing money. Especially those that work in cities with fares approaching the $0.65 per mile range. When you ask drivers most of them will tell you they are making less than minimum wage. Also, another telling sign is that drivers on average only last 6 months. Once drivers are able to crunch their numbers they leave.

Uber understands the fare rate issue is touchy, and it’s a deal breaker for potential drivers. I say this because up till a few months ago, Uber posted per mile and per minute fare rates for each city on their website. Now they have taken that feature down. The only thing they offer is a “fare estimate” in which the rider has to put in the app the starting address and destination in order to get an “approximate” total fare. I am pretty positive they are doing this in order to get more drivers to apply. The less information Uber offers the better for them.

Also, people who are involved in the argument as to whether drivers earn more or less than minimum wage have no way to do proper research. The only people that can really give you a real estimate as to whether they are being properly compensated or not are the drivers themselves. Obviously Uber knows how to obfuscate facts and figures. They are by all accounts masters of spin.

 

Advertisements