Uber and Lyft The Start of a Fare War
Back in the Spring 2014, fares between Lyft and Uber were similar in many if not all cities. Right after many college semester ended in May, Lyft launched a promotion to reduce fares by 10%, followed by another 10% in many markets for a total of 15%-20% reduction in fares for the summer. To maintain driver earnings, Lyft removed their commission and also added $1 to the driver for every trip. My average fare was right under $10 so the extra $1 and no commission made up for the fare drops.
Uber responded to the second fare drop by reducing their own fares by 10% in most cities but the drivers didn’t see this 10% fare drop in their earnings.
About two weeks ago, Lyft and Uber both dropped their bonuses to drivers while keeping their fares at the lower rate. Lyft also re-instituted their commission. This essentially reduces many driver earnings by about 10%-20%.
Below is a quick comparison between Lyft and Uber prices based on the average trip distance and time across the US. The information was provided by Sherpa. This trip data was then multiplied by the fare data of Uber and Lyft. The below list is of the same trip in distance and time on both Uber and Lyft and it will show which one is cheaper and how much is it cheaper by.
Lyft (as of 8/25/2014) is cheaper than uber in 47 out of the 58 cities where they both operate at an average of 8% cheaper, with some cities over 15% cheaper on Lyft than Uber.
Below the chart is a detailed full time driver income, salary, and cost analysis!
|City||Which is Cheaper?||Percentage Lower By:|
|New York City’||Lyft||4.28%|
|Salt Lake City’||Lyft||7.75%|
Further Uber Price cuts
The above list was generated after both Uber and Lyft announced their nationwide price cuts to spur demand. Recently, Uber has announced additional fare cuts and I believe it is because they still see the Lyft fares about 10% lower than theirs.
What does this mean for drivers?
If fares keep dropping, both services will start to lose drivers. Drivers in some cities are barely getting by with the fares they are already getting and with further cuts, they may have to look for another line of work.
From my own tax calculations, for every dollar in fares you earn, your take home earnings is only 60%. The first 20% goes to Lyft and Uber. The next 20% is taken out because of taxes, based on a 28% tax bracket and including deductions for mileage on your own car.
Say a driver makes $25 an hour in fares before the price cuts (or an annual salary of $50,000 based on a 40 hour work week and 2 weeks vacation including holidays). His take home after Uber/Lyft’s 20% cut and taxes would be only $15 an hour (or $30,000 a year). The $30000 will need to pay for the car, gas, and maintenance.
The average distance for a trip is about 4 miles and fare of $10. According to my calculation, for every trip I take, I drive 2.5x longer than the trip itself. If I have a trip of 4 miles, it usually means on average I will need to drive 10 miles total between where I am to the passenger’s pickup location to the drop location. This figures also includes driving around the city to get another passenger, and repositioning back to the city hot zones.
To earn about $50,000 a year, a driver would need to do about 5000 trips. At an average trip length of 4 miles, that means he would need to drive about 50,000 miles in a given year to earn $50,000. Assuming 20mpg for the car, the driver would need to buy 2500 gallons of gas, and have 10 oil changes at about $30 per oil change. Assuming gas at $3.50 a gallon, it would cost the driver about $10,000 in just gas and oil changes. If the driver has a Prius (as some drivers already do), they will be saving about $4400 a year in gas alone, assuming a Prius only gets 40mpg.
If you cut fares by 20%, the driver take home earnings would reduce by $6000 a year in this case. Before, the driver would be taking home about $20,000 after considering for gas and maintenance. Now essentially, the driver’s take home pay has reduced by 30% down to $14,000. The rent of an apartment in some cities is $14000 a year!
Full time drives will need to look at their income in the next few weeks and evaluate if it is still worth driving on Uber and Lyft full time. This reduction in fare may get a few drivers to switch back to UberBlack or UberSUV but with all of these fare reductions, there is almost no reason for people to use uberBlack or uberSUV.
To note: the above numbers is a gross estimate and can vary widely from city to city.
I will have another post detailing driver potential salaries in many large Uber and Lyft markets. Stay tuned for that detailed analysis!Have more questions about Uber or Lyft? Head on over to our Rideshare Driver Training Course!