Why Uber Drivers Are Making More After Fares Cuts
By now, you may have heard that Uber has dropped fares in some cities. From the Uber data back in early August from Harry at TheRideshareGuy, only 1/3 of the cities had an actual fare drop. You can refer to my list of Uber Fare Updates.
I’ve spoken to some drivers and in general, they actually made the same or more than back in May with higher fares. Here are a few reasons why:
- Some drivers have heard about the lower fares and have either drove less or moved to Lyft. Less drivers for possibly more demand (unclear if all passengers were notified of the lower fares)
- Uber had a $25/hr guarantee during night time Friday and Saturdays, which means a lot of drivers are out on the road two weeks ago. However, there was still a lot of surge pricing all over the cities for extended periods of time for the last two weeks, which means that drivers weren’t enticed by the low $25/hr guarantee.
- Uber increased their hourly guarantees up to $35/hr for hours 12am to 3am, and this weekend, surge pricing has been minimized or doesn’t last as long as it did last week.
The Use of Hourly Guarantees
It is a delicate balancing act that Uber needs to do in order to adequately meet demand with supply. Uber thought lowering fares would increase demand, which it did. However, they didn’t account for the change in driver behavior, which lead to higher than expected surge pricing in their markets.
Uber’s initial plan to meet demand was to institute a low average hourly guarantee over Labor Day weekend to increase drivers on the road to account for higher demand due to lower fares. In the past, $25/hr worked pretty well in suppressing surge in some cities but now drivers are getting smarter and not buying into the low guarantee. The following week, Uber decides not to institute a guarantee to gauge demand relative to supply and they quickly noticed that demand far outweighed supply with surge pricing in many markets last weekend. This week, an much higher guarantee was instituted to see how the surge pricing would react and overall it seems to be working.
This type of guarantee has worked in the past. Right after Uber instituted the $10 weekly phone fee back in May, drivers left in droves and Uber had a lot of trouble keeping up with demand so they had guarantees as high as $40 an hour for huge blocks of time on the weekend to get surge pricing within acceptable limits. By then, many Uber customers were already jaded by the surge pricing. With hundreds on conversation with my Uber passengers, most of them mentioned how anytime they use Uber, its always surging. This is not a great impression to have on your customers. To note, even with the $40 an hour guarantee, I saw sustained surge pricing as high as 2x. It would have easily been 4x without the hourly guarantee.
How Can I Leverage This?
As part of my report on Top 10 Ways to Boost Driver Income, I recommend checking the Uber and Lyft passenger app any free time you have so you can have a sense of when it is busy during the week and also when it is busy during that particular week. Some days are just busier than others or there are less drivers out on the road so you need to keep checking to see what is going on. I remember driving back in May during the first Thursday night that it was very warm (>50F). I made about $40 an hour with all the surge pricing for a few hours. The only reason why I drove was because I checked the app and saw more surge pricing than normal.
Here is what to look for:
- Surge pricing during abnormal hours (early morning, late at night usually, but can happen in the middle of the day due to weather, events, etc)
- Surge pricing for an abnormal length of time
- Abnormal weather (rain, extreme heat or cold, rapid change in temperature)
- Note that Uber will no longer charge Surge Pricing for extreme storms like floods, tornadoes, large snowstorms, etc
Generally, hourly guarantees can tell you that in recent weeks, there have been higher demand than supply. However, by the time the guarantee happens, Uber has already made strides to correct for this imbalance so you will need to check surge pricing levels especially during guarantee weekends in order to decide if you should drive or not.
Now, one area hourly guarantees don’t work in reducing surge pricing are morning hours. Surge pricing usually is suppressed by part time drivers switching on to make some extra money. There are usually much fewer drivers that have the flexibility to drive in the morning so guarantees in the morning tend to have a smaller impact than hourly guarantees during nighttime hours.
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