Remember those news stories that were written every time a new Walmart opened? People were lining up every time a new one opened to apply for the same low paying jobs that everyone complained about. Does the extremely high turnover due to the lowering of rates sound familiar? Uber and Lyft are doing the same thing and raising sign on bonuses in order keep their driver force growing faster at a commensurate rate, but is it sustainable?
Recently, Uber added $750 to my weekly dashboard when one of my subscribers (Thanks Tony!!!) completed 20 rides in San Francisco. Tony received $200, and he stood to make the same $750, but missed the deadline. So let’s take a look at the math:
Uber paid out $950 in bonuses (which should have been $1500). If you add the $180 or so that Tony earned for those trips, that’s a total of $1,130. Uber received approximately $300 in fares from those passengers, for a net loss of $830. Tony completed 24 rides in total, at the old rates (before Jan 2016) after which he told me that he’ll never log on and drive again.
Losing hundreds of dollars to acquire each new driver
Uber and Lyft have based their business models on an everlasting supply of new drivers. The turnover rate has skyrocketed with each rate cut and meanwhile demand has risen, which has forced them to throw money at the supply side. We’ve seen this manifest in the form of new driver sign up bonuses. This does not seem like a sustainable business model, especially when considering the large numbers of drivers that sign up just to get the bonus, never to drive again.
As we all know, Uber and Lyft want to make their service cheaper than owning a car, and it seems the only way to accomplish that is to take the driver out of the equation. They have to continue to cut the rates to the absolute bottom dollar at which people will use their own personal automobile to carry passengers.
San Diego recently had their rates cut 54% while Detroit is now at 30 cents per mile. This is below minimum wage. In the San Francisco market, the price for traffic wait time is 22 cents per minute, for an hourly total of $13.20 (not even counting expenditures likes fuel, maintenance, wear and tear, etc). If the new minimum wage raises to $15, which may happen in the near future, then at every point when a driver has to stop in traffic or at a light, their earnings fall below minimum wage while waiting.
Fare calculations designed to confuse drivers
It seems that the fare calculations are designed deceptively to confuse drivers, even veteran ones at that. Many or most drivers are kept in the dark. I use Uber myself as a passenger whenever I go out for drinks and my first question to the drivers is always, “How much is this ride costing me per mile?” I’ve only had 2 drivers that actually knew the correct answer, and even they were uncertain until I confirmed the amount was correct.
Ever notice how Uber doesn’t send emails telling drivers how much less they’ll earn when they drop the rates? But they’ll brag all day about the rides being cheaper for the customer. To take the market share they first targeted the taxicab industry, and are now actively working toward the same end from Muni and Bart. Why walk to a bus stop and wait 10 minutes for a $2.25 ride when Uber will come to your house and pick you up for $5.40? This last Saturday when a passenger asked me if we could go through the drive-thru, I just chuckled and immediately declined. I didn’t apologize; I just said “no, we don’t get paid for waiting.”
I’ve always felt that if I was ever in a position where I had to work at Walmart, I would feel some embarrassment when dealing with the public because they would know I am not a well paid worker, but now Uber drivers may soon feel the same way. This latest round of pay cuts is not the last. If you understand this and the science behind Walmart’s growth strategy, then you might want to consider adjusting your plans accordingly. There are always people willing to fill these low paying positions. Rideshare companies count on this.
What do you think about his perspective? Share this article. Read about Filing Taxes for 2015 and download your 2015 mileage report! Again, this page is built by drivers for drivers. Want us to add something new or different? Tell Us!