Monday, December 08, 2014

The shorter the trips, the less the earnings

A $1 safe ride fee is applied to all UberX trips. Clients are charged this fee as a promise to encourage high safety standards. Did you know this safe ride fee was implemented this past summer to help drivers absorb a commission hike? Well, this safety fee once served that (commission) purpose. Unfortunately, this $1 safe ride fee is no longer available to drivers. Uber is keeping this $1 fee.

On the UberX platform, the $1 safe ride fee is going to Uber. Imagine how many UberX trips are completed per year. Mathematically, this safe ride fee is applied to millions of UberX trips. earn Uber millions in revenue. 

UberX drivers are encouraged to make many trips. They're told the recent September 15, 2014 fare decrease would increase business and earn them additional money. However, this fare decrease is actually requiring these Uber drivers to invest more into these fares. 

A typical $20 trip prior to the price decrease now pays out $17. However, Uber drivers are no longer receiving the $1 safe ride fee and with commission at 20%, this $20 trip that paid out $19 at 5% commission is netting these drivers only $15.20. The lost in earnings here is $1.80. Essentially, Uber reduced fares 14% to increase the volume of rides and are collecting this $1 safe ride fee to generate revenue. For the most part, the same $20 trip cost will now cost a client $17.

In an economic sense, reducing the price of anything will require selling a higher volume of that product and/or service to match previous sales. Of course, price decreases can stimulate sales and increase revenue. Reducing prices will increase the number of trips, thus earning Uber more $1 safe ride fees. If several millions trips are taken, as compared to last year, this $1 safe ride fee will increase revenue in this department another several million. 

Drivers who complete 5-6 trips per hour are paying out $5-$6 plus 20% commission to Uber. The more trips that are taken per shift, the more $1 fees Uber generates per driver. In the past, driving 8 hours would produce 13-17 trips. With price reductions, there is an influx of ridesharing business. This translates into more rides and more $1 safe ride fees. 

Typically, drivers will generate more money with less downtime. Nevertheless, these drivers will get exhausted much faster by giving many rides and not taking breaks to use the restroom and hydrate between these grueling driving adventures. Therefore, these drivers can get burnt out much faster. 

Would drivers rather take longer trips and pay less $1 safe ride fees? Or would driver want to take 5-7 short rides in an hour and pay Uber $5-7 plus 20% commission? We believe the first option is more profitable, as drivers who take longer trips have less downtime, pay less $1 safe ride fees and cover greater distance. 

Ridesharing services are not profitable when drivers are taking more trips. Reducing fares may increase ridesharing business, but this action actually increases driver productivity. In return, Uber will increase their share of these rides another $1 per trip. On the opposing side, drivers may get exhausted giving a higher volume of rides in a shorter period of time.  Thousands of UberX drivers completing millions of trips per year will earn Uber millions in new revenue. 

What we see is that Uber reducing UberX fares and collecting the $1 safe ride increases their revenue tenfold. However, UberX are making the same amount of money working harder. They are exhausting greater resources and this calculates into less overall earnings. Additional gas, time and wear and tear are deferred to drivers. On the contrary, the recent gas price reductions are helping drivers to manage fare drops. This has no relevance to Uber's decision to reduce fares. Fortunately, gas prices dropped and drivers are lucky this happened at the right time.

UberX drivers who want to increase their earnings must drivers at busy times. Moreover, these drivers are encouraged to drive in districts where longer trips are more common. During the morning commute, districts such as the Marina, Sunset and Richmond will produce longer rides. Longer rides decrease downtime and reduce the number of $1 safe ride fees. During the evening commute, drivers should drive in the Financial District and in Downtown San Francisco. The same clients who requested rides into the morning and traveled into these areas, are likely to take reverse trips back home. It is all about positioning, which being accessible in busy areas will produce longer rides. 

Uber keeping the $1 safe ride fees is impacting driver earnings. On average, a driver who earns $1200 take home pay a week must complete at least 90-110 trips and earn close $1650. $90 and $110 safe ride fees and another 20% is payable to Uber. With Uber now charging $10 per week for the data plan, this is also cutting into driver earnings. As a result of these policy changes, drivers are earning less money than this time last year. However, perfect economic winds (i.e. gas price reductions) are helping drivers to absorb the safe ride fee, higher commission, and data plan fee. SFO toll fees are charged to clients, which is applied to the final cost of the trip, and then is charged against drivers. 

The benefits of performing ridesharing services are increased flexibility to work whenever, no management breathing down your back, providing a moral service to help people, expanding work areas to decrease job burnout, app improvements (i.e. in-app navigation to keep drivers in motion) and various changes. We don't see hourly promotions increasing and/or guaranteeing earnings. There is no reliable way to verify these earnings, because Uber Weekly Summary is absent to compare trip previous data.

Want to increase earnings and see more earnings? Driving longer hours may increase earnings. Going into busy areas during the early morning and later evening may produce longer trips. Taking more trips will cut into driver earnings, as the $1 safe ride fee will be applied and deducted against driver accounts. Increasing average earnings per trip can increase overall earnings. 

Which group commonly take shorter rides? College students. Which group take longer rides? Business clients. The shorter the trips, the less the earnings. Driving college students shorter distances will increase downtime, increase safe ride fees and result in less earnings. Driving business clients will increase earnings because traditionally these trips are longer and this means less downtime and less safe ride fees. College student request more rides at night than in the morning. Business clients request rides in the morning and in the early evening. 

Devise a plan to increase ridesharing earnings. Lower gas prices are making this possible. Drive at busy times and drive longer shifts. Driving during morning and evening commute, Thurs-Saturday evenings until after bars close, sporting events, music festivals, conventions, holiday season, New Year's Eve, and other special events and times will increase driver earnings. 

Keep in mind that shorter trips require additional driving and waiting. Therefore, more safe ride fees reduce overall earnings. Waiting for these clients to take shorter trips also impact earning potential. UberPool can increase overall earnings and decrease downtime since clients are encouraged to be ready. Good luck!