Have you ever gotten in a brand new car when you called an Uber / Lyft and thought, “this is a nicer car than what I drive… how much do they make driving for these apps?” Or maybe you think it is a reasonable way to help pay off the car the driver wants.
With the recent IPO of Lyft (ticker: $LYFT) and the expected IPO of Uber later this year, I thought I would do a fun post and examine what a driver for these apps makes. I’ve never driven for one of these platforms, so the assumptions are my own. In order to be somewhat reasonable, I will have to simplify a bit. It isn’t possible to be exact here due to geographic differences, driver differences and automobile differences.
To set out some assumptions, I’ll assume:
- The driver uses a Toyota Camry (the most popular model)
- The car is 2 years old (important from a depreciation perspective)
- The driver drives 20 hours per week (per Lyft S-1, this is 91% of drivers)
- Average trip is 5 miles, but the driver also has 2.5 miles of “downtime”, which can means that he or she must drive around to find the next rider
- The driver must get an oil change every 5,000 miles and you have to change your brakes 1x per year due to extra miles put on the car. You also need to change your tires due to the mileage assumptions
- The Platform Commission is set at 40%.
- Some may say, “hey, I think Lyft and Uber only take % of the fare.”
- Well apparently, that is not true. That is refuted in many places by real drivers online (here and here), and many note that they take up to 50% of your ride.
- That said, they don’t take any of your tip money. I haven’t really modeled much in tips, so call my 40% figure instead of 50% some conservatism.
Alright so let’s break down what this looks like on a day / week / month and yearly basis. Some of the assumptions should be self explanatory here.
As you can see from the above, before we get into other maintenance costs, the driver looks like it can earn about $21,258 per year, or $22 buck an hour, for driving. That’s not too bad and honestly higher than what I was expecting.
Now let’s fold in maintenance costs + depreciation.
In total, it looks like you can be making ~$18/hr by driving for one of the platforms. Not terrible, but also not what some people may have expected (Lyft has said its drivers can earn up to $35/hr… that seems very hard unless you ignore all expenses).
Touching on depreciation for a moment, I think its a non-tangible costs that many forget. In this scenario, we’re talking about starting with a 2 year old Toyota Camry. It has already passed the steepest part of its depreciation curve. Drivers typically add 10,000 to 12,000 miles to their car per year, and in this case I am assuming the driver adds and extra 50,000. That will accelerate normal depreciation and that is why I used 15% instead of ~5% between 2017 and 2016 values shown in the Camry depreciation curve shown below (source of this info can be found here).
Imagine if you bought that Camry new though… you lost 40% of your value in 2 years (perhaps more driving for a ride-hailing service). Now think about this added cost, which although not tangible is very real, and you picked up a Mercedes instead.
Here is that curve for a Mercedes Benz C-Class. While less sharp in the first 2 years, buying a two-year old model does not save you from further depreciation. You are also talking about bigger dollars. Imagine buying that C class new in 2018 for $49k….. it is now worth $36k. If you told yourself you would drive for Uber to help pay for it new, well you just wiped out its value. (Uh oh, now this has turned into a lesson on why you don’t buy new cars…)
Anyway, I must say that the $/hr earned via a ride hailing app was actually higher than I expected. Sure, you don’t get health insurance or any other benefits and maybe you have some additional tax work to do, but might be worthwhile. If you have an older car that’s nearly fully depreciated, yet acceptable to Uber & Lyft, I could see the merits there as well.
What do you think? What other costs / inputs am I missing?