Lyft is Not Sustainable for Drivers
By Joseph McCabe, PE, MBA, Fellow
February 2017 (update August 2017)
There have been many other people who have documented their Lyft experience. You can find some of them on the user groups listed at the bottom of this article.
In this article, I will touch on my experiences and opinions of the economics, expenses, alternative income, ecology, psychology and other aspects of the ride-sharing business model.
As I understand it, one strategy to make more money as a driver in this space you become both an Uber and Lyft driver (and now Hovit, Chariot and others). This doesn’t bode well for the individual company's’ branding efforts but might hint at the future of these two platforms merging. Right now it is all about an Initial Public Offering (IPO) for these ride share companies. Executives making a salary at these ride-share companies are banking on their stock options. Driver’s action is generating data which is being used to refine the algorithms that try to make the most money which will increase the value of any stock options. Every driver should know that is what is the end results of their efforts, a small fraction of others will be making lots of money. Of course, the “idea” guys and programmers should make money. The truth and morality of ride sharing lie in how the money is made, and not made. Hopefully, the rest of this article is valuable to help with discussing that subject.
The Lyft service is excellent for riders, you can’t drive it yourself for fewer costs in non-prime times. Ideally, you can Lyft to public transportation. But for drivers, it truly is a challenge. “Uber (Lyft and other ride-share services) is a part of a decades-long economy-wide race to the bottom.” Quoted from an excellent article at https://www.linkedin.com/pulse/uber-example-innovation-just-another-way-pay-workers-less-mckissen
SUMMARY
In my opinion, you can’t make money driving for Lyft unless you are using someone else’s car. It would help if you live in the car near the center of a metropolitan area, and drive only when you get a potential passenger. That way you don’t get additional mileage and expenses. In 2016 the IRS provides 54 cents per mile for business miles driven, down from 57.5 cents for 2015. The IRS uses $0.54 because that is the real cost to drive a car. Lyft drivers should be compensated this amount, plus at least minimum wage. My experience has been that these amounts are not even closely achievable by driving for Lyft. Driving for Lyft doesn’t have an upside, and the downside is that all the data you are generating will help driverless cars of the near future when people drivers will no longer be needed.
ECONOMICS
Initiation fees are what I call your personal expenses to become a Lyft driver. This includes the cost of your car, which is at least $10,000 to be good enough to qualify, in my case $20,000, or more (2016 Subaru shown below was initial car, 2011 Prius to reduce expenses). You need to have car insurance ($1,550 per year is average car insurance in Colorado), plus a car insurance waiver of $200 more per year. You need a modern smart cell phone ($150) and cell service ($600/year) along with robust charging adapter for the car ($20). These are large capital and recurring service expenses.
I have found that I drive about twice as far as the actual rides, additional mileage is getting into a place where riders tend to be, and the mileage for when you accept a ride request up until you pick them up. This is what makes the current business model unsustainable. By my calculations, it costs me the same amount of money as I get. For example, if I was to get $100 from Lyft, it would cost me at least $100 in expenses. This is because of maintenance, gas and the reduced value of the car. From http://m.carsdirect.com/used-car-prices/used-car-price-per-mile-understanding-whats-exceptional “For the first three thousand miles or so, cars usually drop about $5,000-$10,000, so it averages out to around $1.50 to $3 per mile. After that, the price drop is lower, and can go from around $0.25 to $0.50 per mile.”
There is other maintenance costs like shocks, belts, filters, spark plugs, transmission, washer fluid, coolant and such. These costs are probably already dialed into the resale value of a car with your mileage so instead of double accounting here will just say that the costs to drive your own car is $0.25 to $0.50 a mile; which is what the car loses value for each additional mile.
GAS MILAGE
At first, I was getting something like 30 MPG, then it shot up to 38 MPG. I asked the gas station attendant if anything had changed, was oxygenated fuels changed which might have made the mileage better? No. Now I am getting a consistent 35 MPG. At $2.10 a gallon of gas, that is direct $0.06 per mile. Oil is changed every 5000 miles at a cost of $60 (synthetic). $0.012/mile. Tires are $125 each every 40,000 or $0.0125. Gas, oil, and tires are $0.09/mile. In the Subaru my milage is actually a few MPG less than what the gauge says if it indicates 35 MPG it is actually around 33 MPG as calculated overtime at the pump and using the odometer. I switched cars after about 200 rides to a 2011 Prius. This increased the gas milage to about 51 MPG on average reducing the $0.06/mile to $0.042/mile.
FIRST 1,000 MILES
My first 1,000 miles I earned $375 for five days of driving and a total of 43 rides. The 1,000 miles cost at least $0.25 per mile plus $0.09 for both car depreciation and direct expenses respectively. A total cost of $360 (and as much as $0.50 + $0.09 or $590 for the higher depreciation factor). So at a minimum, I made $15 in those five days (not including the one-time sign-on bonus). But at worst I lost $215 and five days of my life (again, not including the initial sign-up bonus). The upside is my writing of the experience which you are currently reading. I obtained a $750 signing bonus after completing 175 rides and adding 4,000 miles to the car’s odometer plus a $5 cancellation fee. This compensation isn’t included in any sustainability calculations because it was a one time amount designed to train me as a Lyft driver. The individual ride compensation including tips was $1,657, for a total compensation of $2,412 including the bonus. If I get $0.54 expense from the IRS for the 4,000 miles then total taxable earnings were $252.
BONUS (I call it If, Then, But)
There are some bonus levels indicated on the Lyft app, $90 and $120 levels that require high acceptance levels (ratings) and quantities of rides both in peak times and the total for the week. The acceptance levels or ratings are not transparent, you can’t see who has rated you at what levels, so they can be easily manipulated by a Lyft Chief Financial Officer that needs a better quarterly bottom line. I received high ratings and even a comment “Best driver ever”. Without a search warrant, a driver will not be able to receive honest evaluations, only trusting what Lyft says.
If, Then, But: If you meet all these criteria, then you get the bonuses. But you don’t have transparency into the process and you lose accumulated balances at the end of the week. There are many of these If, Then, But structured incentives within the compensation scenario. If you drive 70 rides a week, then you may be eligible for a free rental car from Hertz, but you lose all bonus programs.
The economics also relate to what you do after you drop off a passenger. Do you wait there, or go back to a hot spot? Hot zones don’t seem to work because when you get there they disappear. Seems to me that the algorithm is set up to make the most for Lyft, if you are in an area that will be needing drivers, once drivers are there then the rate goes down and more passengers accept the Lyft ride. Lyft is trying to get the best passenger experience for the least driver expense. They will put as many drivers on the road as possible, reducing wait times and creating the largest amount of supply/drivers.
CANCEL
A passenger can cancel, but the policy at Lyft still seems to be in flux and development. It goes to say that the driver bears the risk of a passenger cancel. Here is a portion of a conversation between myself and Lyft in response to a passenger that canceled on me:
LYFT: The cancellation penalty system is in place to make sure both drivers and passengers are taken care of. If the passenger cancels and you're already on your way, and the following conditions are met, you'll receive a cancellation fee:
At least 5 minutes have passed since they made the request.
You're on track to arrive within 5 minutes of the original ETA (estimated time of arrival).
ME: Let's make sure I understand. I can be driving for 4 minutes on a passenger request that is 6, 7, 8 or more minutes away and the passenger can cancel on me and I loose? I have to be driving for at least 5 minutes and be on track to arrive within 5 minutes? You ever driven for Lyft?
LYFT: A passenger will be penalized if they cancel a ride at least 5 minutes have passed since they made a request or You're on track to arrive within 5 minutes of the original estimated time of arrival.
ME: Sorry, still confusing. I was "...on track to arrive within 5 minutes of the original estimated time of arrival."
LYFT: For example, the original ETA for the ride is 10 minutes then you arrived at the pick-up location 5 minutes or less after you accepted the ride, the passenger will be charged a cancellation fee.
ME: Can you please help me understand this because the latest explanation doesn't ring correctly. How can an ETA of 10 minutes possibly be arrived at 5 minutes or less after accepting the ride?
LYFT: For more clarification, a passenger can only be charged due to the following:
At the end of 24 discussions like above, I was awarded the $5 cancellation fee.
I drove towards the library which is where I was tending to get rides. Kinda like returning to the trough. I got a request for a ride from my own neighborhood 11 minutes behind me, I didn’t respond. Then got two more from the same neighborhood from another person, again didn’t respond. Traveling 12 minutes/6 miles to get a ride adds to the uneconomical nature of the business model. You are told that not responding does not count against you, but it sure feels like you don’t get rides as quickly after not responding. And a customer can cancel at any time more than 5 minutes away. You could be driving towards the passenger only to have them cancel. This has happened to me, and it is quickly a deterrent to accepting anything more than 5 minutes away. If you don’t respond you get the following message: “It looks like you’ve been missing a few ride requests lately. As a friendly reminder, accepting those requests helps the Lyft community run smoothly. It’s frustrating for passengers to have to wait longer for a driver to pick them up, especially when they’ve turned to Lyft for a safe, reliable ride.” I tend to accept 6-8 minute away requests and use my driving skills to get to 5 minutes away quickly, safely.
More recently, Lyft has been doing the canceling of prospective passengers. At a local venue the roads are blocked when pedestrians fill the streets. To get to the passengers you have to go much further, around the road block. When the Lyft system recognizes this, it cancels the pick-up. Doh!
I was sent a passenger pick up 20 minutes and 15 miles away. You are slightly penalized for not accepting all rides, but this particular ride had too much risk especially considering that after 15 minutes of high-speed driving it could be canceled with no revenue.
NO SHOWS
I had my first no-show. Denver University school of law. I was where I was supposed to be, the two-minute clock started ticking. Then got a call from the person who said he was trying to locate me, but I think he was just not where he said he was going to be and was trying to keep me waiting where I was. I waited much longer than I should have and didn’t see anyone in the vicinity. So I tapped the no-show button. Was it an Uber or Lyft driver that was trying to waste my time? I spent time and mileage to get where I was supposed to be, but there was no revenue. This is a risk/liability to driving. You don’t get paid until the passenger connection is made. Supposedly I do get credit for a no-show but I don’t get any credit for the drive.
POSITIVE ASPECTS
The Lyft/Uber business model is very scalable. It can be implemented all across the world. There are many society-wide benefits of the ride-sharing business model. Eventually, the service will be self-driving autonomous vehicles. This will probably be better for the environment than individual cars driving, turning on and off, cooling down.
Drunk driving is reduced in locations with Uber/Lyft services. Fewer accidents, less court, less disrupted families, less jail space needed.
LIABILITY
As a driver, you can be fined some hefty fees, especially at the airport. If you don’t have your Lyft sign in the window while the app is running there is an expensive fine. And if you don’t follow strict airport rules there is a very big fine.
One accident, that is all it takes to really make this a terrible scenario.
REFERRALS
Referrals are being a marketing agent for the Lyft model. If you drive, you can market their services. But you can’t drive and market at the same time except to passengers who are already customers. Referrals don’t work anymore once the general population has used the service, which has happened.
ALTERNATIVE INCOME
Other things you can be doing while being a driver:
Shopping
Picking up hubcaps and reselling them on eBay or Craigslist.
Delivering non-perishables.
Being both an Uber and Lyft driver.
Selling things to passengers.
Filming passengers for youtube in the hopes of a viral experience.
Getting hit by another car and obtaining insurance claims. (not recommended)
PSYCHOLOGY
Earnings are not earnings. On your active software app it constantly tells you how much you have earned that day, but earning aren’t all yours. Maybe 75%. The psychology of this is important. If drivers think they are earning, they stay out longer. It is only later that you see the details of your earnings aren’t cash to you. This isn’t sustainable.
ENVIRONMENTAL
There is no reduced mileage on the roads by this service. In fact, I drive more than a person in their own passenger car because of travel to the hot spots, plus the travel to pick up the passengers increases total mileage driven.
I dropped off some people at a light rail station they were taking the A line out to the airport from North Denver and I waited around a little bit. Then I was ready to leave and I saw a couple of people with backpacks so I drove over to see if they wanted a Lyft ride. They said they were wanting a Lyft, but it wasn't me. I'm sitting there at the station and I did not get the Lyft pickup opportunity, so somebody else is driving from much further away to get those passengers. I can be standing right next to someone who attepts a Lyft ride when the system selects a different rider miles away.
Drivers really do get an idea of the various communities so driving around you can get a feel of cities if you're doing real estate shopping for what different neighborhoods are like.
SAFETY
I’m not too concerned about safety because I am a big guy, but there is definitely a time and location component to how safe being a Lyft driver is. I’ve realized that it is probably a good idea to only have a small amount of cash, my driver's license and one credit card on the road. Don’t need my wallet with me for potential loss.
Accidents per mile vary across many different kinds of driving. 11 accidents per million miles driven is one goal for a fleet.
COFFEE
Bring your own coffee, but check in at your favorite shop. I’ve found that once you are close to a place you want to get something, then you get a passenger. Sometimes it is difficult to get your chores done.
TAXES
If you do actually make money doing this driving you will be charged additional self-employment taxes for being an independent contractor, currently 15% on any positive income after expenses.
STORIES FROM THE ROAD
Page down if you want to read some stories from the road, which may help understand the experience better but aren't particularly organized.
More detailed insights called Lyft Typs™ are available for your review. For drivers, there is the Dryver Typs™. For investors Ynvestor Typs™ and for executives, you guessed it, Executyve Typs™. These Lyft Typs are designed to help the particular group with insights from my experiences, currently updated from insights with 500 passenger ride.
DISCLAIMER
These rideshare services have been around for a few years. There have been many evaluations in the past on how the services work, or don’t work. My experiences and Lyft Typs™ are based on my own experience in 2017 and are my own opinions. I am using my driver experience, and business evaluation skills to provide these Lyft Typs™. No warranty is expressed or implied. There is no guarantee that any of these observations or opinions are correct. As far as freshness, consider the information out of date 6 months after August 2017 for this version.
This document is copyrighted © Joseph McCabe 2017, all rights reserved. Any forwarding or distribution of electronic copies is not allowed and in violation of copyright laws.
And, as Promised, STORIES FROM THE ROAD
What follows are some stories during my first rides with Lyft. These are probably most valuage to anyone thinking of becoming a ride share driver. They are individual notes while doing my first 200 Lyft rides, names have been changed. February 6th, 2017 is when I did an online application to become a Lyft driver in Denver Colorado. Thought I could use my driver talents and possibly do other internet type things while engaged with the waiting and what not. So that is what I am doing, writing now, watching people coming off the light rail, listening to KBCO studio C just seeing what will happen in my first hour.
Did first ride. Made something like $11, drove 27 miles. Doh! Lyft dashboard says I made less than the $11 because of the Lyft fees.
Second ride the next day, 10.8 miles. Picked up Bob, who seemed disabled. 13 minutes away, had to wait 4.5 minutes till he got in the car. Total earnings so far $13.32. Was interesting to see how I wanted to satisfy the customer, and then became compassionate to help the disabled young man. Was thinking to ask how old he was. Total mileage on the second ride was 10.8 miles from the school to finished ride drop off, about 27 mpg. At which time I was at a nursing home and a firetruck and ambulance were pulling into the circle as I was trying to write this update. So I pulled away. Very bright glaring sun this morning.
Now sitting at the Simms Metro station, near the hospital. Seems like there is lots of business here, and people coming and going. The parking lot isn’t even half full. Another idea was to go to the Golden end of the light rail metro station. This turned out to be a poor location for obtaining passengers.
The third ride was Rose to downtown Broadway and 11th. 12 miles. Went to LoDo and sitting at Wazee and 15th for 15 minutes. Every fifth car seems to have a Lyft sticker in the window, meaning there is loads of competition. Like hookers on Euclid avenue in Minneapolis, too many (a Tom Waits reference).
Short ride with co-ed at UD. Then picked up a woman(?) with a walker at Porter Hospital; drove out to East Hampden. 7.2 miles.
Back to the Starbucks at UD. Got a small coffee there an hour and a half ago for $2.11 and a refill for $0.51 now. Bathroom breaks. Was trying to slow down on the coffee, oh well. And Starbucks is strong. Spending all the profits.
Yesterday I had seen UD as a hotspot in the afternoon so going to try and stay till then to see if I get a hotspot ride. See what pops up. Very random as to if you get someone needing a ride.
Quick ride for Bobby, near UD to north of I-25. Then I drove back to my feeding zone at Starbucks Coffee near UD. At the place where I dropped off the last passenger there was a great sign in the front lawn of the nice neighborhood house that was written in Spanish, English, and Arabic "welcoming all".
Backed into the parking space so the blaring sun is on the passenger side. It is 65 degrees out, but hot in the car. Had the air conditioning running the last two rides.
Feeling a little jittery, my indication to lay off the coffee. But I haven’t had too much yet. The first refill is still almost full.
The drive business is easy. Still don’t know how to decline a ride. Accepting all things that pop up on the app. Controlled by the app. Turns out you decline a ride by just not accepting it.
Just got a 2.5 mile ride. A little crazy driving around construction. Will increase safety. Using the Buddha Santa statue on my dahsboard as a reminder to chill. 4.3 miles round trip. Sitting at a new location, southeast of the corner of University and Evans. Lots of middle eastern people around the university and coffee shop. Full burkas, all kinds of arabic languages.
Next ride was a student, he was in public policy. Less than 5 miles down to an apartment complex on Hampden. Back at the circle where I picked him up, sitting in a 20 minute parking space. Seems to be central to where I picked people up today, in the shade.
Will need to get home, it is 3:30 PM. Just got a notification for the next rider to be picked up at the music center where our friend performs at UD. Took her out to Cherry Creek.
Just saw an Uber driver, did a u-turn next to me and behind me. He is looking for his fare. Now realizing I am not only competing with other Lyft drivers, but also Ubers.
Couple more days drying under my belt, and increasingly this is a losing proposition. And it isn’t contracting, it is employment. Except for the hours which are flexible.
Just had a scary experience. After accepting a ride, and traveling to pick up it became apparent that the neighborhood wasn’t a good one, south Federal Blvd in Denver. I couldn’t find the passenger, mostly because the person making the request wasn’t the person being picked up, so the location was not correctly adjusted. The passenger was around the back of the parking lot. Driving to her, I almost hit a kid running out from between two parallel parked cars. A redhead kid had gone over there, but this yellow haired girl came running out and I hit the breaks. No close call or anything, but gets you to thinking, driving is not worth the risk if anyone gets hurt. The woman passenger was OK, and gave me a nice cash tip, second tip I have received. Need to remember to add those to the unattractive economics.
Tuesday, February 21, passenger number 44; 9 minute drive to pick up Roberta who works at Dish, earnings were $5.60. Will try to notice mileage for pickups and note them from now on. On this day I had 4 rides, 2 hours active seeking and 5 hours waiting at home while online which resulted in one of the four rides.
AIRPORT
On Feb 23rd I got a passenger at Denver University who was majoring in psychology and sociology and something to do with neuroscience. It took a long time to get through Denver. After dropping her off at 5:17 PM I got to the Airport Lyft/Uber parking lot. There were 111 people ahead of me. At 5:20 there were 103 ahead of me. And so it goes. 5:25 there were 93 drivers. 7 minutes 18 cars left. 2.5 per minute. A 45 minute wait total. 72 drivers at 5:32. Most of the cars have their engines on. Hyundai seems to be the most popular vehicle. One guy holds his arm out his window with a cigarette between his fingers. A BMW just flipped him off. Might be some history there, or just random aggression. Tinted windows, slew of auto types, Ubers with their lighted white circular disk, Lyft cars with pink mustaches, and sometimes both. 5:53 with 51 drivers to go. 44 at 6:04. At least 30 cars passed in front of me without the place in line reducing. 6:10 44 drivers. I sent the following message to Lyft: “Why is my que stuck at 44 in DIA parking lot, 10 minutes now and no movement.” 6:17 and 42 drivers. 33 6:23. 29 at 6:33. 26 degrees F out. Can’t leave the car off for too long because it gets too cold. And can’t get out because then I get too cold. 17 at 6:49, that is 1.5 hours waiting thus far.
At the end of my 175 sign on bonus rides I drove into the city the next day, 2 hours of slow driving and waiting in prime location provided no rides. Next day it was an hour of no ride requests.
DISCLAIMER
These rideshare services have been around for a few years. There have been many evaluations in the past on how the services work, or don’t work. My experiences and Lyft Typs™ are based on my own experience in 2017 and are my own opinions. I am using my driver experience, and business evaluation skills to provide these Lyft Typs™. No warranty is expressed or implied. There is no guarantee that any of these observations or opinions are correct. As far as freshness, consider the information out of date 6 months after April 2017 for this version.
This document is copyrighted © Joseph McCabe 2017, all rights reserved. Any forwarding or distribution of electronic copies is not allowed and in violation of copyright laws.
https://www.reddit.com/r/Lyft/
