Nine dollars an hour, give or take.
As an average driver that's how much money you'll make with Uber or Lyft. It's a photo finish with fast food as the lowest paid work in America, and considerably less than you'd make putting up with people at Walmart. (WMT - Get Report) On the other hand, as rideshare companies exhaustively advertise, you can set your own hours and be your own boss.
Is it worth it? Let's look at the numbers.
What Is the Income for Rideshare Drivers?
Uber in particular has a reputation for… let's call it optimistic advertising. So we're going to ditch the theatrics. Rideshare drivers do not rake in the bucks as highway roaming, scarf-wearing, loft-partying Manhattanites. Uber's promise that you can "earn as much as you want" holds about as much water as those Disqus commenters who make $70,000 a year "working from home."
Here's what the drivers actually earn:
Pay Per Trip: $11.48 - $15.97
As studied by the indispensable NerdWallet, drivers earn dramatically different amounts on different platforms. An Uber driver averages $15.97 per ride, while a Lyft driver makes an average of $11.48 per fare.
However, readers should take the difference with a grain of salt. The numbers for Uber are almost certainly inflated by the company's luxury Uber Black and Uber SUV services, both considerably larger than the cross-platform equivalent Lyft Lux.
Pay Per Hour: $8.55 - $11.77
After paying all expenses, and after the app takes its cut, drivers for a service like Uber and Lyft average between $8.55 and $11.77 per hour. A midrange private sector worker earns $32.06 in that same time. Readers should note that many outlets continue to cite a study from MIT suggesting that drivers earn less than $4 per hour. This study was withdrawn for inaccuracies.
Pay Per Month: A median of $155 per month and an average of $364
Pay Per Year: An average of $36,525 for full-time drivers
Astute readers will notice that these numbers are all over the place. Even at $8 per hour, a month of rideshare driving would still come to a lot more than $155. If the average ride pays $11 and the average driver makes $8 per hour, do researchers want us to believe that most riders take trips in excess of 60 minutes?
How can so many drivers earn so little per month and yet average $36,000 per year? Here's how:
Five Factors That Impact Income On Drivers
The trouble with nailing down firm numbers is that earnings vary wildly between individual drivers. This is a field that is just consistently inconsistent.
How often a driver chooses to work, where they drive and when all defines their outcomes. A few for-examples to illustrate this point:
1. Surge Pricing
Pretty much every rideshare service has adopted surge pricing. (Making an excellent case for consumers to remember that yellow cabs do still run on rainy Saturday nights…) It's a major income variable. Drivers who make a point to work during peak hours will out-earn their colleagues, potentially many times over.
City drivers earn much more than their rural and suburban peers. In part this is a simple factor of urban inflation; it costs more to do business in Brooklyn than Cohoes. Uber drivers in New York City average $29.34 per trip, compared to $10.99 in Chicago and $14.36 in Phoenix. In fact, NYC drivers can rejoice. The city recently passed a law setting a minimum wage for rideshare workers.
But it's also about customer density and what economists call "underutilization." Basically a technical way of saying time spent with the car empty.
In Boston, a driver can drop off a customer and often pick up a new one within a few blocks. She might reduce her interfare time to mere minutes. In the suburbs that same driver could have miles between fares, all spent with the meter off. Her underutilization goes through the roof while her earnings plummet.
3. Hours Worked
Calculating monthly or annual earnings for a rideshare worker is all but impossible given the freelance flexibility of this job. Drivers can work hours that vary from person to person, day to day and week to week.
Someone who chooses to drive 60 hours per week will, obviously, out-earn drivers who just pick up a few fares after work.
To help boost recruitment, both Uber and Lyft added tipping in 2017. While good for drivers, as it boosts potential revenue, it adds yet another variable to the income roulette. (It also expands the odious practice of companies outsourcing their payroll to the kindness of strangers, but that's another article.) Neither company releases firm data on tipping.
What we do know for certain, though, is that pay is weak across the rideshare sector. Those wages are declining too, but first…
The other major factor for rideshare income is expenses.
Here's the thing about the "gig economy." It exists for one reason: to outsource costs. For all of Thomas Friedman's cluelessly hagiographic articles, and for all the chipper talk of side hustles, the business model of companies like Uber and Airbnb is that you pay for the taxi and hotel room that they rent.
Uber doesn't hire its drivers for the same reason that 20% of companies now call employees "freelancers." They're cheap. Freelancers pay for their own health insurance, retirement, equipment and expenses. Most firms even try to outsource their legal liabilities and fees onto freelancers in what is called a hold harmless clause. This has become common thanks to a combination of technology and a virtual collapse in enforcement by the Department of Labor.
Freelancing is core of ridesharing's advantage against taxi services. Where a yellow cab company has to buy, maintain and store a massively expensive fleet, Uber pays for none of that. The drivers do. Calculating a driver's actual (net) income means accounting for costs such as:
• Car maintenance and repair
• Car payments (if any)
• Auto insurance
• Extras such as snacks, drinks or entertainment
• Tolls (if any; sometimes compensated in-app)
The actual expenses of driving, like maintenance and gas, consume about $4.87 per hour of a driver's income. Uber offers a commercial insurance policy which supplements, but does not replace, your obligation to have personal auto insurance.
Drivers also have personal expenses that employees don't, such as:
• Employer FICA contribution, aka the Self-Employment Tax (approximately 10% of income)
• Health insurance
• Retirement contributions
• Personal liability insurance
Ready to make it more complicated? Let's go:
- Not All Drivers' Costs Are the Same. Rate of expenses changes, again, based on how much you drive and where you live. High volume drivers, for example, will spike their maintenance and repair budget, while urban drivers pay more for parking than rural ones. Few people carry personal liability insurance, even though (like most freelancers in any industry) technically their contract obligates them to repay the company every dime in case of a lawsuit. Finally, many drivers need to upgrade their car to meet the minimum standards of Uber or Lyft. Others have to perform more cosmetic maintenance than they would have done otherwise, and all drivers will see their insurance premiums increase.
- Your Expenses Vary Based On Employment. Someone who wants to make a living wholly self-employed will pay more than someone picking up rides on the side. If you have a job with traditional benefits, costs such as health care and retirement may not be a factor for you. On the other hand, every driver who earns income has to file a 1099 and pay the self-employment tax (approximately 10%). These expenses add up. So much so that about 4% of all rideshare drivers actually spend more on this job than they make.
How Much Do Uber and Lyft Make From Drivers?
At time of writing Uber takes 30% of each fare for its operational costs. Lyft's platform fee varies, but is typically around 20% plus sales tax.
The numbers we presented above include these platform fees. What they do not reflect is the possibility, in fact the overwhelming likelihood, that those fees will increase.
Uber, Lyft and other ridesharing companies hemorrhage money. According to an article published in New York Magazine:
No ultimately successful major technology company has been as deeply unprofitable for anywhere remotely as long as Uber has been. After nine years, Uber isn't within hailing distance of making money and continues to bleed more red ink than any start-up in history… Across all its businesses, Uber was providing services at only roughly 74 percent of their cost in its last quarter. Uber was selling its services at only roughly 64 percent of their cost in 2017, with a GAAP profit margin of negative 57 percent.
Uber has lost money every year since its founding because it undercharges customers. When accounting for the full costs of its infrastructure, salaries and other overhead, the company spends more per ride than it makes. This has allowed it to kick the stuffing out of legacy taxi companies which, lacking generous venture capitalists, have to operate at a profit.
It also means, however, that sooner or later the money will have to come from somewhere. There is a very good chance that it will come from the drivers in terms of higher app fees. For Uber drivers the number right now is 30%. They would be wise to expect that to change.
They should also realize that this is true for every competitive rideshare app on the market.