So you are thinking about becoming an Uber driver, but are unsure if you want to take the leap.
On paper it sounds great. Platforms like Uber, Uber Eats, and Lyft allow you to be your own boss, have a flexible work schedule, and work as many hours as you’d like.
That also means that you can make as much money as you want, right? Well, not exactly.
While driving for Uber does have its upsides, it also has its drawbacks. We’re talking about the dreaded Uber fees that the company takes from its drivers.
There are a few different ways Uber earns money from its drivers. Some of these commissions and service fees are straightforward, but others are a little less obvious.
After adding up all the money you make from your ride fares and subtracting Uber’s cut, you may be surprised where you net out.
Let’s take a closer look to see if it is actually worth it to drive for a car service like Uber.
At the most basic level, on every Uber ride you give, passengers are charged a fare at the end of the trip. You then receive a portion of that payment.
Each ride earns you a fixed booking fee as well as a variable trip fare that is calculated by distance driven and the time it takes you to arrive at the drop-off location. These fares are calculated at a per mile and per minute basis.
There are also a few other opportunities for you to earn extra commission while you’re on the clock. These include bonuses for long pick-up times, rider cancellations, wait time, tips, surge increases, and toll reimbursements.
It is important to note that all fares and rates vary between city, state, and vehicles being used.
To sum it up, you are able to earn money via the following streams:
- Base Fare: Every ride has a fixed booking fee.
- Time: You are compensated for your time driven, multiplied by your area’s per-minute rate.
- Distance: You are also compensated for your distance driven multiplied by your area’s per-mile rate. Some short rides result in a minimum fare payment to the driver.
- Wait Time: Are passengers taking too long to get to the pickup location? Consider that a few extra dollars in your pocket.
- Long Pick-Up Time: Did you have to drive half way across the state? You get rewarded for that too.
- Surge and Boost: These two are your best friends. More on this below.
- Tolls: You are reimbursed for applicable tolls that you paid.
- Other: You may get more money due to rider cancellations, tips, or promotions.
Surge Pricing Explained
Surge pricing – which means that rates suddenly increase in response to a period of high demand in the area – exists to balance rider demand with the supply of drivers currently on the road.
During big events, rush hour, or bad weather, an unusually large amount of riders will be looking for a ride. In response to an unusual number of request for rides in a certain area, Uber fares will increase to provide an extra incentive for more drivers to pick up passengers in that area. During surge times, trip fares can be multiplied by up to 2x.
When prices are surging, riders are aware of the increased rates and have the option of paying the increased rate or waiting until prices drop back down. The prices will only decrease once the demand for rides has fallen or the amount of drivers in that area has balanced the supply and demand.
To better understand how surge pricing works, let’s take a look at a real-world example.
It’s a Friday night and the downtown area is jam packed. To top it off, a concert just ended in the area and hundreds of concert-goers are looking for a ride home. Typically a ride would be a $10 trip, however, right now the area is experiencing a surge rate of 1.8x.
Let’s do the math:
- $2 Base Price
- $4 Distance Charge
- $4 Time Charge
- SUBTOTAL = $10
- Surge Multiplier of 1.8x = $8
- Toll: $2
- Gross Fare $20 ($10 Fare + $8 Surge + $2 Toll)
It’s easy to see that your best shot at increasing profits is to drive during high demand periods and in areas that are experiencing a surge.
The gross fare of $20 that we mentioned above seems like a great return on what was likely a fairly quick ride. However, what our math didn’t factor in were the fees that Uber charges its drivers.
Uber is in the business of making money, so it only makes sense that they take a cut of every ride you give passengers.
Not only do they want to make a profit, they need to fund the technology, Uber app development, and marketing required to operate the rideshare platform.
Uber makes money a number of ways by charging fees to drivers and riders as well as taking a percentage of each trip.
Let’s take a look at what Uber charges its customers and drivers:
- Uber Booking Fee: This is a separate fixed fee that drivers do not receive. This typically ranges from $1 to $3 depending on the city and state.
- Uber Service Fee: The service fee is a percentage of each trip that is estimated to be around 25 percent.
- Surge Pricing and Boost: Uber’s cut also includes your surge increase rate.
Ideally drivers would expect to see around a 25 percent service fee charge for each trip, however, this is not always the case.
More specifically, on very short rides that pay the minimum fare, Uber is able to receive a much higher portion. In some cases, Uber can even retain over 40 percent of the total fare.
So what’s the takeaway? If at all possible, avoid the very short rides because Uber will end up taking a higher percentage of the fare.
It is in your best interest to take the further trips, especially if they are surging!
Are there other fees on top of all those? Of course there are. There always seem to be driving-related expenses that slip by because you just don’t think about them at the beginning.
These are the expenses that are easily forgotten, but most definitely should be factored in to your decision to become an Uber driver. They include the following:
- Basic Vehicle Insurance: Uber will set you up with a third party insurance policy, but your payments come directly out of your pocket.
- Gas: This one adds up quick, especially if you’re working long hours.
- Vehicle Maintenance: Wear and tear of your vehicle and routine maintenance must be covered by you.
- Self Employment Taxes: You are an independent contractor for Uber and will receive a 1099 tax form if you earn more than $600 in a calendar year.
- Vehicle Washing and Detailing: You’ll need to pay if you want professionals to clean your vehicle. The one exception is if a passenger damages or gets sick in your car. If you contact Uber support, you should be able to receive a cleaning fee reimbursement.
But what if you don’t currently own a vehicle? That brings on even more expenses that will dent your wallet.
What Uber will offer drivers is a slight discount on rentals that will be used for driving both during and after your shift. Some of these rental options include weekly rentals at a reduced rate, rentals without long-term contracts, and hourly rentals.
While Uber does work with drivers to obtain a vehicle, at the end of the day drivers will still be flipping the bill for the rental as well as the insurance.
Also it is important to note, drivers take on the role of an independent contractor. This means that financial and health benefits are not offered by Uber. Drivers are responsible for paying for these and also miss out on perks that full-time employees receive.
It is possible for you make money as an Uber driver, however, it has become slightly more difficult for drivers to maintain higher profits.
The unfortunate truth for drivers is that the price of fares has steadily been decreasing over the last few years. This means thinner margins, lower commissions, and an income that is creeping towards the minimum wage level.
Drivers now have to drive nearly double the distance they needed to before to make the same amount of money.
By focusing your efforts on surge pricing times and areas, you obviously have a better chance of increasing your profits. However, you must be aware of all the expenses that go into becoming a rideshare driver.
These include the unseen costs like fuel consumption, driving-related expenses, and the personal taxes you will need to pay at the end of the year as an independent contractor.
You also need to be realistic and consider the amount of hours you will need to put in to receive the income you will be satisfied with.
Is Uber Right for Me?
Rideshare platforms like Uber and Lyft like to paint a pretty picture for drivers, but the reality is that higher profits do not come easy as they once did.
As long as you are realistic with your expectations of how much money you are able to make with the time you are willing to dedicate, you won’t be let down.
It is definitely possible to make a decent income, it will just take some hard work and maybe a few extra rides during peak hours.