A critical review of MIT Report About Uber And Lyft Driver Income / Pay

(Bick Bhangoo) #1

Perhaps one of the most interesting issues that have arisen from the MIT article about drivers income is not the fact that MIT was correct (but presented the findings incorrectly), or that Uber has suffered from this recent mistake made by such a prestigious establishment. The real issue that comes into focus is what do Uber drivers actually earn, what kind of drivers are there, and in truth, how does the car price impact the income.

While Mathematics is an exact science, there is sometimes room for what is termed fuzzy logic. However, this is not the case when estimating income. The factors and variables used to evaluate an income are straightforward. While there might be some " fuzzy logic" issues to deal with when factoring in expenses for tax, the basics of a car price, cost to maintain and to drive expenses, in general, are all quite straightforward.

So, what went wrong?

In mathematics, especially in accounting, there are a number of ways to reach a figure or to prove an argument. 1+1=2, but it can also be written as x/y+z-q=d*e+a-b. Yup, back to grade III algebra. What the MIT researchers did wring was start off by using estimations and generalizing figures. In reality, the income an Uber driver makes is quite simple, the only differences between the gross income and the net income are in how the expenses are tallied up.

So, here is a comprehensive look at what MIT should have done. This model was prepared by an industrial engineer with a Ph.D. in business admin.

Income is a ride fare fee paid to Uber by the rider. The driver receives the income less Uber fee's when making this into a mathematical model it would look like this:

  • Income (I) – Uber Fees (U) = Gross Income (GI) (Note that Uber fees are an expense)
  • Extra income from Tips (T) would be GI + T
  • Any bonuses, incentives, and other fee incorporated income would be part of the income (I).
  • There is no point in breaking down "GI" since the gross income is not being questioned, however, to understand what the income per mile and per hour is, each and every driver should divide the total number of miles driven from the start of a shift to the end of a shift, as well as the hours, and divide the income by these figures.
  • Miles (M) per shift cost = GI/M, where M is for periods 1, 2 and 3.
  • Hours (H) per shift cost = GI/H, where H is for periods 1, 2 and 3.

Expenses are what we deduct from the income to receive a net income for tax purposes; it is also a net income for drivers to estimate what they take home. When discussing car purchase price, the issue becomes sticky, since cars are not usually bought specifically for rideshare driving, and as such, a car is already in possession for the rideshare time. However, since this is a business, car purchase price as well as depreciation should be included. What is the difference between the two?

A car purchase price is what you paid for the car, or what you are paying in installments, and is based on the car purchase value plus interest. If you buy a car in one payment, then you should calculate the cost of the car for a seven-year period. This means you take the overall purchase price and divide it into seven years. You then use this value as your annual addition to expenditure, which will tally in with the expected 7-year depreciation factor. If you lease a car, then the monthly installments will be used as the car cost factor, as well as a bank loan payment if you borrowed the money to buy the car. The car down payment must be added; this is done by dividing the down payment into 12 months and adding that figure to the monthly expenses. Down payments are not extended over seven years.

Depreciation is the sales value of the car every year, where different models and makes depreciate in value by a minimum of 10% per annum, with the first years depreciating up to 20% for a new car. This means that the moment you buy a car, it depreciates in the value set by the market trading price. Kelly's Blue Book is considered to be the market standard for finding out a cars market value. The loss per annum which is the difference (delta) between the start value and the end of year value (depreciation) should be added as an expense.

Expenses include:

  • Split Fare Fees
  • Safe Rides Fees
  • Misc. Fare Fee
  • Airport Fee
  • Uber Service Fee (20% or 25% that Uber deducts.)
  • Lyft Service Fee (20% or 25% that Lyft deducts.)
  • Lyft Tolls
  • Mileage
  • Car Cleaning
  • Passenger Goodies
  • Cell Phone Accessories
  • Cell Phone Purchase
  • Cell Phone Service
  • Dashcam
  • Inspections
  • Parking Fees
  • Tolls
  • Music and Paid Apps
  • Car Mat
  • Car Seat Cushion
  • Food and Drink
  • Car Loan Interest
  • Health Insurance
  • Oil Change
  • Gas
  • Car Insurance
  • Car Repairs
  • Car Loan Payments
  • Car down payment
  • Car purchase price
  • Car Lease Payments
  • Car Depreciation
  • Site Hosting for your rideshare driving site
  • Advertising overheads
  • Paid online services for marketing

Now let's look at the big ones;

  • A standard UberX car will cost anywhere between $18,000-$30,000 depending on the make, model, and year. Let's take a standard figure, $25,000 and use this as our car purchase price.
  • When dividing the car price by seven years into monthly costs, a $25,000 car costs us $298 per month. (All values are rounded to the nearest decimal point.
  • If you bought a new car at this price, then the first-year depreciation will be around 20%, which is $5,000 and that is $417 per month.
  • So, we now have the car purchase price + the car depreciation cost giving us a total of $715 per month.

I am not going to continue and delve into the other expenses; this will be enough to serve the purposes of this article. Just note that there is only one constant in all these calculations, that is time. The hours are constant, they do not change and as such are the base of all solid calculations. It doesn't matter how many miles you drive; the actual income will be based on evaluating expenses per hour. After all, if a car doesn't drive it doesn't mean it doesn't cost you money. The fewer miles you drive, the more expensive the miles. So, we will stick to hours, which will be the constant for our calculations. You can either set the constant to a lifetime value (ignoring shifts) or a worktime value (per shift).

  • There are 8,760 hours in a year (365 days).
  • Therefore, the cost of the car per hour, whether you drive or not is going to be $3.42 per hour. (Not per shift).
  • Per shift hours will increase the cost and will reduce the income accordingly. The following calculation will be based on an annual cost (constant).

Ride Share Income Averages

Based on standard figures but without factoring in surges and boosts, the average income per ride (when miles and time are average too) are:

  • Uber Booking Fee: $1.65
  • 30-minute ride, 15 cents per minute: $4.50
  • 9 miles ride, 90 cents per mile: $8.10
  • Passenger Fee: $23.25

This gives us the "I."

Let's take off the 20% Uber fee, and we are left with $18.60 for the driver. (GI)

If the driver has an average shift of 6 hours a day, five days a week, it means that the driver is driving 126 hours a month. This means that the car costs $3.42 per hour, which is $1.71 per half hour ride. When we take this off the driver's income, we get $16.89, and we have not yet started to factor in the other expenses.

Rather than go into a long debatable expenditure list, the IRS states that this year's expense per mile is set at $0.54. Since these expenses can also be set against a constant such as time, it would be wise to do so, since a cost is a cost, no matter whether it is used directly for a purpose or sitting idle. However, converting this into hours would confuse the issue, since the IRS set it per mile. So, let's take off $0.54 per mile, which is $10.26 for a 19-mile ride, the driver is left with $6.63

OK. We have our calculation, and we can now prove that MIT was not so far from the truth. In fact, I even made it easier on our calculations by dividing the car purchase price into a 7-year hourly cost and not directly linking it into an actual driving cost, which would have made the figure closer to $5.84 leaving our driver with only $3.40 which is exactly what MIT claimed.

Bottom Line: MIT researchers did not need to apologize, their calculations were correct, they just didn't present them in the correct fashion. To conclude, if you want to drive for Uber, don't buy a car that costs $25,000. In reality, most drivers do not factor in the cost of the car; they ignore it. They might factor in depreciation as well as well as use the IRS mile reimbursement figure, but remember, the IRS does not include car purchase price or depreciation in that figure. After all, if they did, then the figure would have to be car specific, where a Rolls Royce would be much higher then a Subaru. Since it isn't the fact remains, Uber drivers don't include the car costs and we do, and this is why we accept the MIT finding, even though, as we stated earlier, they didn't present them properly.

Why Cities Want Rideshare Data from Uber & Lyft, Urgently
Be Prepared to Change–Think Like Uber
UberWait--New Cheap Uber Ride Still Under Wraps
Brazil's CargoX Reaches a $200 Million Run Rate in Just Six Years
Why the Uber Solution will not Work in India
What are the Best Cars for UberX, Lyft and Amazon Flex?
Driving for Uber or Lyft? Which Gig is Better?
The RSF Guide on How to be a 5-star Uber/Lyft Passenger
Uber's Lobby Seals Washington, D.C
(Graham Sandy) #2

Ride sharing is a very interesting industry. If you don’t drive smart, you lose money. While I do agree that the rates should be raised. I think that many drivers either came from low paying jobs or have had bad luck with employment before driving. It’s not just the rates are an issue, everyone wants to be a driver. A lot of people are also assuming that rideshare drivers are a bunch of lazy people in their 20s. A lot of the drivers I know in my area are 30 and up.

(Donna Harris) #3

That statement is true…for those drivers THAT SUCK and have no real hustle. A lot of drivers treat rideshare like a traditional job(W2), instead of the business/self-employment that it is. Money doesn’t fall in your lap just because another hour passes; you have to get it… as business owners do. A lot of drivers ain’t built for that, that’s why they are steady worrying about what Uber is getting per trip.

(Jose Hernandez) #4

That’s weird; somehow I’m making way more money in 2 day work weeks with uber than I ever did in 7 day work weeks for a “normal” job… I’m getting out of debt… and I’m buying vehicles. It works if you make it work. Work smarter not harder. If you need assistance, I can train you $100.00 a session free anytime after 2 pm.

(Harris Frank) #5

This topic always pisses me off. I mean I can say that I make $10 an hour certain times of the year $15 an hour all the way up to $50 an hour. But is that what I really make? Absolutely not yeah forget about taking away expenses don’t count your fuel don’t count your oil change don’t count any of that crap except maybe car washes and any type of stuff you offer like gum water or what not if you are stupid enough to offer that. Now yes if I were an Uber black or Uber SUV, I think I would be expected to have that stuff. What you do need to keep track of is your mileage every single mile you drive heading to pick up somebody driving them and heading back to wherever you’re going, and then you multiply that by 0.545 cents per mile and then subtract that from the money that you made along with phone, amenities, and car washes. And if by chance there is anything left over divide that by the number of hours you worked and you have your actual hourly wage. All we are doing is trading the equity of our vehicle for cash now. Typically if I work an 8-10 hour shift during the off-season, I profit $10 to $15 on most days of the offseason. So that’s about $1 to $2 an hour depending on how many hours I work. And that’s not including taken away my phone or my car washes. And there are some days that I go in the hole during the off-season. But because I’m trading the equity of my vehicle for cash now that allows me to pay my bills and put food on the table. Pretty much when it comes to tax time, it’s a wash which is another reason why it’s great if you have a job that’s taking taxes out because you can get most of that back. Typically the people that are making money and staying in the Plus are the drivers that come out part-time during the evening hours when people are going and coming from dinner or to the club and events. But there are some cities that those of us that are keeping a city running during the day is only making about $10 an hour if we still want to call it $10 an hour because it’s not. Most of the newcomers typically have day jobs, and they saturate the night and the weekend leading full-time drivers to experiment with different hours. Now Uber cut back of the drivers to 12 hours on 6 hours off was kind of a slap in the face to us full-time drivers. Because a lot of us would work the airport and catch naps on those long waits and then work the evening and late night. But now at some point, we got to take 6 hours off when most of us may just stay offline for 4 hours if that. Could always turn Lyft on but lift sucks in our area not enough rides then again there are certain times of day where Lyft outperforms Uber.

(Kimberly Nelson) #6

Shhhh… All my pax mentioned this study today and tipped because of it. I make on average $25 an hour, and I average 21 miles an hour that are less than 1 gallon of gas. Figure another $3 per hour in maintenance expenses gets me $20 an hour. Twice minimum wage and I don’t have to be at work at a specific time.

(David Smith) #7

Each driver needs to know what expenses mean. It cost .52 cents per mile to operate a vehicle. Fuel cost, depreciation of your property. Maintenance many will argue that they have a warranty and do not pay for service. Again this is Subjective to each driver as the article states. But turning a blind eye to expenses does not make sense. Also, account end of year taxes but like a wheel that does not stop spinning this argument will never really end.

(Harold Young) #8

Hell yea!! On the slowest of days, I make crap. Sitting in the damn car in a surge without a damn ping!! You literally have to drive 10 hours every day to make money. I have driven 10 hours bank was 235. It was a long night I stopped at 9 am and my damn body was sore as hell! F*** that s*** I’m only driving with a purpose like them Post Malone tickets!! Part-time for now on!!

(Mitchel) #9

Here are some trip statements to correct the MIT math.



(Steve Mann) #10

Sure, we all make a lot of money driving for Uber and Lyft, I do too. I make on average a gross $100 a day, and I work six days a week, so I am making over $2,400 a month. I always deducted every expense but never factored in my car purchase price for one reason. I will eventually sell it, so I take off the salvage price that I expect to sell my car and than add that to the purchase price, this gives me the actual car cost. This is what I deduct, and it is significantly lower than the one mentioned in this article. I calculate car cost per hour to be closer to $0.60, which means that the average net income is closer to $7 per hour. So if I work for 160 hours a month, I take home after everything around $1,120 according to this articles calculations.

(Andrew Martin) #11

In my humble opinion, the MIT researchers did not need to back down so fast, they should have stood by their umbers and just recalculated the car purchase price as mentioned above I also agree with Steve, that the actual car price is the purchase price less the sales/salvage price. Add this as an expense to the depreciation and you will get a realistic expense for your directs. (Direct costs are costs directly associated with the ride, such as gas, nav apps, wages, etc. Indirects are the maintenance and everything else.