Updated: Nov 15, 2021
One of the many, many mysteries of how Uber and Lyft operate is how they actually come up with the amount they charge you for a ride, and in turn the amount that they pay me. This article is going to explore both of this murky topics. Sure, they will tell you that it's a combination of Booking Fee, Time, Distance, Dynamic Pricing (translation: SURGE), Tolls/Fees, Discounts/Promotions, and Trip Adjustments, but that's not the whole story. Both companies are the same in this regard in that there is very little difference between anything these 2 companies do or what they offer their customers. What I'd like to bring to your attention is a trend I just can't ignore now that I've been doing this for nearly 5 years. I can't prove it with data, only with the real world experience that comes from 10,000 rides. It's subtle. So subtle that neither passengers nor drivers are likely to give it much thought even if they do notice it. All roads lead to Rome, but it certainly doesn't cost the same to get there.
I'm going to do something here that I'm sure Uber and Lyft will take great issue with if anyone from these companies ever actually sees this post. I'm going to show you exactly how I get paid as a rideshare driver. The reason I'm going to do this is 3-fold. One, I want to show you the formula for the largest determining factor of your fare, which is my pay. Two, I want you to be able tell just how much Uber/Lyft are fleecing you if your quoted price is much higher than it usually would be. Third, knowing this information will provide a basis for my claim that Uber and Lyft have been clandestinely overcharging their customers with impunity since the get-go.
The lion's share of what determines what you pay for your ride and the payment I receive for it is based on 2 very simple metrics:
1. How fast my wheels are turning, and
2. How long they've been turning for
Anything that increases either of these metrics is going to in turn increase your fare. Nothing fishy here, I mean what the hell else would they base the fare on?
Where the filching of your dollars takes place is lost deep within the navigational software used in both the Uber and Lyft apps. For both U/L, their preferred method of driver navigation is to use the nav option housed within the app itself, and not the external versions of Google Maps or Waze. While you can obviously choose these other options if you wish, the app (and in turn your phone) works much better if you just use theirs. What's the big deal you say. It's just Google maps, which both companies have had deals with since 2017. Stick with me here. This is what both of the navigation menus look like for drivers in the Lyft and Uber Driver Apps, respectively.
It's pretty obvious they want you to use the nav that's in the app right? This is intentional, and in practice your only choice since having your U/L Driver App transition out of their apps in to "regular" Google Maps or Waze is a functional nightmare for your phone, especially during busy shifts. If you aren't super familiar with the area you're working in, having slow and glitchy nav is a stressful experience, especially when you are with a passenger and don't want to seem like an idiot who doesn't know where they are going. Navigational mishaps lead to unhappy riders, poor ratings, and minimal chance of tips. Best to just stay inside the Driver App. I can sense your boredom. Who cares you say, what's the problem with any of this?
The problem lies in the suggested routes for your ride. I can't tell you how many times over my 10,000 rides that I've looked at the presented route and thought, "Huh. Well, if you say so U/L." Since the distance of a ride is always going to be the largest part of the fare, the navigation will almost always choose the longest route if there are multiple similar ETAs. Think about it, how many times have you taken an Uber or Lyft and thought, "Well this isn't the way that I would have gone, but oh well." It's easy for U/L to say that the navigation simply defaults to the quickest route, but it's more complicated and nuanced than that. There are many things that influence the nav algorithm, but you can be assured that Uber and Lyft didn't ask Google to tailor their versions of Maps to strike a balance between the shorest (distance) and quickest route which maximizes customer value and experience. Furthermore, it used to be that drivers could select route options in the app nav just like you can using the regular version of the stand alone GMaps app. Not any more though. When I begin the ride after you get in, I am immediately transitioned in to a pre-selected route of U/L's choosing. The nav will of course update if I deviate from the suggested route, but nowhere in the app am I actually given a choice to formally change the route. U/L's response to this would undoubtedly be that driver efficiency and safety is enhanced by seemlessly integrating these choices for me, reducing the number of screen taps and allowing me to more directly focus on the road. I can't argue with that logic. As you may have guessed though, I believe U/L do this for an entirely different set of reasons. I specifically remember a ride I gave earlier this year which perfectly illustrates what I'm talking about.
This ride originated near Wallingford Ave N and N 80th St here in Seattle, with a final destination of Chateau St. Michelle Winery in Woodinville .
When I plug the details of this ride in to Google Maps, these are the options available for me to choose from. The blue highlighted route is the route which Google defaulted to. It's technically the shortest route by 2 minutes. It's also 50% longer in distance than the middle route which is a much straighter shot. Let's take a look at what this might actually mean for your fare using the same pricing metrics as the ride featured in the next section. We will use a multiplier of 1.45x as applied to my estimated driver payout to guestimate Lyft fees and local taxes to arrive at what you the customer might be charged. I did not calculate Route 3 as it would have included a significant toll and skewed our analysis.
Base Fare: $1.50
Time: 26 minutes x $.69/m = $17.94
Distance: 22 miles x $1.335/mile = $29.37
Estimated Driver Pay = $48.81 x 1.45 = Estimated Passenger Fare of $70.77
Base Fare: $1.50
Time: 28 minutes x .$69/m = $19.32
Distance: 15 miles x $1.335/mile = $20.03
Estimated Driver Pay = $40.85 x 1.45 = Estimated Passenger Fare of $59.23
If you feel your time is worth nearly $350 an hour, congratulations. Mine isn't. I'd rather have the extra $11.54 in my pocket and buy another glass of wine with it when I get there 2 minutes after you. Just for fun, let's plug this sample ride in to the Lyft app and see what we get for a fare estimate and a suggested route. Scout's Honor I haven't looked prior to writing these words and I have no way of manipulating this data.
Ha! That's pretty damn good. Totally useless skill, but those who know me can verify I can usually get within $1 either way when guestimating either my pay or your price. Anyways, what I'm really happy to see from this picture is the suggested route. This way you can verify I'm not making this shit up. If you said nothing to your driver, this is the route they would take. I know this because it's the same route that was suggested to me, and I in turn followed it. I knew I would be paid more if I followed this route, and if the customer did happen to say anything I had the protection of being able to fall back on the company line that I just follow the blue line unless told otherwise by the customer. Was it unethical on my part to not suggest a route I knew would be significantly cheaper for the customer and not appreciably affect the ETA? IDK. "Route Juicing" is a hallmark of the taxicab industry, which U/L used as a positive value skew early on when touting their "transparency" concerning routes and fares. I'll give them this, at least U/L have the decency to kiss you on the mouth and tell you you're pretty before they screw you, unlike the taxis. My customers for this ride were a group of vacationers who didn't know the area, so I could have driven halfway to Sinaloa before they would have noticed or said anything concerning the route we were taking. I completed the ride with happy customers, but they ultimately paid a lot more than they needed to for their ride.
Maybe this isn't a big deal to you, but I think it is. My customers might not have cared either way, even if I presented them with all of the information that I've detailed here. But this is a big deal because of the scale that Uber and Lyft operate on. Uber reported riders took 1.64 BILLION rides on their platform in Q3 2021. Even if you use an outdated average from 2019 of $25 per ride and assume that only 1% of given rides (I can't even type that with a straight face) have route discrepencies that result in 5% higher invoices for riders, we're still talking about an extra $20 million dollars per quarter in gross revenue for Uber. And let me tell you, the problem is far, far worse than the polyanna estimates I just gave you. I think it's entirely plausible that Uber could be overcharging it's customers hundreds of millions of dollars per year by not optimizing their nav algorithms. Nav optimization is something they could accomplish if they really wanted to, for Christ's sake the whole damn company is made of nothing but whordes of the world's most talented software engineers. It's genius, really. Drivers certainly aren't going to say anything because ostensibly 60-70% of those dollars would be coming directly to us. The only way my assertion could even be accurately measured would be to thoroughly audit a large enough sample size of trip data, but you'd have an easier time getting Kyrie Irving vaccinated than you would getting that data from U/L. Riders shouldn't have to do this, but I would always suggest previewing the routes of your rides and suggest any desired changes to your driver. Driver "juicing" is also a problem, especially in markets like Seattle where the increase in per minute rates stemming from the Fare Wage Ordinance actually makes sitting in traffic a profitable endeavor (60 minutes x $.69/minute ain't a half bad wage), but it's not pervasive and systemic like the nav problem. An overwhelming majority of the drivers I know are well intended, hard working people who are just trying to complete the work in front of them as presented. If you feel you have been a victim of "route juicing" by either your driver or the platform(s), I would implore you to reach out to U/L directly with your complaint. They are usually very quick to make adjustments to your bill, as they know the consequences of you switching to their competitor in an industry with such high transactional volumes and extreme customer acquisition costs are catastrophic.
The only constant of the rideshare business since I've been a part of it is the never ending changes to how drivers are compensated. The previously mentioned components of how fares are calculated haven't really changed much, but the rates and ratios associated with them certainly have. Back in the good ole days, bonuses and incentives flowed like premium booger sugar at Studio 54. Same goes for promotions and discounts for riders. As detailed in my post on why Uber and Lyft are going to fail, U/L have been subsidizing both sides of the ledger constantly since day one, resulting in some hilariously abyssmal quarterly earnings reports. Uber makes the degenerate gambler in your life who performs terrible sex acts under freeway overpasses just to get back to the Pai Gow table look like Exxon Mobil. Seeeeeeeettle down Uber, I'm just teasing you big guy. Everyone knows if we just look at your top line revenue and selectively don't account for large costs associated with running every business (EBITDA), y'all be out here crushin' nuts in these streets. To gain a deeper understanding in to just how the Uber and Lyft sausage is made though, let's take a peek behind the curtain and break down one of my recent rides.
Pretty simple right? Only 4 components. Base Pay, Time, Mileage, and Tolls. To give more context, this was a Lyft "Lux" ride I gave in my Model 3 that originated in the city of Seattle and ended at SeaTac airport. A nice hit for sure, as Seattle has some of the highest driver pay rates in the country thanks to it's Fare Share Wage Ordinance that went in to effect at the start of this calendar year. Uber and Lyft predictably fought this harder than Alabama fought the racial integration of their schools, even sending out scare tactic propaganda emails (I really wish I still had them because I would post them here) in which drivers were told if we let this ordinance go in to effect, we could essentially kiss our normal ride volumes goodbye. What, a, crock, of, shit. Covid has had 10 times more effect on ride requests than the increased rates have had in Seattle, and best I can tell, riders care far more about the availability of their ride than the cost of obtaining it. During the Spring of Optimism (feel free to steal that) earlier this year between the introduction of the vaccine and the emergence of Delta, rider demand in Seattle was INSANE. While I certainly heard riders complain about how much they were now paying for rides, I didn't see any less of them getting in my car. There was one major change though this time around from from how business was done pre-Covid:
It was now impossible for Lyft drivers to see what their riders paid for a ride.
The only information available to me isn't even accessible in the app. I have to go in to my driver Dashboard, which is only available through the actual Lyft website (what the hell's a website?) and look up last week's ride history. LOLZ upon LOLZ. The following image is a snippet from one of my paychecks. It also represents the most detailed information I can obtain on what you pay. While I can see in the aggregate the difference between what all of my riders were charged and what I was paid, I can't see the details of any specific ride. This is NOT by accident. U/L never disclose anything about their businesses they are not waterboarded in to revealing. You might not think much of this, but I'm going to tell you why it matters.
Removing Tips from the equation (which Lyft has conveniently rolled in to Ride Payments to decrease their total fee percentage), we can see that I netted about 70% of my associated total Ride Payments as compensation. Some might say that's a pretty good haircut, but I'm actually ok with it. The point here is this is the most information I can possibly get about what you paid for your ride. Doesn't it seem reasonable, especially as a contractor, that I should have a right to know the full details of the work I choose to accept? Isn't it also reasonable that you as a customer should have the right to know what your contractor is getting paid since you are the one commissioning the work? Lyft's willful concealment of this basic transactional information is one of the many examples as to why there exists next to zero brand loyalty among drivers or riders with either company. At every possible turn both of these companies thwart any reasonable inquiry in to how their businesses operate.
Why do you think that is?
When I started driving for U/L in 2017, it was relatively easy to see what a rider paid for their ride. It was available with just a couple of clicks in the app if you selected a specific ride. I can't say that I did this a great deal, but it was nice to know there was at least some transactional transparency available if I wanted to see just how badly U/L were grifting me. One of the many underhanded and greasy business tactics that U/L have engaged in is never really defining quantitatively how drivers are paid. It was sort of understood in the pre-Covid days that drivers took home roughly 75% of the total fare. I can loosely corroborate that with what I used to be able to see on the rider fare breakdown. I might surprise you with this next statement, but a 25% cut for operating and providing the platform that spoon feeds me work for a job that I genuinely enjoy seems entirely fair to me. Yet as this small sample size experiement conducted by a reporter in San Francisco shows, the gap between what you pay and what I receive (52 percent net driver pay in case you didn't clink on the link) is ever widening and has never been less transparent.
Please don't mininterpret what I'm saying. It has never been my position that I am not compensated enough to drive for U/L. I just want you to know that when U/L quote you a price on a ride that seems exorbinant and outrageous, nowhere near that amount is actually coming to me. No bullshit though, I feel extremely fortunate to have found a gig I greatly enjoy that also pays my bills and offers the freedom of time and schedule that rideshare does. But both the driver and passenger deserve a level of transparency in to how they are paid/charged that is an order of magnitude above what U/L currently offer. The withholding of this information is deliberate, intentional, and calculated. Uber and Lyft have been so comically unprofitable in their operations thus far that they just couldn't help themselves when Covid presented them with a chance to gouge their customers and undercompensate their drivers. As the car dealership turkeys keep telling us, it's not price gouging but rather a "market adjustment." Oh thank God, for a minute there I thought you were pissing in my face and telling me it's raining. Market Adjustment sounds much less nefarious than price gouging, like it's some sort of governing law of physics which can't be bent by mortal man. U/L have blamed driver shortages for these huge fare increases, but I'm more than a little incredulous concerning any of these pre-packaged press release turd sandwiches that U/L feed to the media, their investors, and the public.
I guess that's the beauty of operating a technology platform. U/L have millions and millions of drivers and riders, but none of us have any real way of communicating with each other as consumers or bargaining units. What recourse does either of us really have besides me not driving and you not riding? I need to work, you need to get places. Here is the most cogent and admittedly naive way I can summarize this entire situation:
Business does not need to be conducted this way. Driver well-being, customer satisfaction, investor profits, and ethical business practices needn't be mutually exclusive. If being transparent with your stakeholders would result in detrimental outcomes for your business, your business is SHIT and deserves to fail.
Somebody should go tell Uber and Lyft this. Just be sure to check your route first before you leave.
I'm Ryan, a full-time rideshare driver, entrepreneur, and Editor of Ryan on Everything. I write about anything that interests me, which is a lot. My folksy, sarcastic, irreverent, off the cuff writing style is a reflection of who I am and how I think. I treasure your feedback, however contrarian to my opinion it may be. Help me build a community of free thinkers and bullshit sniffers.