On 14th Jan 2016, Mark Macgann, the ex Board Advisor & Head Public Policy, tweeted “There are 1.5 million UBER drivers worldwide”.
With ads showing lucrative earnings of $19.04/hr (INR 1211.04), there has been an increasing number of UBER drivers worldwide.
There a ton of articles, researches and data that have been published regarding how much an UBER driver earns. UBER claims that their drivers earn more than any other transportation drivers.
Recently, articles and videos claiming UBER to be a scam and ‘how you are actually losing money with UBER’ have popped out.
With so much different informations available online, one cannot help but be confused about the truth behind these.
Here, I have outlined how UBER works and the truth regarding how much an UBER driver can earn.
UBER: THE INNOVATION OF 21’ST CENTURY!
If you ask me, what is the biggest innovation of our times is then I will definitely say that it is ‘Uber.’ This little app on your smartphone lets you book a cab anytime.
In most countries, Uber drivers work 24/7, and you can book an Uber cab at the press of a few buttons on your smartphone.
Errr… Wait! WHAT IS UBER?
Unless you have been living under a rock, I am sure that most of you know the function of the UBER app.
For a passenger, you hail a cab via the UBER mobile application or the UBER website.
You are displayed the approximate cost of the ride prior to your booking.
Your UBER comes to pick you up and upon the completion of your ride, you pay the driver.
For an UBER driver, nearby trip requests are routed to you (UBER drivers).
You can either accept or decline the trip request. If you accept the request, the passenger location is relayed to you via your smartphone, and you pick up your passenger.
Upon the completion of the ride, you are paid by the passenger in accordance with the quote of UBER.
This is our basic understanding of UBER, But did you know that ‘UBER is the world’s largest taxi company but it owns no vehicles?’
UBER utilizes computing platforms (Mobile Application) to facilitate peer to peer transactions between passengers and UBER drivers.
So what UBER basically does is, it relays your (Passenger) need for a ride with drivers that have been registered to their database (UBER drivers).
UBER has a dedicated pay structure as well as a formula to calculate the cost of the ride which is then displayed to both the passenger and the UBER driver.
CRITERIA TO BECOME AN UBER DRIVER
To become an UBER driver, there are certain conditions that you must fulfill.
- You need to be over 21 years of age
- You need to have had a driving license for over a year
- You must have access to a vehicle
- You must pass a background check.
I have listed the major criteria, however depending upon your location, there can be different additional conditions that are required.
For e.g, to become an UBER driver in San Francisco, you need to have a business license for the city.
Your 13 year old vehicle won’t be sanctioned as an UBER safe ride in some states while it will be UBER safe in other states.
UBER is now available in over 370 major cities and as such their conditions for joining differ from city to city. To know the complete UBER driver requirements in your state, it is best to apply online to them and check out your eligibility to drive for them.
UBER PAY STRUCTURE:
UBER drivers are recognized as independent contractors and not employees.
As a result, one of the most attractive feature of driving with UBER is the fact that you are your own boss.
Do you need a job that is not the typical 9 to 5? What about your friend’s birthday party this Monday?
With UBER, you have complete freedom on when to drive, where you go and who to pick up, all at your own time and schedule.
UBER has a definitive pay calculation system; whether you are driving for UBER as a part time or full time; you will be paid in accordance to how many trips you complete.
If you are planning on starting a business with UBER or any other cab companies, we have a detailed article on how to start the business with Uber.
HOW IS THE PAY CALCULATED?
UBER has a standardized system for pay calculation.
The charges will be divided into:
- Base Fare: This is the minimum base fare that has to be paid to ride on the UBER of your choice
- Per KM/Mi Fare: This is the fare per KM/Mi for the total distance that you travel and is fixed for the UBER of your choice
- Per Minute Fare: This is the fare per Minute for the total duration of the travel and is fixed for the UBER of your choice
- Booking Fee: This is the booking fee for the UBER of your choice.
In LA right now, to travel from the LA international airport to the National History Museum of Los Angeles County, you need to travel a total of 15.3 miles for 20 mins.
Looking at the booking charges for an UBERX in LA; the base fare is $0.00, the per KM fare is $0.96/mi, the per Min fare is $0.15/min and the booking fee is $2.10.
The total fare is calculated using the following formula:
Total cost = Base Fare + (per Mi fare * total miles) + (per Min fare * total minutes) + Booking fees
→ $2.10 + ($0.96/mi * 15.3mi) + ($0.15/min * 20min) + $0.00
→ $2.10 + $15.7 + $3 + $0.00
This means that for taking an UBERX from the LAX to the National History Museum of LA costs about $20-$28, taking into consideration that fact that the trip may take longer to complete due to traffic.
Similarly in Bangalore, to travel from the Kempegowda International Airport to Brigade Road, you need to travel a total of 35.6 Km for 59 mins.
Looking at the booking charges for an UBERXL; the base fare is INR 84, the per Km fare is INR 17.85 per Km, the per Min fare is INR 2.10 per Min and the booking fee is INR 0.00
The total fare is calculated using the same above formula:
Total cost = Base Fare + (per Km fare * total Km) + (per Min fare * total minutes) + Booking fees
→ INR 84 + (INR 17.85/Km * 35.6Km) + (INR 2.10/Min * 59 Mins) + 0.00
→ INR 84 + INR 635.46 +INR 123.9 + INR O
→ INR 850
UBER, in its attempt to provide prompt services for every user, has introduced the concept of Surge pricing. This creates a niche where UBER drivers can increase their earnings.
This aspect of UBER has confused numerous users and there have been numerous opinions that condemn the surge pricing that UBER introduced in their system.
Now what exactly is Surge pricing?
Surge pricing refers to UBER’s dynamic pricing model where fares are higher in areas with more demand for cab. This means that depending upon the time and the day, the same ride can cost a different amount for users.
In UBER’s case, they have introduced a surge multiplier of 1.3x or 2.1x. This surge multiplier is applied to the price of base, time and distance of the trip.
In the UBER app, areas with high demand for rides are colored in shades of red. The deeper the color of red, the higher is the demand and as a result you will incur higher surge multiplier.
This means that the fare calculation mentioned above is modified such that:
Total cost = Base Fare * Surge Multiplier + (per Km fare * total Km) * Surge Multiplier + (per Min fare * total minutes) * Surge Multiplier + Booking fees
So this means that for the above mentioned trips in LA and Bangalore; if the Surge Multiplier is 2.1x; your revised trip fare is:
In LA, the total fare from the LAX to the National History Museum of LA increases from $20.8 ⇒ $43.7
And in Bangalore, the total fare from Kempegowda International Airport to Brigade road increases from INR 850 ⇒ INR 1785
This is 2.1 times the original cost of the trip.
At a glance, this may seem a typical example of milking a cow for all it’s worth.
However, UBER has been adamant in its decision to maintain surge pricing as UBER is determined that surge pricing acts as an incentive for drivers to move to areas of higher demand and as a result, ensure quick service to all its users.
How does this help UBER drivers?
Surge pricing also means that for UBER drivers that are operating in Surge areas, i.e. high demand areas; they can increase their pay.
In a surge area with a surge multiplier of 2.0x, UBER drivers will earn double the normal numeration.
To Identify surges on the map
–Yellow signifies an increased demand
–Orange signifies a heavily increased demand
–Red signifies that it has reached a level where the surge is triggered.
Imagine you are in Times Square, New York on New Year’s Eve and you need to go back to your place just after midnight. Imagine the chaos, the traffic, and most important, the high demand for cabs. With a huge amount of Uber cab requests; surge charge is then applied for the area.
That’s how surcharge works; the more demand, the more money you need to pay. And this is a golden opportunity or Uber cab drivers to make a little more out of this chaos.
HOW MUCH PERCENTAGE CUT DOES UBER TAKE?
UBER takes a total of 20% from the total trip amount. There are no monthly charges nor any other payments that needs to be paid.
This means that if you earned a total of $1000 from your passengers in the US. You will need to pay 20% to UBER, i.e. $1000 * 20% = $200. This means after the UBER percentage cut, you will be left with $800.
Similarly, in India; if you earned a total of INR 10000, you will need to pay 20% to UBER, which comes to INR 2000 and you will be left with the balance of INR 8000.
As I mentioned earlier, when you drive for UBER, you are recognized as independent contractors. This means that there are various expenses that UBER drivers are expected to sort out by themselves.
Basic expenses include:
- Phone and Data Plan Cost:
To be eligible as an UBER driver, you need a mobile device with a data plan that will cover your UBER needs and navigationals needs. This payment has to be done by the driver themselves.
- Gas Cost
UBER doesn’t cover gas cost. So you need to take out your gas cost from the cash in hand you are getting from your passengers.
- Vehicle Insurance
UBER requires you to have your vehicle insured commercially. Most insurances do not cover your vehicle for commercial use. There will probably be an increase in your vehicle insurance when they realize that you are driving for UBER.
- Vehicle Service
Every mile that you drive on your vehicle depreciates it. Like any other valuable item, your car loses its value due to aging and everyday wear and tear. When you drive with UBER, every mile takes away from your vehicle value.
- Tax payment
UBER doesn’t withhold tax on behalf of their drivers. This means that you are required to pay for your own tax. Every transaction is taxable and as a result it is advised that you save for your tax deductions from the gross amount that you earn with UBER.
- Amenities for Rating
Another feature of UBER is their rating system. UBER advises that you keep various amenities such as bottled water, gum or phone chargers available for your passengers. This serves as an incentive for passengers to rate you better. A consistent low rating can lead to the termination of your contract with UBER.
ESTIMATED INCOME OF AN UBER DRIVER
According to certain websites: In the US, if you were to earn $1000 as your Gross income (total cash received from passengers)
- You will have to pay $200 to UBER (20%)
- You will have to pay $200 (approx. 20%) as car expenses, rider amenities, mobile data plan and other expenses.
- You will need to pay $76 (approx. 8%-10%) as your GST
- You will then need to pay $195 as your income tax.
This means that you will have a total of $369 left as your actual net profit. (approx. 37% of your gross income).
Similarly in India, according to this website: An average UBER drivers earns an average of INR 21,000 per month.
However, know that calculating the estimated income of an UBER driver can only be done in generalisation.
UBER has millions of clientele with differing choices; every driver has independent choice of vehicles, with differing insurance as well as different time schedules. There are drivers that have UBER as their full time job while others have UBER as their part time job.
This makes it incredibly hard to come up with a harmonized expense chart. If you drive a Toyota Prius, your expenses in gas and services will be totally different from another driver who drives a Toyota Innova.
Such diverse group of contractors that work different hours with different vehicles results in the various confusing information that you can find online.
If you believe in the UBER ads that claim you can earn up to INR 100,000 per month, I am sorry to tell you that it is impossible.
UBER provides a platform for you to act as a private contractor such that you earn money as a cab driver while working at your own time and schedule.
With the vast differing clientele that UBER boasts, it is impossible to calculate exactly how much you can earn by driving for UBER.
I have provided a general outlook on the financial difficulties that you will face while driving for UBER as well as a general income bracket that you can expect to earn.
However, it is a competitor’s market out there. There are various means that you can take to ensure that you earn more than what I have estimated.
For eg, you can plan and take a strategic schedule such that you earn your base pay multiplied by the surge multiplier. Planning and working in high demand areas as well as high demand time schedule should be an initiative by you if you are looking to increase your earnings.