Oh give me a break. He's basing his entire analysis on the assumption that it costs $22.80/hr to operate a vehicle. They way he comes up with that is by including the up-front cost of the vehicle.
That's not quite the right logic. Most people do not go out and purchase a vehicle just to become a Lyft drivers. Certainly that's not what you should do.
A better economic analysis is to look at Lyft as a way to make your existing personal car a more productive asset. The car is a sunk cost. What you should analyze is the incremental costs of fuel and wear-and-tear for the additional miles driven vs. the Lyft proceeds.
Econ geek footnote: This is assuming there is little-to-no opportunity cost for being a Lyft driver. But for the unemployed that holds true. Lyft may be a more compelling option for unemployed/underemployed car owners.
Still counts. As long as you would have bought the vehicle for your own use anyway, it's a sunk cost. Whether or not it's profitable to rent it out via Lyft depends solely on the incremental costs of the extra driving -- not how much extra driving you do. And if it is profitable, then driving more is more profitable, not less.
> According to this Consumer Reports article, “the median car costs more than $9,100 a year to own” over the first five years of ownership driving 12,000 miles a year. That means the median cars costs about 76 cents per mile driven ($9100/12000). I’m just guessing that I’ll average a speed of 30 miles/hour while I’m doing my Lyft job. So my expenses will come to about $22.80 per hour (0.76*30).
Doesn't that $9100 a year median include a bunch of fixed costs (or at least costs that wouldn't grow linearly with the mileage driven)? e.g., the lease/cost of car itself, insurance, etc. I'm not saying this would take the profitability of being a Lyft driver from pretty terrible to great, but it does seem like a pretty significant oversight.
But it's not like his car payment magically disappears when he becomes a Lyft driver. Or magically stop having to carry insurance. It's a good estimate to use for cost, especially considering the author did not even own a car and would have to purchase one.
> But it's not like his car payment magically disappears when he becomes a Lyft driver. Or magically stop having to carry insurance.
Right, my point is that those costs are essentially fixed w.r.t miles driven, not that you wouldn't need those things. If you drive 36000 miles a year as a Lyft driver your car payment is still the same as someone who drives 12000 miles a year, whereas the author's model assumes the payment would be 3x as much. And re insurance, I know insurance companies take mileage into account in determining insurance premium, but it's certainly not the only thing in the formula.
Ah, I misunderstood. Yes, you are correct. I would use the US government's rate per mile, which comes out to about $17 for 30 miles. Unknown what components this is expected to include beyond fuel and wear/tear.
EDIT: Found further clarification. "The TDY mileage rates consider the fixed and variable costs to operate a car (gasoline, insurance, wear and tear, etc.) and are intended to reimburse the average expense of using a POC for the official government travel."
Drive 36k miles a year and the car will quickly have a resell value of 0 and repair costs become more frequent. Insurance is probably the only true fixed cost that benefits from scale
If you were going to approach this in a purely economic-rationalist manner, you'd (probably) discover that buying cars new is wasteful - and that you want to look for late-model full-service-history low-mileage second hand cars in the 2 or 3 year old range. The original owner will have borne the brunt of the capital depreciation, and you can drive higher-than-average-yearly-mileage for a few years while "low mileage" to "slightly high mileage".
(Where I come from, Australia, there are tax breaks that make 3 year old cars fresh off company-car leases pretty commonly available - many people structure their salary package in a way the strongly encourages them to lease a new car every 3 years, and off-load the previous one for often 35% of its original purchase price - and to have those cars get all their required dealer servicing done using pre-tax salary.)
I agree that repair costs and depreciation grow (probably roughly linearly) with miles driven, but those would have been factored into the $9100 median separately from the car payment.
I think what he means is that you cant turn those costs into a "cost per mile rate" since that rate will decline once you excedd 12000 miles assuming a bunch of the costs are fixed costs.
But I don't know, if you're exceeding 12k miles working for Lyft, im sure the cost/benefit analysis takes on a whole new life.
But he calculated his per mile costs using 12000 miles per year. A taxi driver is going to drive far more than that, so the fixed costs will contribute a smaller amount to the per mile cost.
The $9100 number skews the analysis for several reasons. First, it does include fuel, depreciation, interest, insurance, repair, maintenance, and tax - see the linked Consumer Reports article for details.
Second, $9100 is the median number, not the mean or "best price available." The article lists other cars that have numbers closer to $5000-$7000, and all the numbers are lower if you keep the car for longer than 5 years.
Finally, the article says that "Depreciation is the largest cost factor by far," and that it contributes about half of the cost of ownership. Buy a 1-2 year old car, and your cost of ownership will drop considerably.
It's amortizing the cost so it makes sense. The real thing missing is assuming all the miles are lyft miles, and assuming the car provides no value outside of lyft
> I’m just guessing that I’ll average a speed of 30 miles/hour while I’m doing my Lyft job. So my expenses will come to about $22.80 per hour.
You're implying that you will driving 30 miles each hour, on average. That is a ridiculous overestimation for the type of urban driving Lyft will involve. I'd guess closer to 15-20 in off-peak periods, and perhaps something close to 10 miles on average. That brings maintenance expenses down to $7.60/hr from $22/hr.
Maintaining 30 mph in a dense city, such as downtown SF is probably high (although then enough time is spent idling that my costs-per-mile estimate becomes too low). Fair point. I pulled the 30 mph out of someone else's guess in the AMA article mentioned, and from the most recent Lyft report I read, saying it wasn't uncommon to drive to the airport (removing the Mustache first, of course) during which time 30mph is low, and the time-between-rides becomes high.
And not to mention increased wear and tear on brakes, gearbox and engine due to much more start-stop events during urban journeys especially at peak times i.e. traffic lights, junctions, tailbacks etc.
On top of that, the car will be starting and stopping i.e. engine start/stop cycles far more during urban workload if you're a taxi driver, that also increases the number of times your car will be visiting the shop for maintenance as the life of the car increases.
Cars with high long distance journey motorway miles will last far longer than a car working out its life in a city. This can affect resell value if you own the car rather than lease.
As a fairly experienced second hand car owner/purchaser I'd far rather buy a motor with 100k+ motorway miles than 50k city life on the clock.
Which is why UberX was originally advertised as being "hybrid uber". As for the higher cost per mile of urban driving, I genuinely would love to see a source.
Uber just announced that it has struck deals with auto manufacturers to chop $100-200 off monthly payments for those that are approved to drive for them.
I think your missing the point. You are calculating this on the basis that you were buying and using your car exclusively for Lyft. If a driver is already paying for a vehicle, all of these expenses can be shared with personal use. This is the 'sharing economy'.
To buy a car and use it exclusively for Lyft may not make sense.
Nice feedback on my blog post, y'all. Thanks. Estimating exactly how much a driver receives from Lyft, versus that driver's expenses, is really difficult. So I took some shortcuts with easily searchable published data and ended up with just $3.45/hour. In a G+ discussion it came up that if you could externalize most ownership expenses (e.g. driving your dad's car), it would be reasonable to get up to $17/hour with all my other estimates being the same.
In a best-case scenario you'd be picking up someone whose destination is where you were already headed, in which case your 80% of the payment would be pure profit. If you drove that person for a full hour, to a place where you were already headed, and they paid you $43.75, then you really would get that $35/hour that Lyft advertises for drivers.
In the end, these estimates are hard. Lyft themselves probably have real good data on the matter. Maybe they'll give us some real numbers, and show us how they can be cheaper than cabs while simultaneously (if their advertising for drivers is to be believed) paying their drivers a lot more than typical cabbies.
> how they can be cheaper than cabs while simultaneously (if their advertising for drivers is to be believed) paying their drivers a lot more than typical cabbies.
@Brent Noorda, awesome! You've identified a market opportunity to provider a more consumer friendly and driver friendly alternative! Give back to the community! All you need is some servers and lattes.
Given what the drivers and passengers put into it, it does seem that Lyft's 20% cut seems high - but that 20% is also what justifies backing from the investors. If so, then there's room for a service doing the same brokerage deal for, maybe 10% or 5% (if they cut out the lattes), advertising itself as "cheaper than cabs, AND cheaper than Lyft". Maybe Craig will offer a really crappy UI and do it for free?
Profit = marginal revenue - marginal cost. You've counted all vehicle maintenance as a "cost of Lyft driving". For people who already own (and maintain) a car, this is not the case.
For people already with a car, the variable costs of driving (maintenance, fuel, etc.) is usually 25-45 cents (lower end is a economy car getting 30mpg city, higher end is a less fuel-efficient, less reliable car). Using 35c/mile, and an average urban driving speed, that's $5.25/hour.
Even idling half the time, that's 17.50-5.25=$12.25, better than many pizza delivery / the average urban courier rate. Delivery drivers often get far less than $35 while having to pay their own vehicle costs.
The calculus changes a lot just based on that single number, average speed. I'm sure the $35/hr number would be far higher if everyone was going on freeways between trips and racking up the miles like crazy (assuming Lyft incorporates distance into its pricing heavily)
1. In most places it is illegal to provide transport for a fee without a special state-provided license.
2. There are also special legal requirements from the driver, e.g. taxi drivers license.
3. Insurance requirements are different and order of magnitude higher for vehicles that provide such transport.
4. In case of accidents/fatalities or police stops, who bears responsibility/liability? The car owner, the company, the insurer, all of the above? How much danger of arrest/confiscation/huge fines is the driver in? Does lyft indemnify their business partners against such incidents?
5. The drivers earnings should be the least concern for folks who sign up for this scheme
Even if Brent may have overestimated the cost of operating a vehicle, assuming he makes 2X of his projection, that is still less than L.A minimum wage ($8 today. Increasing to $10 by 2016.)
This is poor analysis. The writer takes an artificially high number ($9100), divides it by an artificially low number (12,000) and then multiplies it by an artificially high number (30 mph) resulting in just about the highest number possible.
Take a $15,000 car with a nice warranty and good mileage. $3 or so per hour for gas. $200/month for registration, insurance, etc. Maybe you'd get to $10 and hour in costs, but I doubt it. And the car would last for 10 years at least.
According to IRS, $0.58 per mile is fair comp (for driving your own car). http://www.irs.gov/uac/2013-Standard-Mileage-Rates-Up-1-Cent.... In city, you can hardly drive over 35 miles/hour and you stop frequently. Even if you drive 10-20 miles per hour, that's $6 - $12. per hour.
It is also possible to drive a used car, which can drastically lower the initial and operating expenses. This way, even "luxury" cars are a viable option to drive.
Also, most people tip their drivers, which is basically tax-free income (at least in Germany).
Lyft drivers could surely benefit from the tax deductions as well. I assume they report their Lyft payments to the IRS? This complicates the "how much they earn" formula further.
Lyft sends 1099(-K, presumably)s to drivers who make over $20k from 200+ transactions a year. This is the same reporting system used by Stripe and Paypal. (I have lots lying around.)
It would be exceptionally unwise to fail to report income which has been 1099-ed to you, and very unwise to fail to report substantial income merely because one does not have a corresponding 1099 for it, because (particularly in the case where one party has all the information required to reconstruct your income and that one party can simultaneously uncover millions of dollars of under-reporting) audits exist.
That's not quite the right logic. Most people do not go out and purchase a vehicle just to become a Lyft drivers. Certainly that's not what you should do.
A better economic analysis is to look at Lyft as a way to make your existing personal car a more productive asset. The car is a sunk cost. What you should analyze is the incremental costs of fuel and wear-and-tear for the additional miles driven vs. the Lyft proceeds.
Econ geek footnote: This is assuming there is little-to-no opportunity cost for being a Lyft driver. But for the unemployed that holds true. Lyft may be a more compelling option for unemployed/underemployed car owners.