When I first heard someone use the term “the sharing economy” last year:
Me: What the fuck is “the sharing economy”?
Someone: It’s a catchall for businesses like AirBnB, Uber, Lyft, TaskRabbit and the like.
What did I mean?
Well to take one example, this was sent to me recently by a friend because it appeared on her feed and she was curious how they got the numbers:
Let’s do the math, shall we?2
Regular cabbies as a fare income estimator
The median reported income of taxi driver in 2010 was $22,400 per year.3 Adjust $22,400.00 with inflation of 12% to get to 2014.4 But the resulting $25,088.00 is after some costs so add back in the $100 a day for average rental costs for cab, and increase the result again by 33.33% to incorporate the medallion fees the taxi company charges giving $68,115.63 in average annual fares per full-time cabbie, exclusive of tips.
Let’s be generous and assume this cabbie only works a regular work week, even when the median is more likely doing 10-hour days and we get $24.56/hour in fares (not including tips).
(Note: Where are the fuel costs? Fuel doesn’t affect median income reported estimates because it is deducted from from the tax reports and just affects real income after tax for the cabbie.)
Using that estimate, let’s be super generous and assume an UberX driver is as efficient at fare-getting as a professional cab driver who has a medallion, can pick up any hail, and knows the customer traffic patterns very well.
However, Uber takes a 20% cut (up from 5%)7 before passing it on the the driver bringing us down to $25.50 expected hourly gross income. Finally, subtract out about $10 for 20 miles travelled on the car.8
(Out of curiousity, does the average UberX driver have a commercial rider on their insurance policy covers their liability when doing a drive-for-fee? Plus the most lucrative fares are going to be to/from airports, are they paying the proper fees and licensing to allow that?9)
This creates a maximum taxible yearly income of $45,257.30. That’s less than half that of the claim in the ad and still assumes that you drive like a professional cabbie, take no vacation days or even weekends off, and remember to report every mile driven lest you pay taxes on that too and increase your tax liability.
The Uber truth in advertising: It’s kind of like the real truth, only it’s so uber it’s the opposite of the truth…or maybe less than half of the truth—the half that’s missing is all the money.
Verifying the computation
Here is my worksheet:
The number is less than half that of Uber’s claim so it’s shocking but does this pass the smell test?
First, you might argue that $22k/yr for a cabbie is too low. This is not because that leaves room for a lot of variance in income:
- it’s a median income so really old hands can make fares faster if they’re smart;
- if a cabbie has their own medallion they keep an extra 33% in not having to pay fees; and
- this does not include income from cash tips which usually go unreported.10
All this means to say that even while the median cab driver would put them at about the San Francisco minimum wage, a very savvy cab driver can do significantly better.
Next, the $31.87 an hour in the estimate is awfully close to the advertised (“up to” $35/hour). This too makes sense: if you get some lucky fares or with “surge pricing”11 there might be a brief burst where an UberX driver might get to $35/hour (to Uber) in the claim . Of course, it’s very deceptive because Uber will take 20% of that before the driver even see a dime, and then the driver would have to remember to deduct every mile travelled or their tax burden would nearly wipe them out at tax time. Another way to do this is to say, during the most lucrative of moments, an UberX driver will see around $15/hr in real income. Yes, high-reward relative to minimum wage, but also high risk, since that amount can be $0/hr sometimes. This jibes with what we see with most Uber drivers out there.12
Other parts of the calculation pass the smell test to:
- Uber charges 13% less in fees than a cab company, but they can afford to because they don’t pay for the medallion which in San Francisco runs $300k.13
- UberX charges the customer $1/mile which is double the operation cost of the vehicle—any less and an UberX driver would easily notice that they’re losing money the longer distance they travel. For instance, on a long-distance one-way fare, the driver is actually losing 24 cents a mile, which is masked by the 20 cents/mile automatic gratuity Uber prefills in the credit car.
- Uber by their own admission had higher rates for UberX and had to lower them to compete with cabs, which just means that the rates cabs are currently charging is defined by a competive market—a market where cabbies can pick up fares more aggressively because their medallion.14
The math vs. the claims
How to get from $35/hr to an even more absurd $95k year? After all, if it were a 40 hour work week, then the estimate should be $70k/year even assuming the absurd and deceptive $35/hr. Where is that missing $25k? That’s easy, they did the same computation I did above: you assume the person works weekends and doesn’t take even the two work weeks of vacation and then you can get there. 🙂
Now if they get sued, Uber simply says it’s theoretically possible to make “up to” $95k, even if the $35/hr estimate is best case scenario can only happen during rush hour “surge pricing” when the Muni drivers all go on a “sick out”. The driver would simply put in 12 hour days, with no breaks or vacation, and have fare instincts like a professional cabbie, and include Uber’s fees as “making” money.15
But I challenge Uber to find a single UberX driver that has pulled in $95k in income for themselves. With so many drivers in so many cities doing this for the last two years, there’s gotta be one, right? 16
If not, this ad is a lie, and all you libertarian idiots should count your money,17 continue to exploit people who can’t keep a budget18, and stop “LIKE”ing this shit because your self-congratuatory bullshit is cluttering up my Facebook feed.19
- I was once unemployed. I remember how easy it is to make an income but lose money when you are living on that edge, so I don’t fall for this b.s. being shovelled as being sustainable business model. ↩
- Plus this gives me an opportunity to try to play around with Soulver. ↩
- This makes sense since this is just north minimum wage which jibes with common sense vis-a-vis the income class most cab drivers are in. ↩
- 3% inflation per year. During these years (2010-2014) this was much less due to recession and low interest rates. But on this side of the sheet, I’m going to error very heavily on being generous to get as large a number possible. ↩
- Note, what this means is that despite what the Technorati say, UberX, even after their massive 15-35% price cut will still work out to being more expensive per ride than a cab. ↩
- A fringe benefit is that unlike cab drivers, we get to account for tax avoidance of the cash economy because Uber users don’t use cash. Poor Uber drivers are taxed on all their tips. 🙁 (Sidenote: want to make an Uber driver feel better? Set the gratuity to 0% and tip them generously in cash.) ↩
- Very typical bait-and-switch: use an unsustainable 5% (can’t even cover merchant account and transaction fees on the credit card) and then when you have lock in, jump to 20%. ↩
- The US government estimates fuel+care/service+insurance at 50 cents per mile travelled. I’m assuming every 60 minutes worked, you’re driving 20 miles to and from fares and actually earning the fare. ↩
- This is rhetorical. The answer is no. The penalty for breaking this law is $79 per infraction. The city could shut down Uber on just this violation alone, if they wanted to. ↩
- If you ever were wondering why many cab drivers’ credit card machines “never seem to be working,” now you know. ↩
- Surge pricing is illegal for medallion taxi-businesses for obvious reasons: Could you imagine if you didn’t know the price until after you stepped into a cab and got to your destination, or if different cab companies charged different rates? ↩
- Their profile is well-to-do (in assets) but unemployed. Either too proud due to their class to work a regular service job, or with a spouse whose much larger income masks the low wage as “personal spending income” and covers the sunk costs (gas, car insurance, mobile phone payments, food, 1099K taxes from Uber payments, etc.). ↩
- In New York it’s around a million dollars. ↩
- Even though the fares are regulated, it can still be competative. If taxis cost too much, people would substitute out with different modes of transportation: rail, car, limosine/shuttle, bus, bicycle, or walk. ↩
- They are making money… for Uber. “Judge, we never said, they will make for themselves. We meant money they make that for us and we give them 80% of that.” ↩
- Instead of restricting it to San Francisco and real income, I’ll even be generous and concede if Uber has issued a 1099-MISC or 1099-K with that amount in any tax year to any UberX driver. This makes it easy for them to prove me wrong. ↩
- For the two of my Facebook friends who were early investors in Uber. You know who you are. :-D ↩
- That’s most of us, which is why this, TaskRabbit, and others work. As the people using these services, we are making off like bandits, just like the people exploiting their GroupOn coupons do well. The people on the other side, building our Ikea desk at wages so low that they don’t cover the gas to drive to job? Not so much. ↩
- That, or Facebook should bring back the dislike button :-). Because I’m sick of your entitled bullshit. ↩