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Talk to any fellow Uber and Lyft drivers at the airport holding lot and someone is sure to bring up how little we’re all earning. Then someone will open up the driver app and proudly show off that he earned $20 in an hour just a few days ago.
But somehow it just doesn’t feel right. If we’re all earning $17-$20 an hour, which is well above minimum wage, why do we feel so poor?
There’s plenty of information on gross income numbers, our most popular article included, but not very much information on the hidden expenses of rideshare driving.
So, the team at Ridester has taken an in-depth look at the other side of the earnings equation: expenses.
In this article I’m going to address how much it costs to drive for Uber and Lyft, not just how much drivers are making.
No matter where you’re at in your driving journey, you’ll get a better understanding of expenses, and actionable strategies you can take to reduce them to make more money.
Let’s do this thing.
- How Much Does It Cost To Drive For Uber And Lyft?
- Getting to the Bottom Line on Driver Earnings
- Something the IRS Can Actually Help Us With
- More Data on Driving Costs
- The Topic Of Depreciation
- Quantifying Depreciation
- The Impact on Earnings
How Much Does It Cost To Drive For Uber And Lyft?
It seems simple, but the more you think about it, the more complicated it gets!
Expenses aren’t just what we see and feel, but it’s all the future unknowns as well. Like…
- will my car need a major repair soon?
- Or, how much will my car be worth when I decide to sell it?
One of the key components in determining how much Uber and Lyft drivers earn is figuring out how much it costs them to drive their vehicles. To help with this, Ridester has done some in-depth research to find out.
Most articles on the subject only give vague guesses. This leaves drivers with the feeling that it’s not really possible to figure out what the true expenses of operating their vehicles are.
So they settle for the immediate expenses that they can see and feel. That means gasoline, routine maintenance like oil changes and monthly loan and insurance payments.
Here’s a breakdown of some of the most common Uber driver expenses:
These costs, however, only make up about half of a driver’s total expenses.
The other costs are unseen, unfelt, and for all practical purposes, invisible to the driver. They may not have to pay for then for several years, so on a weekly and monthly basis, drivers may be completely unaffected by them.
However, the invisible costs WILL catch up with them eventually, because they are in fact very tangible and real.
Getting to the Bottom Line on Driver Earnings
On the earnings side, figures on driver earnings are easy to come by. But they only tell half the story.
If a driver earns $18 an hour and only incurs $1.00 in expenses, that’s far better than a driver who earns $18 an hour and incurs $10 in expenses. One far exceeds minimum wage and the other doesn’t even reach minimum wage.
So, it’s critical that we take a closer look at what the experts say it actually costs Uber and Lyft drivers to own and operate their vehicles. Drivers’ real earnings can only be determined when we have an accurate idea of how much it costs drivers on average to run their cars.
But how can we get an accurate fix on driving expenses when so many of the costs are yet to be known?
They lie in the future and they’re so different from one car to the next. That’s where the law of averages comes in.
Since drivers can’t know for sure what expenses are in their futures, most drivers will decide that the best they can do is simply take into consideration their currently known costs and subtract those from earnings and rely on that figure as a best guess at true earnings.
However, we can do much better than that!
Even though it is not possible for any of us to know exactly what car expenses lie in our future we can know what the probabilities are of various expenses coming our way.
We can’t know for certain what outlays we’ll have to make for major repairs, we don’t know exactly how many miles we’ll put on the car so we don’t know how much it will depreciate. But, by looking at very large samples of data, we can get a very solid idea of exactly what expenses we’re likely to incur.
When it comes to our own individual cars and situations, it’s really impossible to know exactly what long-term expenses we might incur. But if we look at a large sample of say, millions of cars similar to ours, and find out that on average 75% of them needed a new transmission after 75,000 miles, we can safely assume that we’re probably not going to make it to 110,000 miles without replacing the transmission.
When determining whether or not driving for Uber or Lyft is a profitable way to spend your time, there is only one way to do it and that is to look at a large sample of cars similar to yours and see what expenses they have routinely incurred over a large sample.
Similarly, when we want to come up with average earnings figures for drivers, we have to look at large samples of car-related expense data which we will then use to assign an average per-mile expense figure to drivers.
The average expense number we arrive at can then be subtracted from known average earnings figures to come up with a true and accurate average driver income number.
Here’s Something the IRS Can Actually Help Us With!
The IRS comes up with a “standard deduction” every year for mileage driven for business purposes. In the last several years they have pegged the mileage rate in the 53¢-56¢ range.
That means they believe that after looking at massive amounts of data, that the average cost of owning and operating a vehicle comes to a little over 50¢ per mile. They are therefore willing to allow people who drive for business purposes to deduct that much per mile from their gross annual income.
In 2018 the mileage deduction the IRS has granted is 54 ½¢ per mile. Obviously, the IRS can’t give an individualized deduction to each and every driver in the country depending on their unique situation, so this figure is the best aggregate figure we have which represents an average cost per mile for car ownership based upon the aggregate numbers which looks at car ownership and maintenance costs across all vehicles in the U.S. and from that comes up with a single average cost per mile.
This figure should therefore come pretty close to what it actually costs for most people to own and operate a car – which makes it a good place to start. Keep in mind however, that it is in the IRS’s best interest to keep this figure as low as possible.
When new drivers first learn that they can deduct more than half a dollar from their income for each and every mile they drive for Uber and Lyft, they get really excited! For many drivers this can mean several hundred dollars in deductions each week!
However, what they may not realize is that this number actually reflects what it is really costing them to drive. So, to be realistic they would also have to subtract this amount from what they make each week in order to find out what they’re really making.
SUGGESTED TAX RESOURCES:
- Uber Taxes: Your Step-by-Step Guide to Uber Tax Filings
- Everything Rideshare Drivers Need to Know About Lyft and Uber Taxes
More Data on Driving Costs
We can get even more data from The American Automobile Association (AAA) which has been studying car costs for nearly 70 years – since 1950. This makes them one of the foremost experts in the country on what it really costs to own and operate a car.
Over the decades they have looked at and analyzed data covering billions of car miles and no one is better placed than they to give us the real low down on the cost of owning and operating a vehicle.
AAA’s data will help us even more than the IRS’s data because they break it down by vehicle type. Obviously, the costs of operating a small sedan are very different than the costs of operating a large SUV. So AAA will help you get to a more precise figure for your vehicle type.
Interestingly, in the end, across all car types, AAA’s cost data comes surprisingly close to the IRS’s! They’re literally just a few cents a part on final averages.
The Topic Of Depreciation
This has to be without a doubt the most overlooked expense associated with driving for Uber and Lyft. It is supremely unwise, however, to overlook this expense because it is, in fact, the largest single expense of owning a car.
It’s easy to understand why depreciation is so overlooked because you can’t see it, you don’t feel it and you don’t get a bill for it every month. So, there is nothing to remind you it’s there. And you’re not going to see it or feel it until it comes time to get rid of your car.
This hit me in a big way with the first car I drove for Uber. I too didn’t fully appreciate the power of depreciation until I was ready to get a new car.
I had driven the same car for Uber for two years – but it was a car that I had already had for four and a half years. It was getting old and worn and I realized it was soon going to start costing me a lot of money in repairs so thought it would be better to get a new one.
I remember taking it to the dealership – totally clueless and asking how them to tell me how much money I would get back after using this car’s trade-in value to pay off the remainder of the loan and to use some of the rest of it as a down payment for a new car.
They said they’d check. When the salesman came back he had a very grim look on his face. I asked what was wrong and he said, “There’s not enough value in this car to pay off the loan. You’ll still owe $4,000 and you’ll need at least $2,000 to get into your new car!”
Wow! I thought the car’s value would easily pay off the loan and make the down payment for the new car with at least a few hundred left over.
I was shocked that now I would have to come up with $6,000 in cash just to get rid of the thing!
That’s the power of depreciation. And that’s how depreciation will eventually catch up to you and bite you big time.
In other words, thanks to heavier-than-usual depreciation that resulted from all the additional Uber miles I had put on the car – it would now cost me $6,000 just to get rid of it! I couldn’t even get rid of it if I couldn’t come up with six grand!
All those months I drove for Uber thinking I’m making $2,000 – thanks to depreciation I was actually making about 10% less than I thought I was. But at the time, I would have proudly told you I was making what the pay slip said I was making.
The rest of the story is, when all was said and done, I owed $4,000 on a car I no longer wanted. And it was a car that would have been worth far more than I owed on it had I not put all those extra Uber miles on it.
It’s true that I did make money driving for Uber, but this large depreciation bill meant I made a lot less than I thought I was making at the time.
Depreciation is the difference between what you paid for your car and what you’ll get for it when you finally decide to trade it in or sell it.
Making things more complicated, though, is the fact that the exact amount of depreciation is the most difficult expense to determine. Cars depreciate at different rates, depending on their appearance, their mileage and the demand for your particular model at the time you want to dump it.
So, while it is impossible to know ahead of time exactly how much your particular car will depreciate over the time you own it – that doesn’t have to stop us from coming up with a very good idea of how much that will be.
With millions of cars just like yours on the road – all possessing long track records of measured results when it comes to depreciation, it’s not difficult to come up with a close to exact figure for depreciation.
In fact, that’s what companies like Kelly Blue Book do for a living. They put a value on various car models with varying ages and miles driven.
You can go to KBB.com in fact and tell them your car’s brand and model, along with year and mileage and they’ll tell you with exacting precision what it’s worth today. If you want to see what it would be worth if it had 20,000 more miles on it, just add 20,000 miles to the total and they’ll give you a figure for that too.
If you want to get the best idea possible of how much your car will depreciate over a certain period of time with a certain number of miles driven, just input that into KBB.com or any of the other car sites.
For instance, let’s say you own a 2016 Camry with 20,000 miles on it and you’d like to know what it will be worth when it’s four years old and has 60,000 miles on it. Just tell the site where you’re getting the estimates that your car is a 2014 model and it has 60,000 miles on it. That will give you the price for a four-year-old model with the mileage you’ll estimate you’ll have on the car by that point.
Camrys have been around long enough that their depreciation rates are well known. And they don’t change all that much from year to year so this will give you a very close approximation of what your car will be worth in two years with several thousand more miles on it.
While it’s not possible to know now the exact cost of depreciation for any one driver, it is possible to come up with a very close estimate. Therefore, depreciation need not be treated as an unknown and unknowable expense. It is in fact a well-known and predictable figure.
With that in mind, we can now construct a very accurate cost basis for drivers.
AAA has given us some very good research using a huge data sample developed over many years that is widely recognized as the gold standard in data when it comes to car ownership and operating expenses.
Click on these charts to see expense data for 2017 vehicles:
Here are the the kinds of cars that are included in the categories above:
- Small sedan: Chevrolet Cruze, Ford Focus, Honda Civic, Hyundai Elantra and Toyota Corolla.
- Medium sedan: Chevrolet Malibu, Ford Fusion, Honda Accord, Nissan Altima and Toyota Camry.
- Large sedan: Chevrolet Impala, Chrysler 300, Ford Taurus, Nissan Maxima and Toyota Avalon.
- Small SUV: Chevrolet Equinox, Ford Escape, Honda CR-V, Nissan Rogue and Toyota RAV4.
- Medium SUV: Chevrolet Traverse, Ford Explorer, Honda Pilot, Jeep Grand Cherokee and Toyota Highlander.
- Minivan: Dodge Grand Caravan, Kia Sedona, Honda Odyssey, Nissan Quest and Toyota Sienna.
- Pickup truck: Chevrolet Silverado 1500, Ford F-150, Nissan Titan, Ram 1500 and Toyota Tundra.
- Hybrid car: Ford Fusion, Honda Accord, Hyundai Sonata, Toyota Prius Liftback and Toyota RAV4.
- Electric car: BMW i3, Chevrolet Bolt, Fiat 500e, Kia Soul and Nissan Leaf.
Notice the average cost per mile per year in the 20,000-mile category comes pretty close to the IRS’s standard deduction. Some cars come in less though and those are the cars Uber drivers should be looking at. They’re the cars with which you’ll make the greatest profit.
The problem with this list however, is that it’s based on a maximum of driving 20,000 miles per year. So, let’s look at the cost per mile that near full-time Uber and Lyft drivers would be more likely to see – assuming they drive an average of 30,000 miles per year.
If you drive an average of 30,000 miles per year – this is a breakdown of your total costs, including the full price of the car, insurance, repairs, maintenance and depreciation.
|Make/Model||Total 5-Year Cost (based on 30,000 miles per year)||Cost per Mile||Total Vehicle Cost per Hour (assuming driver completes 24 miles on average each hour)|
|Hyundai Sonata Hybrid||$52,130||$0.35||$8.16|
|Toyota Avalon Hybrid||$59,570||$0.40||$9.60|
|Lexus ES-350 (uberBLACK)||$71,301||$0.47||$11.28|
|Chevy Suburban (uberSUV)||$82,302||$0.55||$13.20|
Figures assume: The purchase of a 1-year-old model of each vehicle. 30,000 miles per year for five years will be put on the vehicle. 60-month financing at 5.00% with a 10% down payment.
Taking an average of all the total cost figures above (minus the Lexus ES and the Chevy Suburban), we come up $0.37 per mile or $8.85 per hour (at 24 mph) for typical uberX vehicles.
The Impact on Earnings
Now drivers have an accurate way to gauge the effect of the total operating expenses of their vehicles on their earnings.
All they have to do is look at their daily payment page in the driver apps and see what they earned and compare that with the total number of miles they drove to earn it. Or, they can look at the total number of hours and use our hourly estimates above.
If their payment page tells them they earned on average $17.50 an hour they can subtract the figure above that most closely corresponds to their vehicle. Or, they can use our average of all uberX vehicles of $8.85 an hour. Which in this case would mean that after getting paid $17.50 an hour – their real earnings were just $8.65 an hour.
The good news is, they will get to take home the full $17.50 at the end of the day. But, some day down the road, maybe a year from now, maybe in two or three years, thousands of dollars are going to come out of their pockets in one way or another – either to pay for a major repair or a series of smaller repairs and to pay for the loss of their car’s value. Those large expenses may be invisible to them now, but they will eventually have to be paid.
Many drivers have long claimed that they felt like they were barely making minimum wage. They would take their hourly earnings and make a guess at what their expenses were and they’d end up somewhere close to minimum wage. This table takes out most of the guess work. And it shows these drivers were about right. They really are earning close to or even a little less than minimum wage in many cases.
Jonathan Cousar began driving for Uber in 2013 when the ride-hail company first began operations in New York City. He has booked more than 7,000 trips. In 2014 he created Uber Driver Diaries, which was the first blog by an Uber driver describing the highs and lows of driving as well as offering tips and tricks and information on the industry as a whole. In 2016 Ridester acquired the site, and Jonathan began writing full-time about the rideshare industry and the gig economy. He has also done extensive research into driver issues related to pay and working conditions.