Uber is Raising Per-Minute Rates in Test Cities – Substantially

Ridester has learned that Uber is testing several different rate change strategies for drivers in several cities around the United States. Among the rate variations they are testing is a dramatically higher per-minute rate that would be paid to drivers.

Uber has announced the higher per-minute rates for the affected cities, which include:

  • Houston
  • Sacramento
  • Cleveland
  • Salt Lake City
  • Dallas
  • Minneapolis

Uber introduces the price change in each city by saying, “We know that consistent and dependable earnings are important to you.  In a step toward creating a more reliable earnings experience, we’re updating our time and distance rates to make earnings more reflective of the time you put in, no matter where a trip takes you.”

But, then in a strange twist they say, “You can expect that your overall trip earnings will stay the same as a result of the update.”

The reason they say overall trip earnings will remain the same is because at the same time they’re raising the time rates, they are lowering the distance rates.  So, on short trips in slow traffic, drivers will earn a few cents more.  But on long distance trips in light traffic, they’ll earn less – and sometimes significantly less.

In driver forums, one driver noted that he had never seen a driver ask for “consistent and dependable earnings” but that he had only seen drivers ask for “higher earnings”.

Uber stating that this change will basically have no effect on driver earnings is also baffling because in late May, Uber’s CEO, Dara Khosrowshahi, acknowledged that drivers need more money.  According to FT he said, “the company was facing more competition for drivers due to the improving US economy, as well as the issue of high fuel prices.”

“We have to make [being an Uber driver] more attractive because the alternatives are becoming more attractive,” Khosrowshahi said. “All of them, I think, want to make more money. In general, I think driver earnings are going up.”

But according to Uber’s website, drivers will earn basically the same.  Their earnings aren’t going up.

Here’s how it breaks down in the cities where the new price changes are being tested:

Houston uberX Changes uberXL Changes
Time rate: +55% +28%
Distance Rate: -14% -7%
Time rate: +50% +35%
Distance: -15% -11%
Time rate: +31% +13%
Distance:    -8%    -5%
Salt Lake City
Time rate: +82% +36%
Distance: -18% -14%
Time rate: +60% +30%
Distance: -10%    -8%
Time rate: +63% +31%
Distance: -19% -10%

Changes in Surge Pricing Also Being Tested

It has been known for some time now that Uber is testing changes to the surge pricing model in several cities around the country.

The old surge is a multiplier.  If the surge is 2.1x and the total earnings to the driver for a trip is $15, then the new total after the surge is applied would be exactly 2.1 times greater than the $15 total, or $31.50.

Under the old surge drivers see “2.1x” when a call comes in from a passenger.  Under the new surge they’ll see, “+2.1”.  To new drivers who aren’t familiar with the old surge, this will seem like a nice little bonus on top of what they would have normally earned.  However, when they see “+2.1” what it means is that $2.10 will be added to the driver’s total earnings.  In the case of a $15 trip, that means the driver would earn $17.10 instead of under the old system where they would have earned $31.50.

In the meantime, drivers in the test cities have reported that the passengers are getting charged the full original surge.  So, once again, Uber has come up with a way to earn a lot more money for itself while significantly lowering driver earnings.

A lot of drivers in the affected cities are angry and wonder why Uber can’t simply pass their need for higher earnings onto the passengers instead of always taking it from the drivers.

There are signs that more than a few drivers have been pushed to the edge with this change and have given up on driving altogether.

That means there will be more new drivers than ever showing up in these cities, providing a lower quality of service that can be expected from inexperienced drivers.

Uber also infuriated Florida drivers earlier this year when they notified them they were raising fees to passengers but would not be passing those increases along to drivers.  Later, they increased rates in San Francisco and Los Angeles, but in those cases they did pass the increases on to drivers.

Unintended Consequences

As mentioned above, one consequence of the surge pricing changes has already started to take shape and it is that some veteran drivers are quitting.  That’s because surge pricing was one of the only things left that made it possible for these drivers to keep their heads above water from driving.  Without the original surge pricing model, they could see they wouldn’t be able to make enough money to make it worth their while to keep doing.

Anytime Uber or Lyft tweak their pricing model, drivers immediately react and adapt.  Drivers in the affected cities are already making plans to change their routines and strategies.

If they’re going to get paid more for time and less for distance, they are then going to look for short trips in bad traffic.  Some of the new time rates could yield them nearly $20 an hour in pay if they can keep a passenger in their car for an hour.  So, they will naturally look for shorter trips in very slow traffic.

If the time rate will yield them nearly $20 an hour alone, then they’re better off taking a 5 mile trip in downtown traffic that takes nearly an hour than they are a 20 mile highway trip that takes 25 minutes.

This could also see the end of drivers working the late night bar scene.  Late night trips are the quickest because that’s when traffic is the lightest.  But under the old pricing scheme, the more distance you could drive in the shortest amount of time, the more you’d make.  So, if these quick mid-range trips are now going to be the least profitable, then drivers are asking why they would want to put up with all the hassles of driving drunks, who never appreciate their work, rarely tip and almost always leave bad ratings.

The very first effect you can expect to see coming from this – is that Uber trips will take a lot more time than they used to!  It will turn everything you know about driving upside down.  Drivers will become extremely creative and adept at finding the slowest way to get places!

It may become harder for passengers to get a ride to the airport.  Airports are normally a good distance away and a lot of people travel there very early in the mornings when there is little to no traffic.  That used to be the perfect combination for driver earnings, but now it will be the worst.  We may see fewer drivers positioning themselves in the suburbs in the early mornings because they simply won’t want these kinds of trips anymore.

We may also see drivers cancelling passengers once they find out where they’re going.  Online chatter is showing more and more drivers are saying they’re going to cancel trips once they find out where the passenger is going if they believe it won’t be a profitable route for them.

Drivers who have done this in the past have been roundly condemned for it by the public.  But with driver earnings teetering on the edge of making a few dollars an hour or losing a few dollars, it is likely we’ll see more and more drivers turning down unprofitable trips.