As of recently, Uber offers upfront pricing to show drivers what their cost will be before they accept a trip. It has been met with mixed reviews, and many drivers are crying foul. In this post, guest contributor Jonathan, founder of Uberdriverdiaries.com, will take a look at the Uber upfront pricing strategy and give his opinion on what the impact on Uber drivers will be.
I had heard talk of this before I actually saw it for myself. It was called upfront pricing, and it was Uber’s way of giving passengers peace of mind by telling them up front the total cost of their trip within the Uber app — before the trip began.
This was in contrast with the dynamic pricing that Uber has used in the past. With the new upfront pricing, there would be no price shock at the end of the trip – especially if the trip was taken when applicable surge pricing is in effect. The first time I heard about it, I thought it was a great idea!
It also occurred to me that Uber could use this new pricing system to partially reverse the drastic driver pay reductions they had imposed over the last few years, without causing too much sticker shock among riders. They would simply show riders the total upfront price for each trip, that would be slightly higher than before, without having to announce they had raised the mileage and per-minute rates.
It naturally followed, in my thinking, that drivers would be on the receiving end of better pay. I now know that I was overly optimistic about Uber’s will to do good!
- Uber Fare Structure: Less Than Transparent
- Upfront Fares: What the Numbers Reveal
- Upfront Pricing: a Good Idea Gone Wrong
Uber Fare Structure: Less Than Transparent
When Uber first started, their pitch to drivers was, “We’ll charge our published mileage and per-minute rates on each trip and you’ll get 80% of the total fare.”
It stood to reason that if they charged a higher total fare to riders, that drivers would get the same percentage as always, which would result in better pay for us.
This is how the upfront pricing is supposed to work, according to the Uber website:
“If a rider changes destination or makes multiple stops, the system will calculate your fare based on the actual time and distance traveled, as well as actual tolls incurred.”
But is this how it works in reality? Does Uber really use the distance calculations to determine driver pay, or is something else going on?
A few drivers here in New York City, where I drive, had told me to be on the lookout for this new upfront pricing. They told me the way to spot it was to look at the percentage of sales tax Uber took out of the driver’s pay on each trip.
New York City charges an 8.875% sales tax on each trip and for some reason, Uber has always taken this sales tax out of what it pays drivers.
My fellow drivers alerted me to the fact that sometimes the sales tax would be higher than 8.875%. The reason was that Uber was charging the customer more than they were telling drivers and the sales tax represented 8.875% of the higher fare that the customer actually paid.
Shortly after I became aware of this, I picked up a lawyer from LaGuardia Airport who was headed into the city. He was friendly and talkative and very well-informed about the latest goings-on with Uber. Somewhere during our slow, traffic-packed trip back into the city, he said he had noticed that Uber had recently changed the way they display the price to customers and they were now giving them a guaranteed price – up front.
I instantly connected with him on that topic and told him I had just found out about that myself. I then told him I had heard that sometimes Uber was actually charging the customer more than the actual time and distance of the trip warranted – according to their published rates. He seemed surprised to hear this.
As we got closer to his destination in Manhattan, he said, “Let’s check that out when we arrive. You tell me what they show you they charged me and I’ll tell you what they actually charged me.”
This was like winning the lottery! Because I had wanted to see it for myself, I had wanted to compare my pay screen with a passenger’s ever since I heard about this. But how do you tell a passenger you think Uber is cheating the both of you and you’d like to see their final invoice to verify it? I hadn’t yet figured out how to broach this subject with a passenger, when this lawyer came along and offered to do it without my having to ask. Jackpot!
When we got to his destination, I ended the trip and we both sat in the car and waited for Uber to process the final charge. And sure enough, I looked at my driver app and it told me the fare to the customer was $42.73. The lawyer then showed me his app and the total fare for him came to $57.29!
The disappointment and disgust I felt in my heart at that moment must have shown on my face. He asked me if I was okay and I said yes, it’s just that I got paid a lot less than the 80% of the total fare Uber had always paid us. Even though people had told me about this, I was totally stunned and felt like one would feel if they caught their spouse in the act of cheating on them!
He started to gather his things and I realized the way I had put it, didn’t exactly get any sympathy from him because I had only talked about how it affected me.
So, I quickly added, before he got out, that this also means, “You paid $15 more than the trip actually cost!”
Suddenly, he looked at me and said, “Oh wow, that’s right! I didn’t think about that.”
After he got out of the car, I took a closer look and did a quick calculation and saw that Uber had taken $5.06 out of my pay for the NYC sales tax. $5.06 roughly translates into 8.875% of $57. But it’s 12% of the $42 gross fare Uber was paying me on.
Upfront Fares: What the Numbers Reveal
Since this has happened to so many others, it wasn’t hard to find screenshots of the same thing from another driver. Here’s what it looks like:
In this example, what the passenger was charged is in the image on the left. What the driver was shown that the passenger was charged is in the image on the right.
Looking at the fare calculations behind all this, you can see the issues right away. The passenger was shown that the total fare, including service fees, booking fees, and other charges, was $18.08. The driver was shown the total trip fare was $12.42.
In this case, the driver gets 75% of the total fare and you can see he got 75% of $12.42. But the passenger paid $18.08 and the driver should have gotten 75% of that – which would have netted him $13.56 instead of $9.31.
In essence, he got paid 32% less than he should have been paid.
This difference of $4.25 is significant and adds up quickly, especially for full-time drivers who can easily do more than 100 trips in a week. This seemingly small difference could potentially cost this driver between $400–$500 in income per week!
In essence, Uber has figured out a way to increase the rates it charges passengers without raising the amount they pay drivers. In so doing, both drivers and passengers are getting short-changed. And passengers are getting short-changed in more ways than one.
It doesn’t take long for most drivers to catch onto something like this. And it didn’t take long for them to adapt to it.
It was only days after news of this first broke that drivers were talking about how they were going to start taking the longest route they could possibly get away with on every trip.
They feel justified in doing this because they feel like Uber isn’t compensating them fairly. And since the passenger isn’t going to be hit up for more money if the trip is a little longer, (because they got the guaranteed upfront price), most drivers don’t feel any compunction about doing it.
Drivers reason that if Uber is going to charge $18 to the passenger, then they are going to give the passenger $18 worth of driving! So, passengers end up paying more than they should have to pay because Uber gives them a price based on the longest reasonable route. And they end up being taken out of their way for longer rides than necessary so the driver can earn 75–80% of the fare they guess Uber is charging them.
Upfront Pricing: a Good Idea Gone Wrong
Upfront pricing could have been a great way for Uber to gradually and subtly raise their minimum fares without causing too much resistance from passengers, back to a level that’s sustainable for driver partners and sustainable for Uber itself.
Uber needs higher base fares to sustain itself as a company, and it also needs to pay and treat its drivers fairly so they don’t have to take ethically questionable measures to get what fairness dictates they deserve.
By being less than transparent, Uber is distorting the marketplace by making everyone feel like they’re being cheated by someone else. Drivers feel like they’re being cheated by Uber, which causes them to take certain questionable actions. This is the case whether you’re giving UberX rides, UberPOOL rides, or even rides for one of the higher-end ridesharing services.
Eventually, as passengers become aware of this, they will feel like they’re being cheated by the drivers who take them in longer-than-necessary trips and by Uber, which is charging them more than the most efficient route warrants.
I hope now that they are promising 180 days of change, this will be a change they’ll make. It has to be made in order to restore trust between all parties. I also hope that the current class action lawsuit against Uber for its upfront pricing will lead to some substantial change.
In the meantime, I’ll attempt to opt out of this mess and take some of my business to Lyft, the other major American rideshare player, who thus far has avoided the errors of Uber’s new pricing system.
I’ve noticed that Uber’s upfront pricing is clearly affecting my earnings. Have you experienced the same thing? What do you think of this pricing strategy? Let me know by leaving a comment below!