The Uber Effect: Can Uber Drivers Survive In The Gig Economy?
When I first heard the term “gig economy,” it really resonated with me.
Why? I’ve always felt that “gigging” would hold people more accountable. Workers would actually have to earn their keep, rather than simply punching a clock and instantly checking out–almost as quickly as they checked in.
I thought it was a great idea back in 2003, when I first started Nerd Enterprises, and I still think it’s a good idea today.
It’s the Uber drivers, the Airbnb owners, and the freelancers–the workers who supplement their income with or make their living off of “gigs” rather than in-office jobs. Of course, freelancers have been around for a while now, but recent technology has enabled gig economists to emerge and evolve very quickly.
I’ll answer that in a minute, but first–consider this: Last May, I received an email from Chris Brogan. In this email, he discussed the three V’s essential to success: Velocity, Value, and the Velvet rope. It was essentially this:
Imagine that you’re the owner of a small grocery store–and a recent report just came out raving about the benefits of coconut water. As such, your cashiers have been flooded with requests for this particular drink. Because of this, you decide to create a coconut water display.
Do you create it right away? Or do you wait a few weeks?
Well, if you want to be successful, you create the display TODAY while the trend is still hot. This is called Velocity.
And here’s the payout: The more you can add to someone’s experience where they are and in the moment, the more they’ll be willing to spend in return. Why? Because you’re providing them with Value. Creating that coconut water display will not only sell more coconut water, but it will encourage your customers to spend more time and money within your store.
Of course, the more value you add, the more your shoppers will start to feel as if they’re right where they belong: Behind your Velvet rope. And once they’ve reached Velvet rope status at your store, why would they even consider going anywhere else?
It’s simple: We value Uber, Airbnb, and other gig economy companies because of their ability to hit all three V’s–and they’re successful because of it.
Take Uber, for example. The moment you need a ride, all you have to do is press a button and someone is there (usually within minutes) to pick you up. Talk about velocity.
Uber is also more convenient (and oftentimes cheaper) than calling a cab–and that adds value to their service.
Plus, if you want special treatment, all you have to do is sign up for UberBlack or UberSUV–Uber’s way of letting you behind their velvet rope.
It works great in theory, but I have my own theory–a theory that Uber isn’t all it’s cracked up to be.
In the beginning, Uber drivers could make a lot of money (and they were!), but as more and more Uber drivers enter the market, and the gig economy continued to grow–I was beginning to question their profitability. So I went directly to the source.
I interviewed an Uber driver.
I wanted to find out exactly how it all works and whether or not Uber is really a sustainable source of income. All the while I was thinking about how I would do the accounting for an Uber driver (or any gig economist, really), what the cost might be, and whether or not the value was there.
In short, I wanted to know if it was really a profitable business (as I suspected it wasn’t). Here’s how it went:
The Uber driver I interviewed asked to remain anonymous. For this article’s sake, I’ll call him Joe. At the time of the interview, Joe had been an Uber driver for about six months. When I asked him how many hours a week he had to put in if he wanted to make decent money as an Uber driver, he responded, “10 hours a day, 6 days a week.”
That doesn’t sound sustainable to me. So, how does it work? Let’s find out.
The Uber payout is based on a sliding scale: The more rides you accept, the higher your payout rate. Joe told me the average is about 24 percent, but his share came to about 20 percent.
To start their shift, an Uber driver clocks in via the Uber app. They are then notified when someone in their proximity has requested a ride. The closest driver gets first dibs–a driver can reject a ride, but they have to accept a certain number to be guaranteed their minimums.
However, at a place like Los Angeles International Airport (LAX), it works a little differently–namely because there are many drivers to choose from within the same proximity. In that case, preference is given to whoever checked in first (for an Uber driver, it pays to get there early).
Unlike a taxi, Uber doesn’t take into account the miles used to pick up a passenger–the ticker starts as soon as the passenger gets in the car. Once they drop the passenger off at their destination, the driver then has to make their way back to their base location on their own dime. I asked Joe, “Why not just pick up a new ride, wherever you land?” He explained that it usually doesn’t work out that way.
How does Uber ensure the safety of drivers and passengers?
Uber utilizes a rating system that allows both the drivers and the passengers to rate their ride.
For example, If your driver narrowly avoids a head on collision–you have the option to warn other users by giving that driver a low rating. On the other hand, if you use Uber to catch a ride home after a night on the town and accidentally get sick in the back of the driver’s car, you can probably expect to see a low passenger rating later on–through no fault of the driver.
All ratings are 100 percent anonymous for both parties. It’s not quite a background check, but it’s (usually) enough to ensure you’re not picking up psychopath.
My Uber passenger rating is a 4.6 out of 5–not too shabby!
I’ll show you how to find your rating in the video at the bottom of this post. In the meantime, check out this article for some good tips to ensure you get a good rating from your driver.
Surge pricing is what happens when the demand for Uber drivers shoots up based on certain conditions, such as weather or a major event (you may remember the New Year’s Eve controversy). It’s calculated based on a regional algorithm. Surge pricing usually only lasts for a short time before it returns back to normal.
Would an Uber driver would pay $100 per month for bookkeeping?
When I asked Joe if he thought Uber drivers might see value in paying a bookkeeper $100/month to keep their books, he said, “No way.” There just isn’t enough income to justify that cost.
However, he did say he would consider paying a small monthly fee for an app that allows Uber drivers to track their expenses and their true milage (remember, the Uber app only tracks mileage while the customer is in the car). I, of course, encouraged him to try TSheets–which does just that. In fact, Uber drivers (and other gig economy freelancers) can use TSheets for free! Making it the perfect solution.
A lot has happened since that article was released. For example, Uber recently cut their rates. A great move for customers, but not so good for drivers … and many drivers aren’t very happy about it: “Some Uber Drivers Strike To Protest Company’s Fare Cuts”
As of today, the Uber driver market has been saturated, and the income opportunity is not sustainable. Joe told me he would do it for another six months, but then he’s out.
At best, Uber provides a supplement income, but it isn’t much of a supplement. Using the current, and recently reduced mileage rate from the IRS, the numbers don’t look very good for Uber drivers. I’d be surprised if the average driver could cover a car payment with what they earn driving for Uber.
Here’s where the balance will come in: Drivers will start realizing they are not making enough money, especially when they consider the expenses. Uber will be forced to do one of two things: Raise their rates, or decrease their share, all in an effort to make it more lucrative for the drivers.
Now, let me ask you (especially you accountants and bookkeepers of the world) …
How can you create and offer a service that can be scaled to work for Uber drivers?
Intuit recently launched QuickBooks for freelancers, like Uber drivers. But if a driver is surviving on Uber income alone, it doesn’t sound like they could afford even $15/month.
In that case, what we need to do is find the people who are the TRUE gig economists. The people who are using Uber to supplement their other “gigs.” Between all of their gigs, their multiple streams of income could create a scalable line of business–enough so that they can afford your bookkeeping services.
The cost would be perhaps $250/month. The resources required to maintain this would be minimal, and what you’d be counting on is the volume.
Here’s how you do it: First, get them on TSheets and Expensify. Between QuickBooks Online, TSheets, and Expensify, your monthly profit would be about $200 (and that’s a rough estimate–get them on a TSheets freelancer account and you could see even more).
Now, get 100 of those clients and you could see up to $240,000 per year.
And that’s how you not only survive, but rock the gig economy.
If you’re currently being schooled by your competition, or if your current accounting solution seems more like an independent study in catastrophe, we could not be more confident in recommending our favorite Nerd. You can find him all over social media using hilarious hashtags (#talknerdytome) and offering valuable accounting tips and tricks.