How Does Uber’s Upfront Pricing Work?

You may have noticed that on certain rides Uber is taking 40%, 50%, or sometimes even more of the fare. That’s happening because of upfront pricing. In this video I’ll cover how Uber’s upfront pricing actually works so you’ll know just what to look out for as a driver.

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How Uber worked before Upfront Pricing

All right, now back to Upfront Pricing. When Uber first launched, what passengers paid for a ride and what drivers received for the ride were always linked. Let’s say a passenger paid $12 for a ride, Uber would take their booking fee of let’s say $2. So 12 minus two is now $10. Then they take their 25% commission off of that, right? Leaving you, the driver, $7.50. So the rider would pay $12, you would get $7.50, and you could always calculate both amounts basically. What the passenger paid and what you as a driver were receiving.

Upfront Pricing: Driver gets mileage and time, passenger pays something else

But then Uber and Lyft actually switched to the system called Upfront Pricing where they estimate what the fare should be for the passenger, and then they charge them a set price and pay the driver, you, based off the exact mileage and time. I think this is a pretty good system for the passengers because whatever price they see when they go and request a ride, that’s what they pay. Pretty simple, it can’t really change. But the driver’s pay is actually still based off the actual mileage and time of the trip. Uber’s upfront pricing estimate, right what they tell passengers, it’s supposed to be based off things like traffic and some other factors.

But what we’ve seen and what’s kind of the issue with upfront pricing is that their estimates really suck. I’ve seen cases where passenger will pay $50 for the ride, Uber only ends up paying the driver $15. I think 81% is the worst case I’ve ever seen. As you can imagine, this is obviously pissing off a lot of drivers and we get a ton of questions about it. So I really wanted to make this sort of basic video about what’s happening with upfront pricing and what’s going on that’s causing these basically big mismatches.

How does Upfront Pricing actually work?

Now, as you can imagine, Uber says that their upfront pricing system is basically a betting algorithm and they’re going to win some rides and lose some rides, but it all evens out in the end. Now, the problem I found is that they don’t even say what it evens out to. They’re sort of asking drivers to trust them. I think if you guys have watched my channel and been with me since the beginning, you know that there’s one thing. When Uber talks abour rates or earnings and they say to trust them, I always go in with a healthy dose of skepticism, right? They’re not the most trustworthy company when it comes to drivers and their earnings.

Now, luckily, we have actually studied this number and it’s kind of what we call ‘the effective commission’. So what Uber is taking from every ride over the years. We’ve looked at it before upfront pricing and after upfront pricing with different drivers and different markers. It’s ways been around 30 to 40% is sort of their total take rate or their total effective commission when we looked at the last few 100 trips of a driver. So it’s not that they’re taking 70% on every ride, it averages out to lower, but we’ve always seen it in that 30 to 40% range.

Uber generally takes a bigger cut from Upfront Pricing

What that means for you as a driver, is that let’s say you do 100 rides and the total of what the passengers pay for all those rides is $1000. You’re typically going to be keeping 60 to 70% So $600 to $700. But, I mean, at the same time it seems like Uber is still taking a pretty big cut in my opinion, and this is definitely one thing that we hear a lot of complaints from drivers. A lot of this stems from this upfront pricing. Even though you might have some fares that they take 70%, it is balanced out by other fares where they take less. Around some like Uberpool, for example, they actually lose money on some Uberpool rides.

Uber’s motive: Make money!

If you think about it though, my big problem with upfront pricing is that Uber lost $4 billion in 2017. They’re getting ready for this IPO and they obviously have to become profitable. They’re really looking for ways to make more money. I mean, it just wouldn’t surprise me if they slowly increase their commission, their overall or their effective commission over time. There are more of those 70% ride and there’s more of those 50, and more the 60, and less of the rides where they make less. I think it’s kind of asking for them to take advantage of it.

The problem is that there isn’t a good way really to see the overall commission by driver, by city. Uber doesn’t say that, “Hey, our effective, our total take rate is 30%.” Right? I think that’s a big problem, you actually have to go and calculate it manually, and it’s a huge hassle every time we do it. We always ask drivers to help us and go out and do it, we provide spreadsheets and templates but no one ever does it. So most drivers that I’ve talked to hate upfront pricing kind of with a passion, sort of similar to like an Uberpool.

One positive take: What you see on the rate card is what you get

I know some drivers actually don’t have a problem with it because with upfront pricing, and they say that Uber is still paying drivers the agreed upon time and mile rates. So technically, you could say drivers aren’t being underpaid with upfront pricing. As a driver, you have to remember you’re always paid the exact mileage and time regardless of what destination the passenger puts in, if they change their destination, if they make stops. It doesn’t matter, at the end of the trip, if it was 10 miles and 30 minutes, that’s exactly what you’re going to get paid for always.

Upfront Pricing is anything but up front

I can definitely see that argument, I don’t necessarily agree with it. They say it’s hard to say the passengers are being overcharged since they’re agreeing to this upfront price. They see it right there on the screen and that’s the price they pay. But like I said, it just doesn’t feel right to me. Uber calls this upfront pricing but it seems anything but upfront. Like I said earlier, to be frank, I don’t think Uber is the most trustworthy company and they have this system in place where there’s a real opportunity to really take advantage of things if they want to. I think that they may just do in the future.

If you guys have any questions or comments, please don’t hesitate to leave a comment. We release new videos every single Tuesday and Thursday, occasionally Sundays too when we’re feeling extra happy. Make sure you subscribe to our channel. Give this video a thumbs up if you liked it. Again, thank you to Rideshare Knight for sponsoring this video and make sure to check them out. All right, drive safe everyone.

 

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