In September of 2014, the City of Columbus passed their new Peer to Peer law, known as Chapter 590 of the city's revised code. It made Columbus one of the first cities in the country to pass a law to regulate new Peer to Peer transportation networking companies (TNCs), such as Uber and Lyft. Many of those behind the passing of the new law hailed it as being progressive, forward thinking, and a model for other cities to copy and adopt.
Yet, only a year and a half later, that law became soon to be dead and unenforceable, as the State of Ohio passed a new law to eliminate the ability of any Ohio municipality to create laws to regulate TNCs like Columbus did. The short life of the Columbus law, and the effect it had, was not pretty.
Soon after the Columbus law was passed, Lyft decided to completely pull out of Columbus, stating the new city peer to peer law as THE reason for their exit, and specifically calling our the law as being "too burdensome". After the new state law passed in December 2015 that trumps the city law, Columbus City Councilman Zack Klein, who led the committee who created the city law in September 2014, said "It's concerning to me whenever Columbus is out on an island with regulation that could be excessive". But the opinions of state governments, city councils, and billion dollar companies regarding the Columbus law is not the intent of this blog. The intent of this blog is to share my anecdotal experience of this law.
I began driving for Uber shortly after the city law passed. This was right around the time Lyft pulled out of Columbus because of the law, so despite having applied to Lyft, I never did my mentor session with them, nor had the pleasure of driving for them. But to drive with Uber I had to do everything the city required in the new law. I paid them take my fingerprints. I paid them to send my prints to the FBI for a background check. I paid to get my car inspected. I paid the taxation division of the city to show the licensing division of the city I have no unpaid taxes to the city. I did everything the law required... or more specifically I paid all the payments that the law demanded for me to pay and all the other drivers to pay. I paid and paid and paid it all to the city... and after paying them a little more money they gave me my Columbus Peer to Peer license and tags for my car, which I was required to display on the right side front and rear windows, which I always did. My work for Uber was always part time. And I even decided in March to stop driving because it was hard to even make minimum wage with the market conditions. In July, things got better so I started driving part time again. It was never good money. Sometimes it was decent. Some times not. Sometimes I questioned whether it was worth what I paid to the city. Did I mention what I paid to the city for the privilege of a part time job that sometimes isn't even minimum wage?
The biggest event in Columbus is Ohio State Football. Not only did I suspect a lot of Uber demand on game days, I suspected XL request would be really high. The car I drive and have registered with the city of Columbus is an UberSelect vehicle, but not an UberXL vehicle. But, my wife and I also own a minivan, which does qualify for UberXL and is registered with Uber and active on the platform. The minivan however is not registered with the city of Columbus, so it does not have city tags on the windows. To get it tagged requires payment for inspection and payment for more tags? Do I really want to do that for what would essentially just be a few home games? What if the demand sucks because Uber has too many drivers. I don't want to pay more money for what may be a worse idea than driving New Years Eve was.... but wait a minute... I don't have to pay even more money to the city to use my minivan on OSU game days.
The city law says in section 590.03 that everyone is exempt from the entire 590 chapter except those who pick up passengers in the city. So for an Ohio State game that was kicking off at 3:30 pm, I started picking people up outside of the city limits, in smaller municipalities such as Dublin and Hilliard and driving them down to Ohio Stadium in the city. All perfectly legal. No need for my car to have Peer to Peer tags to do this. After dropping off fans on OSU's campus, I would head back up Lane Ave or Fishinger Rd through Upper Arlington (also a municipality where the Columbus city Peer to Peer law does NOT apply) and head back towards Hilliard and Dublin areas for another ping. And I was right, the majority of the requests I got were XL request. For five hours of work before kickoff I earned $200 in fares, with only a couple of them being surge fares. I was happy!
At kickoff I went to BW3 to watch the game. At half time I started to head home... but on the way home I got another fare from Dublin back down to OSU campus. Sure, why not?!? So I do it. After dropping them off I got a text that someone had left a cell phone in my car. ARGH!!!!
For those that have followed my postings, you know how I feel about lost cell phones. But what commences from this lost cell phone incident takes the cake. I pull over, put the car in park, hit the buttons on my dashboard to open my minivan doors so I can get back there to look, turn the key off, unbuckle my seatbelt... but before I could open my door to get out, two people are standing right next to my door asking me to roll down my window. They are dressed as OSU fans in the same scarlet and grey outfits everyone around them is wearing. We are near a crowded bar, and off campus housing where every other house is hosting a keg party for the game. Needless to say, my first inclination is that these two people are probably drunk given the surroundings we are in.
One of them asks me, "are you an Uber driver?" I answer "yes". He says "Where's your peer to peer license". I show him my license. He says "No. I mean where are your car tags?" I pause... and say "at home" because that's where they are... at home on my car that has tags. At this point I figure maybe this is another Uber driver giving me crap, because I know some people here in the Columbus forum say they actively do that to drivers in Columbus that aren't tagged. He starts asking more questions. He doesn't seem drunk, but I'm done talking to this guy as he has an obvious bone to pick with Uber drivers. I'm looking in front of my car to see if there is enough room to pull away without hitting him. There's not. Bummer.
Probably a good thing I didn't pull away, because all of the sudden this guy starts writing me a ticket. Yep, they are undercover police officers. He cited me for failure to have Peer to Peer tags on my car. At this point in time, I didn't know the exact law enough to argue it with the police officer. Basically all I knew is that Uber and other Uber drivers have said repeatedly it's okay to not have peer to peer license and tags as long as you're not picking up in the city. Today I can tell you it's section 590.03 that provides that exemption, but at the time the best I could say about it was "Well, Uber says it's okay". Let's just say that argument doesn't mean squat to the police on the street. The citation was written and I wasn't getting away without it.
Now, the citation he wrote me onsite said nothing about picking up a passenger. But the case he submitted to court specifically said I was picking someone up. I was livid about that accusation as he detained me for a good 10 minutes to write me the ticket, and no one ever even attempted to get in my car. So I didn't know why he said that on the court case. Turns out, he speculated that I was picking someone up because I opened the passenger doors of my minivan when I stopped. FOR CRYING OUT LOUD!!! I opened the doors so I could get back there and look for the lost cell phone. I couldn't get back there because you came up to my door and blocked me from opening it. Unfortunately, the only way to get my side of the story heard was to go through the process of pleading not guilty and let it go to trial.
But here's the kicker in this ridiculous story.... the penalty that the oh so wise and glorious city leaders placed upon the violation of not having tags on an Uber car is one step short of a felony. That's right. If you break this law you are on par with people guilty of DUI and truckers who bring hazardous cargo through the city. This is a misdemeanor of the 1st degree, punishable by 6 months in jail and $1000 fine. HOLY ####! Can anyone call this excessive? Can anyone call this too burdensome? Oh wait, that's right. That's what state and city leaders, as well as Lyft, called this ridiculous city law. People are dying because people are texting and driving. But in the state of Ohio, if you are guilty of texting and driving, it's just minor misdemeanor, punishable by NO jail time and a $150 fine. But if you don't have Peer to Peer tags? That's worse than texting and driving. Not just fourth degree misdemeanor worse (30 days jail/$250 fine), not just third degree misdemeanor worse (60 days jail/$500 fine), and not just second degree misdemeanor worse (90 days jail/$750 fine). No, this is stop just short of a felony worse, and you are viewed as evil as drunk drivers worse. Again, is the "excessive" and "too burdensome" point being made clear here???
Needless to say I had to hire a lawyer. Honestly, it's really not the penalty I was worried about, as even if I were to get falsely convicted, being a first time offender odds are slim I would have even seen a minute in jail, and the fine would probably be minimal. The bigger problem in my situation is my career in IT. In my job, I'm frequently in a position where I have to have access to sensitive data. Let's just say those who own and need to secure that data don't give access to that data to people with criminal records. A first degree misdemeanor on my record, even with a penalty of no time in jail and a minimal fine, would likely be a career ender for me. That's right, the lifestyle my wife and three kids get to live because of the work I do, would come to an end. I would have to make a career change, and I would be lucky to get a job making half of what I make now. So, hire a lawyer and fight this to the point of NO conviction was an absolute must.
Nineteen weeks this case dragged on, until finally the prosecutor dismissed the charges. They had no evidence to prove section 590.03 did not make me exempt from the entire chapter other than the police officer's speculation that I opened my doors to make a pickup. I had the evidence to prove I stopped and opened my doors to look for the cell phone. Luckily I didn't chuck that cell phone into a river and actually returned it to the Buckeye fan who left it (if he wasn't a Buckeye fan, results would vary). So I had witness for my argument that was far stronger than the prosecution's case based on pure speculation and no hard evidence.
Ultimately this is an example that our system of justice works.... IF you can afford to work the system. Which to be honest, most Uber drivers probably can't afford it. It wasn't cheap for me to hire a lawyer to fight this. Not only did my IT career enable me to afford it, I couldn't afford not to. But ultimately the reason this whole incidence cost me a significant amount is because local lawmakers wrote an excessive and too burdensome law. Would I have spent the money fighting this if the penalty was a minor misdemeanor? No. How about a fourth degree misdemeanor? Probably not. The ridiculous penalty chapter 590 has tied to it, is not only excessive and too burdensome, most Uber drivers would be pushed through the system to a guilty verdict even when they're innocent, because they can't afford legal representation. This is a perfect example of how people can be a victim of the law.
I want to give a big THANK YOU to the state of Ohio for righting this wrong the city of Columbus created. Given what I experienced, that fact that Lyft left town, and Zach Klein pointing out that Columbus's reputation has suffered from this law, it should go without saying that those who wrote this law did a disservice to the citizens of the city. Not only did we lose the benefits of the free market competition Lyft would have provided (did you notice Uber dropped rates for riders in January of 2016 in 80 cities, but not Columbus? In fact, that last Uber rate drop riders in Columbus have benefited from occurred when Lyft still operated here), but I cringe to imagine how many Uber drivers suffered from this excessive and too burdensome law because they could NOT afford to defend themselves. Shame on you who wrote this soon to be dead law (it can't be enforced any longer after March 21st, 2016). SHAME ON YOU!!!!!
Hey Lyft... please come back to Columbus. PLEASE!!!! Those bad people can't hurt you anymore.
Is it better to wait for the surge?
I want to give props to Showa50 for the work he has done with his videos and postings encouraging drivers in his market to wait for the surge. While I’m not so sure what to think about the whole "skipping" process (accept pings and cancel them quickly), I’m in wholehearted agreement that if he has found that waiting for the surge is more profitable in his market, then yes he is right to encourage others in his market to do it too.
So by agreeing with Showa50 , am I taking the position that all drivers should wait for the surge?
Honestly, it depends. In some markets the answer would be clearly yes. And in other markets it would be clearly no. This is because the math is a result of the market conditions. At a high level if a market never surges, then the math easily shows the answer is no, don’t wait for the surge. But if a market surges a lot, then the math easily shows the answer is yes, wait for the surge.
But you want to know what the answer is in your market. I’m going to give you the math, but in order to do the math for your market you will need to use the numbers from your market. Most of these are easy to know, such as rate per mile, per minute, base fare, etc… as well as the one every driver SHOULD know (but too many don’t), your car costs per mile.
There are numbers however that you are going have to do some research to determine: 1) how many trips per hour do you get in your market when you don’t wait for the surge; and 2) how many trips per hour do you get in your market when you do wait for the surge.
These numbers take some time to learn. The more you study these two strategies in your market, the more accurate your numbers will be. But keep in mind, as Uber keeps recruiting more and more drivers, and as many, many existing drivers come to a realization that Uber sucks and finally give up and quit, this market condition can change, and drastically at that. So to really know if you should wait for the surge, you have to keep a pulse on your ever changing market conditions. So this is really more of an art than it is a science… but here are the numbers to look at it scientifically.
In my numbers I’m showing a market where not waiting for the surge produces 2 trips per hour and waiting for the surge produces 1 trip per hour. I’m also assuming the surge is 2x every time. I’ve chosen these numbers intentionally to show that the resulting profit is not what you would expect. It’s a lot like that old question we were given growing up as kids…. “Would you rather have a chest full of nickels, or a half a chest full of dimes?” If one doesn’t put any thought into it, they quickly assume it doesn’t matter because they are both worth the same, because dimes are worth twice as much nickels but there is twice as many nickels. One has to put more thought into the matter to realize that the half a chest full of dimes is worth more because dimes are smaller and therefore the half chest would hold more dimes than half the number of nickels in a full chest.
Likewise at first glance, doing 2 trips per hour a 1x rate looks to be equal with doing 1 trip per hour at a 2x rate. But like the nickel and dime scenario, they are NOT equal. The 1 trip per hour at 2x is far more profitable, and by a significant amount.
Trip distance to pick up: 3 miles
Trip distance to drop off: 6 miles
Base Fare: $1.00
Per Mile Fare: $1.00
Per minute Fare: $0.20
Uber’s commission: 20%
Driving speed: 30 MPH (includes time stopped if traffic)
Accepting no surge pings results in an average of 2 trips per hour
Only accepting surge pings results in an average 1 trip per hour
Cost per mile to drive is $0.30
No surge strategy:
Revenue per hour:
Trip distance to drop offs: 6 miles x 2 trips = 12 billable miles
Total mileage fares: 12 billable miles x $1.00 per mile at no surge = $12.00
Time spent driving to drop offs: 12 billable miles / 30 MPH = 0.4 hours, which is 24 billable minutes
Total time fares: 24 billable minutes x $0.20 per minute at no surge = $4.80
Total base fares: 2 trips x $1.00 base fare per trip at no surge = $2.00
Total in fares (ignoring SRF): $12.00 + $4.80 + $2.00 = $18.80
Uber’s commission: $18.80 x 20% = $3.76
Driver’s Net Revenue: $18.80 – $3.76 = $15.04
Costs per hour:
Trip distance to pick ups: 3 miles x 2 trips = 6 non-billable miles
Total miles driven: 12 billable miles + 6 non-billable miles = 18
Total costs: $0.30 cost per mile x 18 miles = $5.40
Profit per hour:
$15.04 - $5.40 = $9.64 per hour
Wait for 2x surge strategy
Revenue per hour:
Trip distance to drop offs: 6 miles x 1 trip = 6 billable miles
Total mileage fares: 6 billable miles x $1.00 per mile at 2x surge = $12.00
Time spent driving to drop offs: 6 billable miles / 30 MPH = 0.2 hours, which is 12 billable minutes
Total time fares: 12 billable minutes x $0.20 per minute at 2x surge = $4.80
Total base fares: 1 trip x $1.00 base fare per trip at 2x surge = $2.00
Total in fares (ignoring SRF): $12.00 + $4.80 + $2.00 = $18.80
Uber’s commission: $18.80 x 20% = $3.76
Driver’s Net Revenue: $18.80 – $3.76 = $15.04
Trip distance to pick ups: 3 miles x 1 trip = 3 non-billable miles
Total miles driven: 6 billable miles + 3 non billable miles = 9
Total costs: $0.30 cost per mile x 9 miles = $2.70
$15.04 - $2.70 = $12.34 per hour... a 28% increase in profit!
So why is it that the math produces this result when the rate is doubled but the number of trips is reduced in half? It’s because despite the net revenue being exactly the same in each scenario, the car costs in the surge strategy is half the car costs of the non-surge strategy because you are doing half as many trips. The same revenue produced with less costs results in more profit.
This is also why Uber’s claim that dropping rates is good for drivers because it increases trips which results in more driver earnings is complete BS! Uber completely ignores car costs in their math, because Uber has no car costs. You do. You're the driver. You have car costs. So stop ignoring them. When you ignore them you may end up doing stupid things, like not waiting for the surge.
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How To Calculate Costs As An Uber Driver
If you're an Uber driver and are wondering why this article is even important to you, then please find a nice quiet place to sit, and take a moment to consider exactly who you are. There's a saying in the poker world that when you sit down at a poker table to play and can't identify the sucker at the table, then it's you. And if you don't know why this article is important to you as an Uber driver, then you are the sucker in the Uber system.
Be A Business Owner
As an Uber driver, you are NOT an employee of Uber. You are an independent contractor. That means that every Uber driver, including you, is an independent business separate from Uber. The vast majority of these independent businesses are sole proprietorships. Some have gone so far as to setup other legal entities, but if you're one of those then you could probably write the content of this article yourself in your own words. This article is for those Uber drivers who are completely new to being a business owner and a sole proprietor.
Being a business owner means you are responsible for seeing to it that the business you own is profitable. In a sole proprietorship, no one else has that responsibility, or even shares it with you. And if you're leaving this responsibility up to Uber, or your riders, or the government, or just assuming that driving for Uber is always profitable, then as mentioned before, you're the sucker. So if you don't want to be the sucker, the first thing you need to do is accept that this responsibility is yours and yours alone.
So how do you see to it that your business profitable? Do you need four years of business college? Another two years to get your MBA? Hire an accounting firm? No. These are overkill for what an Uber driver business entails. Business has been conducted for thousands of years. It's an ancient practice, and the basics of it still hold true today. These basics were not invented by modern business schools and accounting firms. They have taken business practices to a higher levels. But being an Uber driver business is nothing more than the ancient basics.
Know The Basics
The basics are this: 1) Know your revenues; 2) Know your costs; 3) Realize your profit or loss; 4) Repeat, change or end the business.
As an Uber driver, knowing your revenues is easy. Uber tells you most of it when they make deposits in your bank account. Other revenue may come from tips* (I've placed the asterisk here given Uber has made tips such a controversial topic, which alone could be a topic of an article, but won't be discussed any further in this one).
Where the rubber meets the road on your responsibility of seeing to it that your business is profitable is determining your costs. That's what this article is focused on. Once you know how to determine costs, then step 3 is simply subtracting your costs from your revenue. And then step 4 is simply determining if the profit (or loss), that you now know, is worth your time and effort. If it is, then keep repeating it to generate more and more profit. If it's not worth it, then either make changes to make it profitable, or stop. End the business. Move on and spend your time on things you find more profitable. So to reach that important step 4 business decision, let's get cranking on completing step 2.
Know Your Present Costs and Your Future Costs
Unfortunately there are far too many Uber drivers assuming their current cash flow is profit. This is because they are only counting their current costs. It works like this... They drive for a week, earn a payout from Uber for $1000, and subtract from that the $100 in gas they bought that week, and then go and preach to the internet on Facebook, Twitter, forums and YouTube how they make $900 net per week (and of course include their referral code to earn a commission on signing you up to drive too). The problem with this is it's very misleading, because being a business owner is NOT like being an employee. Unlike employees, many of which get consistent pay for their labor every week, nearly all businesses have differing periods of high cash flow, low cash flow, and even negative cash flow. The week of high cash flow this driver had should not be expected to occur every single week like he is insinuating in his recruiting posts or videos. Weeks of low cash flow, and even negative cash flow, will arrive for this driver eventually, as well as for those drivers he earned a commission for signing up.
Consider a new brick and mortar business. Before the first sale is even made, the owner is experiencing negative cash flow. The real estate, the leasehold improvements, the equipment, the suppliers of inventory, the training of employees, etc, etc... all these are costs that occur before the first sale of revenue is achieved. And it's typical for new businesses to have negative cash flow for two years before sales grow to the point of exceeding the costs. Because of this, starting a new brick and mortar business is typically a very high risk endeavor that very few people are willing to take.
Uber driving on the other hand is on the complete opposite end of the spectrum. A new Uber driver business (a driver) can produce around $300 in revenue before their first cost even hits their books... a gas fill up. This is because Uber is leveraging resources the driver already owns. The driver owns a car, and it has probably got a decent amount of gas in it, before the driver even signed up for Uber.
This makes starting your own Uber driver business very low risk, which is of course very appealing to a lot of people. However, every resource the Uber driver is using to drive for Uber has a finite limit of use, so they're not nearly as "free" as they appear to be at the start of the business. The resource with a finite limit of use that is easiest to recognize is gas. If you want to earn $1000 in Uber driving, you're likely going to have to buy gas, because the gas you already owned before you signed up to Uber won't be enough to produce $1000 in fares. Because drivers quickly experience this cost, they of course subtract it from their revenue.
Look Beyond Gas
But what about tires? Like a tank of gas has a finite life of 300 to 400 useful miles before the driver needs to incur a cost to replace the gas, tires are very much the same. If the car's tires last only 48,000 miles, then after 48,000 miles the driver needs to buy new tires, just like he has to buy more gas after 400 miles. But why isn't the driver on Facebook and YouTube subtracting their tire costs from the $1000 in Uber payout like they are the $100 in gas? It's because they haven't had to buy tires yet. And they may not need to for quite some time. As the old cliché goes, "out of sight, out of mind". This is what makes a "sucker" out of an Uber driver.
Much of the business costs are in the new Uber driver's future. While they may not be present costs, they are very much business costs if the business has life longer than a few weeks or months. As the Uber driver continues to drive, when these costs finally arrive on the books, the driver will experience time periods of low cash flow and negative cash flow, much like the typical brick and mortar business experiences at the beginning. After such a week, will the driver go to Facebook or YouTube and say "I made $1000 this week, and spent $100 in gas and $800 in tires?" Of course they won't! Who wants to admit they worked for 50 to 60 hours this week to produce only $100 in profit? Oil changes, transmission services, coolant flushes, etc, etc... these all start hitting, and when the Uber driver's friends start asking him how much money he is making, he's ashamed to respond with the real numbers. The reality of being the "sucker" has arrived at the Uber poker table.
So how do you include these other future costs if you are NOT experiencing those costs yet? Well, since nearly every Uber driver knows to count gas as a cost, even when calculating profit using the "sucker" method, let's convert gas into a future cost too. Then the rest of the future costs easily fall into place using the exact same method.
Gas Costs As A Future Cost
Calculating a future cost is called estimating. And by estimating a cost on a per mile basis, you can easily apply it to many situations within your business (a trip, a workday, a week, a month, a quarter, etc).
To convert your gas costs to an estimated per mile basis, determine what a full tank of gas costs you and divide it by the number of miles you expect to go on it. Again, this is an estimate, so don't think you are doing it wrong if it doesn't work out exactly right when you're done consuming the first tank of gas with your Uber driving. As you do more and more Uber driving you can get a more accurate with the your estimation, but it's not wrong to guess at the beginning if you are being realistic with your guess. So if a tank costs you $35 and you expect it to go 350 miles, then your cost per mile for gas is an estimated $0.10 per mile ($35/350).
You could also arrive at this per mile gas cost estimate by taking the price of a gallon of gas and dividing by you car's gas mileage. This of course assumes you know what your car's gas mileage is when you do Uber driving, which is probably different than when you do personal driving. So if a gallon of gas is $2.50 and you car gets 25 miles per gallon when you drive for Uber, then your cost per mile for gas is an estimated $0.10 per mile ($2.50/25).
With your car's gas cost per mile now estimated, if you have to drive 1000 miles to earn $1000 in Uber payout, just multiply 1000 miles times your $0.10 per mile gas cost to estimate that it costs you $100 in gas. We already knew that it costs $100 using the "sucker" method, but now we're arriving at that same amount using the estimated per mile method, which allows us to use it, as well as all other estimated costs we have in our business, as a future cost that can be applied to the present.
Now that you are estimating your gas costs on a per mile basis, you can simply do the same with your other car costs. If an $800 set of tires gets 48,000 miles, then tires cost you $0.0167 per mile ($800/48,000). You may go two or three years in your Uber driving before ever having to buy new tires, but you can include that FUTURE cost on your Uber driving today by multiplying your 1000 miles of driving this week times your $0.0167 per mile tire cost. So that driver who went to Facebook and said "Hey look, I made $1000 driving for Uber and only spent $100 in gas" can now be a little more honest and say "Hey look, I made $1000 driving for Uber and only spent $100 in gas AND $16.70 in tires." He still has a lot more future costs to include, but at least at this point he's one step closer to actually preaching to the world his real profit.
Move on to oil changes. Do you spend $40 on an oil change every 5,000 miles? If so then your costs for oil changes is $0.008 per mile. So that week of 1000 miles driven costs $8 in oil changes even though it will likely be another four weeks before actually needing to pay for an oil change.
You need to know what it costs to perform all the services on your car, AND know how many miles the car can go before needing the service again. Seem like a burden? Yes, you're right... it is! As the business owner the burden is on you to know these numbers. If you don't want that burden, then either accept that you’re the sucker in the Uber system, or quit being an Uber driver. Those are the only two ways to avoid this burden.
What does transmission service cost you? How many miles can you go between transmission services? Divide the cost by the miles... There is your transmission service cost per mile.
Do this for every service your car needs. Don't ignore anything. Pay for car washes? Include them! Divide the cost of a car wash by the typical amount of miles you go between car washes.
A good rule of thumb to check if you are doing it right is all your maintenance costs will probably total somewhere around half to a fourth of your gas cost. Obviously this can vary, and vary a lot at that due to cars having a wide range of gas mileages. But if you're finding your total maintenance costs are five times as much as your gas costs, then something is probably wrong in your math somewhere.
So if maintenance costs are typically half to a fourth of gas costs, is this really important to do given the driver posting on Facebook is only going to add $25 to $50 in maintenance to the $100 in gas? The answer is yes, because at this point we haven't even discussed the biggest cost of all yet.... YOUR CAR!
Typically this cost is called depreciation. That's a word that comes from those business school/accounting firm people and the IRS. But that word conjures up so many different thoughts and opinions, the confusion it produces is a can of worms. So let's avoid all that debate and not even call it depreciation at all. There.... that word will no longer be used for the rest of this article.
From now on it's called "car costs". Why? Because when it's gas, it's called gas costs. When it's tires it's called tire costs. When it's oil changes it's called oil change costs. See the pattern here?
At a high level, figuring out your car costs per mile is no different than figuring out your gas costs, tire costs, etc, etc.... except you may have to consider a future decision of selling the car. But if you intend to drive it until it dies, then it's pretty simple.
If you buy a brand new car with 0 miles on it for $25,000, plan to drive it until it dies and guess that moment will be close to 200,000 miles, then your cost ($25,000) divided by your expected miles (200,000) produces an estimated car cost per mile of $0.125 per mile. See... it's no different than gas cost, tire cost, etc...
Likewise, if you buy a used car with 100,000 miles on it for $10,000, plan to drive it until it dies and guess that moment will be close to 200,000 miles, then your cost ($10,000) divided by your expected miles (200,000 total miles minus 100,000 used miles equals 100,000 expected miles) produces an estimated car cost per mile of $0.10 per mile.
The challenge is doing this with a car you will likely sell in the future. To do this you have to guess at what the mileage will be when you decide to sell it and what the price will be of the sale. It's okay to guestimate this number. Yes it could put you off buy a penny or two per mile, but given your business is a one driver operation, a penny per mile mistake on your guestimate is only a $200 mistake at the end of the year given 20,000 miles driving. If on the other hand you were hired by a corporation and this number was being used on 1000 drivers, then yes that mistake could cost your company $200,000 in a year (and cost you your job). So it's good to be a one driver business because you'll survive not being entirely accurate on these guestimates.
So guestimate how many miles your car will have when you sell it, and guestimate what you will get in price for it. Then use those numbers in the same car cost calculations above. If you buy a brand new car with 0 miles on it for $25,000, plan to drive it until it has 100,000 miles and guess that it will be worth $10,000, then your cost is what you paid for it minus what you get back when you sell it ($25,000 minus $10,000 equals $15,000) divided by the miles you put on it (100,000),which produces a car cost per mile of $0.15 per mile.
Likewise, if you buy a used car with 100,000 miles on it for $10,000, plan to drive it until it has 150,000 miles on it and guess that it will be worth $5,000, then your cost is what you paid for it minus what you get back when you sell it ($10,000 minus $5,000 equals $5,000) divided by the miles you put on it (150,000 when you sell it minus 100,000 when you bought it equals 50,000),which produces a car cost per mile of $0.10 per mile.
Your car purchase, and future plans for the car should fit into one of the examples above. So just use your costs and mileage in the math to produce your car costs per mile.
Please note: Your purchase cost of the car should be everything you paid to acquire it. Do not make the mistake of only using the price of the car. You need to include all the tax you paid too. And if you financed the vehicle, include all the interest you paid (or are still paying) for the life of the loan. A quick way to find this number is to multiply your car payment amount, times the total number of payments from beginning to end, plus any down payment you made (including the value of any trade in). This number will include the taxes you paid on the sale.
Do NOT Include Insurance As A Cost
Conventional wisdom suggests that car insurance is just as real of a cost of owning a car used for Uber as gas and tires are. However, as an Uber driver, you should ignore your car insurance costs all together when determining your costs of driving for Uber. Why? For a few reasons.
First of all, it's not a cost that is consumed per mile. It is consumed via time. When you pay for an insurance premium you are paying for a period of time to be insured, say a month, six months, or a year. Whether you drive 1 mile or 100,000 miles during that time doesn't change the cost. Second of all, you would be paying for it regardless of whether or not you drove for Uber. If you stopped driving for Uber, you wouldn't save one penny on your car insurance. And last of all, when you accept a trip in the Uber app, Uber is providing the insurance for the job. Your insurance isn't even applicable when earning that revenue. So in summary, your personal insurance has nothing to do with your Uber driving (despite Uber requiring that you have it), so do NOT include insurance as a cost.
That being said, how insurance works while Uber driving is a "hot" topic that we won't get into the details of here, as it could be a lengthy article on its own.
Also, if you happen to be a person who has to pay to park your vehicle at home, you should ignore this cost for the same reasons that you ignore insurance costs (except the one where Uber is providing it for you).
What About A Leased Car?
One question the topic of ignoring insurance costs may produce is, "what if I lease my vehicle... can I ignore my car costs because a lease is a consumed via time?" The answer is, it depends.
If mileage you put on the car is of zero concern to the lease (which is extremely rare), then yes you could completely ignore the car costs as it’s a lease of time. Putting more miles on it due to Uber driving before turning it in wouldn't cost you any car costs. However, pretty much every lease has mileage restrictions. If your Uber driving would NOT result in excess mileage fees, then even with the mileage restriction you could ignore the car costs in your calculation. But once you start incurring excess mileage charges, the excess mileage rate becomes your per mile car cost for your Uber driving.
Most people will find that their Uber driving would blow their lease mileage limit out of the water, so very few would do this unless the excess mileage rate is acceptable to them. But there are a small percentage of people with "lease miles to spare", and for them their car costs are essentially "free" during their Uber driving.
Total Cost Per Mile
To make all these different per mile costs easier to use, just add them together to produce one total cost per mile. For example, if you know your car costs are $0.15 per mile, your gas costs are $0.10 per mile, and your maintenance costs are $0.05 per mile, you can just add them together and say your total costs per mile are $0.30.
That way if you drive 200 miles in one day, you can quickly know your costs for the day were $60 (200 times $0.30). Or if you drive 1000 miles in a week, you can quickly know your costs for the week were $300 (1000 times $0.30). Or if you drive 3000 miles in a month you can quickly know your costs for the month were $900 (3000 times $0.30).
So that Uber driver who loves to post his earnings on Facebook and YouTube to recruit new drivers can now say"Hey look, I made $1000 driving for Uber and only spent $300 in car costs." That's $700 in profit, and not the $900 he was claiming by ignoring future costs. It means he was profiting 22% less than he was claiming. That's pretty significant. And when some drivers are driving cars that cost $0.40 to $0.60 per mile, they're really making 33% to 56% less than what the "sucker" math says they are.
Of course, if the goal is to recruit new drivers, the "sucker" math makes driving for Uber far more appealing, so I don't expect those trying to earn driver referral fees to switch to using a method that would show less profit. They'll continue to recruit using the "sucker" math. So beware if they are the reason you are interested in becoming an Uber driver.
Don't Ignore "Deadhead" Miles
Now that you know your total cost per mile, don't make the mistake of only using it on billable Uber miles. Maybe you work in a city where Uber charges $1.20 per mile, and you keep 80% of it. Don't assume that getting $0.96 of the per mile charge minus your cost of $0.30 per mile means you make $0.66 per mile in profit. It doesn't. You have to consider ALL miles you drive to get the job done, and that includes "deadhead" miles too.
"Deadhead mile" is a term coined in the taxi industry to describe miles driven by the taxi driver without a passenger in the car. When a passenger is in the taxi and being billed for the trip, it means the mile has a "head", i.e. a passenger, a person. So miles without a passenger lack a "head", or the "head" is "dead", hence "deadhead". Some drivers will simply refer to these miles as "dead miles" which is just truncating the "deadhead" terminology.
What you call them doesn't really matter. What matters is that you include them in your costs. Your cost per mile needs to be multiplied by the miles you drive that are billed to customers, AND by the miles you drive that are deadhead miles (for example, the miles your drove to the pickup location or "trolled" for a fare) to get your total costs.
There's little to no reason to calculate billable mile costs and deadhead mile costs separately. So just determine your total miles using a method that includes both billable and deadhead miles.
The easiest method is to use a tool to track your mileage from the moment you start working, to the moment you stop. Your car odometer's "trip" feature can do this. But there are also smartphone apps like Expensify that provide some benefits that odometers don't (such as simplifying taxes). Choose whatever tool works for you, and record ALL work miles!
Do Not Include Personal Miles
This should go without saying, but when you are using your car for personal use (and that is why you bought it right?... you didn't buy it specifically for Uber did you?), do not count those miles in your Uber costs. Not only would this give you inaccurate costs for your business, but when you do your taxes the IRS won't allow you to count those miles as a business cost. So just ignore them. By calculating your costs on a per mile basis, it makes it easy to separate your use of your car for Uber and your use of your car for personal use, simply by keeping track of your Uber miles.And the IRS pretty much expects you to do it this way anyway when a car is used for both personal use and business.
Why Is My Bank Account Growing Bigger?
By having knowledge of your real profit, and not assuming your early weeks of high cash flow are all profit, you can keep your lifestyle spending at or under the profit you are making. In the beginning of your Uber business, this will result in your bank account growing bigger and bigger. This increase is for those weeks of low cash flow and negative cash flow that are in your future, and are certain to arrive sometime soon.
This flow will be different for different drivers depending on how you obtained your car. If you are making payments on your existing car, then a portion of those payments comes out of your profit and the rest of those payments are already accounted for in your costs and available in your account. For example, if two thirds of your mileage is Uber driving, but the other third is personal driving, only one third of your car payment should come from your profit for the month. Remember, profit is for your personal spending. So personal driving comes out of the profits. So just write the check for the full amount, and only consider one third of it comes your profit when considering how much of your profit you have left to spend on your lifestyle.
On the other hand, if you paid cash for your car, then your bank account will likely continue to grow and grow pretty large until it's time to pay cash again for your next car. Similarly, one third comes from you saving from your profits for that eventual car purchase day. The rest is already accounted for in your costs and available in your account for that day. If you didn't set aside any of your profits for that pending future cash car purchase, then you'll have to get a loan for the personal portion of the car purchase. But the business portion of it should all be available in your account.
Whenever gas and maintenance costs hit, you should be able to allocate the same personal percentage as well. One third from your profit for personal use, and the rest is already accounted for in your business costs and available in your account. So only one third of all the gas you are buying is consuming your profits (and one third of your oil changes, one third of your car washes, etc, etc...) leaving the rest of your profits for your lifestyle spending. Again this is based on one third of the mileage on your car being personal use. If it's one half, one fourth, or something else, adjust accordingly.
Some weeks you will experience some pretty expensive hits to your bank account, where as others produce a lot of cash increase in your account. These ebbs and flows of your bank account occur because the business of being an Uber driver is NOT a consistent string of positive cash flow weeks. It's nothing like being an employee with a steady income flow. Sometimes big bills hit, and this method prepares your bank account for them so that you don't go bankrupt or go into debt trying to stay afloat.
If your total per mile cost is below $0.575 in 2015, ignore your calculated total cost per mile and just use the IRS standard mileage deduction of $0.575 when you file your taxes. This doesn't mean your car costs are really $0.575 per mile. It's just the amount the IRS allows you to claim it is. I could probably write on article on this subject alone, about why it exists, how it's factored, why yours is different, and the benefit it provides.But for now, just realize that there's a nice little tax benefit here that reduces the taxes you owe on your business profit at the end of the year.
With you now having what you need to determine your costs, you can now complete all four steps of the business basics laid out earlier in the article. Some of you may be getting shocking results in step 3, and now have even more questions than before as you explore step 4, especially those of you in cities where the rates are $0.65, $0.70 and $0.75 per mile. I could address some of the obvious questions now, but that would really be the beginning of another topic (or two, or twenty, or two hundred....). So despite there being so much more to talk about, I'm wrapping this one up, and hope to address more questions in future articles.
Take a moment to share with the community the costs you calculated for your situation. Post your total cost per mile, and if you can also the break down of gas costs, maintenance costs and car costs, please do so as a comment to this article. The more numbers that are shared, the more it helps the community get a feel for how much their businesses is costing them above or below the norm.
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