Part 2: The Cost of Customer Acquisition in Numbers — Analyzing the $1,000 Lyft Promotion
Last week the unprecedented $1,000 Lyft Driver incentive craze begged some questions about the cost of customer acquisition. Today, I present the numbers.
The first part of the graph above shows each city offering a promotion, with the “New Driver Bonus” awarded for signing up then once the minimum “ride requirement” is completed and they earn the “Lyft Credit amount”, we get the “Cost of Acquisition”.
The right side data is based off of the ‘average driver income per ride’, which was pulled from SherpaShare (their data seemed the most reliable however it’s users might be more apt to be full time drivers and skew results) and ranges from $9 to $15, except one outlier in New York, where Lyft’s commission is also drastically higher. I wanted to understand the average number of miles per ride but couldn’t find it; I believe it was a factor in the varying incentive amounts and ride requirements as well as internal metrics such as the demand for drivers and Lyft’s assessment of their potential for expansion in each place.
The analysis comes with some well-researched estimates such as general administrative overhead for onboarding of $10, plus Lyft’s car inspection cost of $35
Below is the breakdown of Lyft’s revenue for the first three months a driver is on the road based on 25 rides, 50, 75, 100, 200 and 225 each month, assuming they continue consistent behavior. Note that only the numbers in bold are the drivers who successfully completed the promotion (30 to 100 rides in 30 days, depending on city). I’ve depicted a scenario (the rightmost column) of drivers completing the incentive and then doing an average 50 rides the subsequent two months based on the assumption that most drivers will drive much more than that, so we’re also accounting for the many who might quit after the big payday.
Overall, looking at the red number on the bottom right, my calculations tell me that Lyft would net a loss based on the incentive, but look how small! Consider that this new driver promotion is essentially part of marketing campaign costs and only would tack on a measly 2k to the budget. This is wildly promising after all. It would barely effect their monthly cash flow! My immediate instincts tell me that many drivers will not complete the promotion (is Lyft secretly hoping for this?!) and they’ll likely MAKE money from this campaign within the first 30 days.
The intimidating 200 rides in San Francisco is hard to attain and I can personally attest to this. In fact, maybe that is why they’re offering the whopping $2000 — the highest amount of all — to get buzz (how much negative press could they really get if this is really unattainable? A few Lyft drivers banding together?). At worst, Lyft is doing what many companies do: introducing you to something you wouldn’t otherwise be open to, i.e. buying a product, driving for Lyft; sometimes that’s what it takes to be open minded. Despite possibly unattainable promotions, Lyft sends text messages and even calls drivers to get you to drive more once you sign up to drive (it worked on me!); from a quick $200 to do 10 rides in two days, they also continue to give incentives to drivers through the Power Driver Bonus, which varies by city — for example in San Francisco for 10% bonus you would have to do 80 rides (30 during peak hours), and for 20%, 100 rides (40 during peak). I personally find Lyft to be very fair.
What’s more, you can cash out everyday, a minimum of $50 at a time. Why Lyft doesn’t advertise this is certainly beyond me as I think their target would appreciate it. (Perhaps it’s related to the legal issue and whether they’re contractors or full time employees.) I mean, how many employers pay everyday, not to mention one that can provide a bit of a cushy gig?
Naturally, I was curious about the numbers for the other side: is it really worth it for the drivers? For this analysis I considered 30% of each fare to cover miles and wear & tear, which the government presently deems .55 cents per mile. There are variable and fixed costs depending on what car you drive (warranty etc.), how much gas is in your area, if you’re driving out of the way to pick up people as a full time gig (or if they’re right there and you’re taking them where you’re already going, as explained in the post How to Never Pay for Gas Again). Ultimately every situation is unique; this is just a possible scenario.
The graph above parallels the same hypothetical scenario of completing the ride requirement and then 50 rides the subsequent two months: for example in San Francisco with the highest ride requirement of 200, a driver will bring home $3,818 and in Chicago where the ride requirement is only 50, a driver will pocket ~$1,321. Note, none of the numbers in any column include sporadic incentives and the Power Driver Bonus mentioned previously, nor does it include a substantial benefit that currently might make them a bit more likeble than Uber: tips (through the app). Lyft asks riders if they want to leave a tip and gives you 100% of them (however, in over 50 Uber rides two or three people have given me only $2 each).
Furthermore, this chart does not include the perks you get from the Accelerate Premier Driver Reward program, with Verizon, health insurance, Doctors on Demand, to Intuit and roadside assistance — all useful though things though you may already have a better price or likely don’t want to be bothered with the hassle of changing stuff. Another nice touch, which can more easily be quantified — and that passengers can also take advantage of — is Shell Fuel Rewards; again, it’s possible you are already a loyal user somewhere else, and Costco and Safeway gas beat most prices anyway. Actually, I had no idea about this incentive until researching for this article, which goes to show the lack of communications from Lyft.
Yes, I’m a Lyft and Uber driver — and also a professional (aka in an office). As for my driving habits, I drive when I’m on the way to places or if I’ve been home a couple days in a row staring at my computer screen and need to interface with civilization (I’m still new to the area!), doing about 30 rides per month. I may not be Lyft or Uber’s ideal driver, but surely they would like more drivers like me who don’t qualify for extra perks but who are essentially brand evangelists, and of course, more drivers means more convenient pickups for riders, even in cities where the incentive is high — which will feed the company twofold.
In summary, I think the $1,000 is not so crazy of Lyft afterall.
If you are thinking about joining the mayhem, check out “10 Reasons to be an Uber or Lyft Driver — Even if you are Rich” and don’t forget to use the Lyft promo code here. I’m a Lyft driver, and I didn’t get any promotion to join; there was no indication of any incentive coming and I had just moved to the area and was itching to try it, so my cost of acquisition was just the general marketing costs, which was still probably in the thousands anyway.
