Lyft drastically reduced driver incentives during the last three months of 2020.
How do we know? Because in its Q4 earnings report, the company said so.
As drivers, you’re aware of the importance of bonuses, surges, and other incentives for maximizing earnings. So will this reduced incentives trend continue? And will other companies follow suit?
In this post, we’ll discuss how Lyft led the way in reducing driver incentives, examine what other companies might do, and discuss how you can protect your earning potential.
Here’s a quick Table of Contents:
- How much did Lyft reduce incentives?
- Did Uber and the delivery companies also reduce incentives?
- What drivers can expect going forward
- What you can do to maximize your earnings
How much did Lyft reduce incentives?
Driver incentives could be classified as a “now you see them, now you don’t” kind of issue.
Lyft acknowledges spending a lot of money in 2020 on getting drivers back on its platform. It had to be challenging to get drivers excited about bringing unknown individuals into the close confines of their cars during a pandemic.
So Lyft turned on the charm.
The company offered sign-up bonuses to attract new drivers, and incentives for current drivers to get them back on the road.
Lyft also invested millions in personal protection equipment (PPE) to help drivers and passengers feel safe on the road.
At the end of the year, however, spikes in COVID-19 infections reduced ride-hail activity, which resulted in less need for drivers. In response, Lyft stopped recruiting new drivers and cut back on incentivizing existing drivers. “Given the effect on demand,” says Lyft CEO Logan Green, “we were able to reduce driver acquisition and incentive spend, which had a positive impact on our financial results.”
This reduction in driver incentives helped boost Lyft’s revenue and enabled the company to beat analysts’ revenue estimates—but it also hurt the pockets of ride-hail drivers across the United States. The graph below shows how per-trip earnings decreased during late 2020.
Driver earnings per trip peaked at $9.32 in July, decreased consistently through November, and saw only a slight rebound in December.
Did Uber also reduce driver incentives?
Short answer: Yep.
At Gridwise, we use anonymized data from our network of more than 250k rideshare drivers to understand industry trends. One way we do this is using what we call a “Ride-hail incentive index,” which essentially measures how often the companies are paying drivers incentives to get back on the road.
The nationwide ride-hail incentive index reveals just how much the rideshare companies reduced driver incentives as 2020 progressed. It shows the frequency of driver incentives as they are offered over time. The graph shows that while there were spikes as the companies tried to lure drivers back during the summer months, incentives plummeted in the last few months of the year.
Although Uber didn’t reveal how much it reduced incentives in the 4th Quarter, it appears the company followed Lyft’s lead and lessened them substantially. This may change again, at least temporarily, depending on the COVID-19 pandemic and its effects on rideshare activity.
Did food delivery companies reduce driver incentives?
The 2020 earnings pattern for delivery companies like Uber Eats, DoorDash, Postmates, Grubhub, and Instacart was in sharp contrast to that of rideshare. Delivery in general skyrocketed.
Early in the pandemic, delivery companies recognized a need to incentivize drivers who feared being out where there was a higher risk of catching the virus. But that didn’t last long.
As the months passed, the growing demand for delivery drivers was largely met by rideshare drivers and workers who were laid off from other industries. So, the delivery companies no longer felt the need to offer incentives. You can see this changing activity in the graph below.
It definitely looks like delivery is here to stay, even after the shutdowns ease up and people start moving around again. In Uber’s February 10, 2021 earnings call, CEO Dara Khosrowshahi said: “It’s become clear that the pandemic has increased consumers’ appetite for on-demand delivery of not just food, but all goods, and we take a major step to address this enormous opportunity.”
There are no visible signs that Uber plans to abandon rideshare, but in 2021 the company will be heavily focused on delivery. During the earnings call, Khosrowshahi stated that this year, Uber intends to invest $200 million to $250 million in growing the delivery side of its business. While some of that investment might take the form of driver incentives, it’s not likely to reach the levels we saw back in May and June of 2020.
What drivers can expect going forward
After nearly a year of pandemic-related chaos in the United States, there is a pervasive sense of hope that life will return to normal—sooner rather than later. And, once vaccinations become more widespread and infection rates start to decline, it makes sense that Americans will want to start moving around again—which is the best possible news for drivers.
On the rideshare side, Uber’s plan when the economy opens is to ramp up business by developing expanded services, such as rentals, taxis, motorbikes, and specialty offerings like Uber Comfort. The company wants to re-engage riders for “second first trips” post-pandemic, and get customers back in the habit of calling on Uber for their mobility needs. (Uber doesn’t expect ridership to ramp up until the second half of 2021.)
Lyft intends to offer driver incentives early in 2021, which will likely get more drivers out on the road as lockdowns are lifted and demand increases. In the conference call on Q4 earnings, Lyft CEO Logan Green said: “Based on current COVID-19 recovery expectations, in Q1, we plan to invest in driver supply to improve service levels and prepare for stronger demand beginning in Q2.”
It’s important to remember, though, that once more drivers are out on the road, robust driver incentive efforts are unlikely.
Given the stated policies and plans by both Uber and Lyft, here’s what we believe drivers can expect in 2021—assuming the effects of the pandemic begin to abate.
- More rides: People will begin to travel and go out again, and volume will increase.
- More delivery: This segment of the business shows no signs of slowing down, even after the pandemic is (hopefully) a distant memory.
- Fewer driver incentives: Early in the year the companies may offer more incentives, but will try to cut costs in this area as business improves.
- Same independent contractor status: Uber and Lyft won a huge victory in California during 2020 with Proposition 22. Although drivers got a minimum wage and some insurance, the legislation did not set any precedent for attaining full employment status in Cali or in other states.
What you can do to maximize your earnings
Knowing what Uber and Lyft revealed in their year-end earnings reports can help you determine how to best improve your own earnings. It’s obvious that rideshare will still be in the picture, and autonomous vehicles will be less of a threat than will a lack of customers.
Hopefully, the companies will be giving drivers some incentives to meet rising demand as COVID case counts go down (assuming they do). Lyft has been direct about its intentions to do so, at least early in 2021.
But—if you want to secure a decent living while gig driving, it’s almost impossible to ignore delivery. Uber has made clear its intention to substantially invest in this side of its business. You can bet other companies that compete with Uber will also offer their own incentives to either keep drivers or woo others to their platforms.
If you want to hedge your bets and ensure that you make the most money, you’ll be best served by mixing rideshare and delivery in your driving gig. This hybrid way of driving gives you the best of both. Also, now that Uber is delivering groceries and alcoholic beverages, there are more ways to earn money—and have the potential to get much bigger tips.
Lyft also intends to reach out to the community with a business-to-business delivery service. Although that was mentioned in the company’s earnings call, it didn’t have the same level of enthusiasm behind it that Uber holds for its delivery arm. That could change with time, though.
One thing you can pretty much bank on: You’ll continue to be an independent contractor while working for Uber and Lyft. This has its drawbacks, of course, but one advantage is that you’re free to work with any company you choose. So, if you want to drive for Lyft and deliver for DoorDash, no one can stop you from choosing that or any other combination of services for your hybrid driving gig.
Juggle it all like a champ – with Gridwise
It only sounds daunting to take on more than one kind of gig work. You can track earnings for all the apps you use automatically with Gridwise’s cutting-edge, multi-company tracking system. Simply sync your driving or delivery app account with Gridwise, go online when your shift starts, and your earnings and mileage will be automatically logged and stored for you. Enter other expenses as you incur them, and Gridwise will do the necessary equations to create attractive and easy-to-read graphs like these:
And don’t miss out on all the other great Gridwise features, like airport information and event updates. We’ll also send weather and traffic alerts when you need them. The Perks tab gives you easy access to a collection of driver-focused blog posts, our entertaining and informative YouTube channel, plus great deals and discounts for drivers. Join our Facebook community to connect with other drivers who are finding new ways to strategize and make money, and keep records of all their essential stats, thanks to Gridwise.
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