UberX: Driver Utilisation and Take Rates
Former Global Head of Pricing and Strategic Initiatives at Uber
inpractise.com/articles/uberx-util-take-rate
Why is this interview interesting?
- Why driver utilisation is an important metric for Uber
- The benefits of scale for Uber
- Examples of when a price cut fails to drive utilisation in the ride-hailing business and how to react
Kapil Agrawal
Former Global Head of Pricing and Strategic Initiatives at Uber
Kapil joined Uber as the Global Head of Pricing & Strategic Initiatives in 2015 when the business was rapidly growing across developed but also emerging markets. He was responsible for formalising pricing structures across both UberX, UberPOOL and UberEats globally. Kapil left Uber after two years and joined Poshmark, the fast growing social commerce marketplace, as VP of Finance and Corporate Development where he has helped quadruple revenue at the business. Kapil has led $90m of capital raising for growth equity companies and has deep experience scaling marketplace businesses.
Interview Transcript
Driver’s earnings are actually a core focus? You would back-out the utilization from that $15 an hour, for example, that you want the driver to earn?
Yes. We had a lot of data, from launching in many cities, so we knew what the potential efficiency would look like, in a particular city. We had the characteristics of different cities. For example, San Francisco, LA, New York, they can combine into a particular group of cities and we can assume that, yes, those cities could reach 60% to 70% efficiency, whilst the other set of cities, like Dallas, Houston, etc., they could, potentially, be 50% to 60% efficiency. When we are launching in a new market, we could say that, okay, this market could resemble this city and what the long-term efficiency for that particular market would be.
If we achieve that efficiency, in the six to nine months, what should the driver pricing be so at that efficiency level, the driver can still make sufficient money, in that market.
This is why scale is so important, because the more drivers you have, the more riders, the higher the frequency, the lower the cost. This makes it cheaper for the rider and more rides, means more earnings for drivers?
Yes, that’s correct. The cheaper the product, more people will use it. As you have more and more people using it, that specifically means that the driver opportunity will go up. Let’s say there are more and more people using it, there will be one ride after another, so there won’t be any wait time for the drivers. As their efficiency increases, they will be able to make a similar amount of money, even at the lower prices for the riders.
For example, let’s say we started at a $10 ride, for the rider. At that time, the efficiency, because of the level of demand, was 40%. If you cut the pricing to $5, in that particular market, the demand will go up, exponentially. What would that mean? The driver’s efficiency could increase from 40% to 60% or 70% and they can still make the same amount of money, as they were doing when the prices were $10 for the rider.
Although, in some of the markets, if you don’t see that a certain level of efficiency kicks in, or a certain amount of ride volume go up, as we cut the prices, we are open to roll-back those price cuts that we used to do.
What examples do you have of where that didn’t work?
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