Why Is Uber So Expensive? (Top 10 Reasons)

 

As a competitor to public transport and taxis, Uber relies on independent drivers to pick up rides and transport its clients to their destinations.

When Uber first started, it received a relatively warm welcome.

Clients were able to order a driver from an app and meet them practically anywhere.

The rates were also relatively cheap, and the experience was positive.

However, many riders have noticed that the price to use Uber has steadily increased with time.

A trip that once cost $50 now costs $75.

Here are 10 reasons Uber is so expensive.

 

Why Is Uber So Expensive? (Top 10 Reasons)

 

1. Shortage Of Drivers

 

The main reason behind Uber’s price increase is a lack of drivers.

When Uber first started, many individuals looking to make easy money signed up to be drivers.

Uber also encouraged sign-ups by implementing driver bonuses and other incentives.

For many drivers, especially those who are immigrants, working for Uber became a way to feed themselves and support their families financially.

However, over time, as Uber became more established and had a large number of drivers supporting it, it started to end the driving bonuses.

Drivers received less pay, and for some, the job became a waste of time.

That prompted them to leave the company and find employment elsewhere.

Reduced pay isn’t the only reason that drivers decided to stop working for Uber.

The COVID-19 pandemic had a massive impact on drivers.

The pandemic forced public transportation in many areas to close.

Riders became reliant on apps like Uber to get to their destinations.

However, riders didn’t want to risk their health either.

There were fewer drivers on the road because they also wanted to keep themselves and their families healthy.

Those who chose to remain unemployed filed for unemployment benefits with their state.

In many cases, they discovered that they earned more through unemployment than with Uber.

As such, they didn’t feel encouraged to return to Uber.

This impacts the price of Uber because it creates a driver shortage.

With fewer drivers available, it creates a situation in which Uber has to give an incentive to its drivers to pick up a ride.

That comes in the form of higher pay.

The higher the job pays, the more likely a driver is to choose it.

Uber is expensive because there’s a driver shortage driving up the cost of rides.

 

2. Increased Demand

 

Despite there being a shortage of drivers, the demand for Uber rides has increased.

Uber has become especially popular among younger generations.

They enjoy the ease of ordering a ride directly from their home or business.

While there was always some popularity with the service, that popularity skyrocketed during the pandemic.

With few means of transport available due to the closure of public transport, many turned to independent drivers through Uber.

They relied on Uber drivers to get to work or to get to the grocery store.

However, since there were, and are, fewer Uber drivers available, the demand has increased the price to use the service.

When there’s a lot of demand for something and little supply, then it makes the price of the service increase.

That’s because everyone is trying to get their hands on only one or two drivers in the area.

Since everyone wants the service, the driver, or app, is able to set the price higher.

This decreases the demand for the service since only those who can afford it or who are desperate enough to pay for it will then pay the high price.

If more drivers ever join Uber, then supply and demand can slowly start to reach more of a balance.

This can help regulate the price since there are plenty of drivers to offer this service to a rider.

Uber is expensive because there are a lot of riders looking to use the service during a time when there are few drivers.

 

3. Time Of Day

 

The time of day in which you use Uber can also impact the price.

Uber uses a system that increases the price during peak driving hours.

The two most expensive periods are during the morning and the evening rush hours.

That’s roughly 7 AM to 9 AM and 4 PM to 6 PM.

If you choose to order an Uber during those periods, then you may notice that the price is higher than if you ordered a ride outside of those times.

It has to do with supply and demand.

Most people need a ride to get to work and to go home from work.

Since those individuals also tend to work the same hours, it creates a situation in which many people need a driver at the same time.

If there’s already a limited number of drivers in the area, then this creates a shortage.

Since only a few drivers can respond to the call, the app increases the price to drive down demand.

This allows the drivers to make a decent amount of money and encourages them to accept as many rides as possible.

In this way, the service can try to offer rides to as many people as possible.

If there happen to be a lot of drivers working during that time, then the price isn’t as high.

That’s because there’s lots of supply to meet demand.

However, demand during those hours is usually always going to be higher than the supply of drivers.

Uber is expensive during peak hours because there are always more riders requiring a service than available drivers.

 

4. Area

 

Another factor that makes Uber expensive is the area in which you live.

Urban areas tend to fluctuate in price more than rural areas.

That’s because urban areas tend to have more drivers than rural ones.

People in the city tend to rely on public transport over driving their own cars.

Besides trying to combat climate change, they’re also aware that by driving their own cars, they only make the traffic congestion worse.

Because urban centers have more people and higher demand for drivers, the price to hire an Uber driver is more expensive.

In a rural environment, on the other hand, there’s far less demand.

Most people in rural settings rely on their own cars to get to their destinations.

While some may use an Uber driver, the number is smaller than those in an urban environment.

Since there’s demand, and some supply, the price tends to be cheaper.

The price also likely reflects the average household income in a rural environment versus an urban one.

Urban environments have the stereotype of being wealthy whereas rural environments have the stereotype of being poorer.

With less money to spend on luxuries like Uber, the service has to be cheaper to accommodate their household income.

Uber is expensive based on the area in which you live because of the number of people using the service in that area.

 

5. Distance

 

The distance that you need to travel can also make Uber expensive.

Uber tends to calculate its final price based on a few variables.

One of those variables is the distance of the ride.

The longer the distance, the more expensive the ride is going to be.

That’s because the app tries to take a few things into consideration.

The first is the wear and tear on the driver’s vehicle.

Longer distances mean there is more wear and tear put on the vehicle.

Eventually, the driver is going to have to take the car into an auto shop for service.

It’s even possible that they may break down and need an expensive repair.

To pay for that cost, the driver needs to make enough to save for those expenses.

Longer distances are more expensive to help them put extra money away to account for the extra wear and tear on their vehicle.

Another consideration the app takes is fuel costs.

It costs more fuel to travel long distances.

That also cuts into the driver’s earnings.

The price needs to be high enough to cover fuel costs while still allowing the driver to earn a profit.

A final consideration is the loss of income that the driver risks by driving you a long distance.

The trip has to be financially worth it to make up for the rides the driver is missing out on and earning money from.

The reason the service costs more for a longer ride is that most drivers don’t want to accept them.

They’re not always worth the money.

To encourage riders to accept long-distance rides, the price for them is higher.

Uber is expensive if you need to travel a long distance.

 

6. Fuel Costs

 

There are several costs that the driver has to take on to provide a rideshare service to someone.

Their biggest and most frequent cost is fuel.

Uber determines its price based on the current average fuel price in the area.

It takes information from various gas stations to determine the current price of fuel, then lists a price to help cover the cost of gas.

The problem is that fuel can increase to extremely high prices.

Recently, there are several factors at work that have increased the price of fuel.

The primary culprit is the COVID-19 pandemic.

The pandemic shut down several factories and refineries responsible for drilling and making fuel.

It also shut down or restricted truck drivers and the transporting of fuel for a time.

Because there was a gap in production, there’s also a gap in supply.

Even now that refineries and factories and delivery truck drivers are back to work, they’re still trying to catch up to the deficit in supply.

With everyone back to work and driving once more, this means there is less supply with more demand.

As a result, the price of gas increases.

Investments in new oil wells have also decreased.

That’s a result of a push from Wall Street to force oil companies to pay down debt and start splitting dividends with their investors.

With fewer oil wells starting up, it decreases the number of barrels available for sale.

This all results in higher prices for fuel which means hiring drivers is also more expensive.

In areas that rely on imported fuel rather than domestic fuel, gas prices are especially high.

That also means Uber’s prices are going to be higher.

Certain days may also be more expensive than others based on when gas stations receive their fill-ups from tankers.

Uber is expensive because the price of fuel is expensive.

 

7. Actual Price Of Using Uber

 

One of the reasons that Uber is expensive is that it has been using investors to fund cheaper rates when its actual price is the current rate most people are seeing today.

Uber was never meant to be a cheaper alternative to public transport.

Taxis already have that corner of the market.

Instead, Uber offers convenience at a higher price.

The problem is that Uber wanted to grow at a rapid rate when it first started.

To do that, it used its investor funding to give incentives of high payments for drivers while keeping the ride prices low.

This created a situation in which those who became used to Uber also became used to the cheaper prices.

This was a strategy designed to simply help spread Uber across the country.

Now that Uber has reached the growth it desires, for the time being, it can start to focus on generating profit.

That means ending the cheap prices that riders expect and implementing the actual price of using Uber.

Uber is expensive because riders received cheaper fares for several years without realizing that it was a limited-time price.

 

8. Generating Profit

 

Uber started with a group of investors.

Once it reached the growth it needed and started seeing reasonable returns, it had its initial public offering.

It became a publicly traded company, beholden to shareholders.

Because of that, Uber had to switch its tactics to become more profitable.

A company that serves investors over shareholders is slightly different.

Early investors are usually those who are most connected with a company.

They get some say in the direction the company takes and typically use the money they generate elsewhere to fund certain aspects of the new company.

Uber was able to use its investors to grow its company fast.

Now that it has shareholders, however, its shareholders expect their own investments to receive dividends.

While every investment is risky, a company usually tries to make good on the trust the shareholders put in them.

Uber finds itself in a tricky situation, however.

Since its inception, it has never reported a profitable year of business.

In fact, when it first started, Uber reported billions of dollars in losses.

While the company has reduced that number, it has yet to report a profit.

Because of that, Uber is focusing on ways to start earning a profit to pay its shareholders.

That means increasing the rate of Uber’s services and ending the cheap introductory fares that it used to familiarize riders with the service in the first place.

Uber is expensive because the company is focusing on generating a profit.

 

9. Expensive R&D Projects

 

Uber is always looking for ways to cut down on the cost of labor.

To do that, they often have to fund R&D projects to determine new ways that they can service their riders while saving money.

One of the projects they considered was using self-driving cars.

Uber has invested a good amount of money into the development of self-driving cars and determining whether that would work for the company or not.

Although Uber has since shuttered the branch researching self-driving cars, it continues to fund this department to find other methods.

In any business, funding research and development is essential to staying alive and relevant.

It also costs a considerable amount of money.

To pay for those projects, Uber has to rely on the funds from its services.

Part of the expensive price that you see on your fare likely has to do with its own business operational costs.

Uber is expensive because of its business costs like its R&D department.

 

10. Tips

 

A final reason Uber is expensive is tipping.

Drivers who work for Uber have the classification of independent contractors.

Because of that, they’re not guaranteed an exact wage.

They earn as much as they work.

Uber also sets the price.

Like any service, you’re expected to tip.

That’s because drivers rely on those tips to make a living.

The problem is that if the ride is already expensive, tipping can make it even more expensive.

The standard rule of tipping is to pay at least 5% based on the final price of the service.

A tip of 5% usually isn’t acceptable if you’re asking your driver to drive you a long distance or during congested times.

The amounts of 10%, 15%, and even 20% are becoming more of the norm.

That can greatly increase the price of the overall fee to use Uber.

While you aren’t required to pay a tip, Uber drivers can block your requests for a ride.

If word spreads that you don’t tip your drivers, then you may find it difficult to hire an Uber driver in the future.

Uber is expensive because drivers rely on tips for their income, but tips can quickly make your total cost for a ride increase substantially.

 

Conclusion

While Uber started with cheap rides and tons of drivers, it has since increased in price and decreased in the number of drivers.

Several factors have led to the decrease in drivers and increased the price of using Uber.

However, it’s also important to realize that this is the actual cost of using Uber.

As with any convenience, you usually need to pay extra for it.