Should Drivers Stop Referring New Drivers?

One of the biggest criticisms I get from running this site is from drivers who say I shouldn’t refer new drivers to work for Uber or Lyft.  I’m a little biased on this issue since driver referrals are one of our main sources of income, but I think they’re wrong.

Uber and Lyft have been enticing existing drivers with big cash bonuses to refer their friends since I first started driving way back in 2014, but I’ve always thought it was strange to offer a driver a $500 bonus and then pay them less than $15 an hour.  Normally, sign-up bonuses are reserved for professional athletes and tech workers, but Uber and Lyft seem to think rideshare drivers deserve the extra cash too!

What do you think of Uber's driver referral program? Some people says it increases supply and lowers fares for other drivers, but is that true?

So Why the Big Bonuses?

If you’ve ever wondered why Uber will pay a $500 bonus to a new driver and an additional $500 to the referring driver, you have to understand that drivers are the limiting factor for growth at a rideshare company.  Uber has a serious problem with driver churn since half of all drivers quit after just one year, and when you add in the company’s exponential growth, that means they are in need of tens of thousands of new drivers every single month. In order to get them quickly, they are willing to pay big bucks.

Where Does Uber Get Its Drivers?

The first company I ever drove for was Lyft, but when another driver handed me his business card with a code on it to sign up for Uber and get a $500 bonus, I figured it couldn’t hurt to try them out!

When we surveyed over 1,100 drivers in January 2017, we found that drivers come to Uber from many different sources:

If we assume that everyone who ‘heard from a friend’, ‘heard from a relative’ and ‘heard from a rideshare driver’ signed up and got a bonus, that would mean that 51.5% of drivers got a sign-up bonus.  I think that’s conservative but even so, it would still mean that 48.5% of drivers are signing up through a source other than the driver referral program.

So it’s important to remember that Uber doesn’t get all of its new drivers from the driver referral program, just some.

Online & Offline Marketing

Uber has always spent heavily on online marketing (Craigslist, Google Ads, etc) but in the past year, you’ve probably noticed a lot of radio and TV ads to sign up and drive with Uber too.  Uber is constantly testing new marketing channels, and with online media, radio and TV ads, there is limitless supply for advertising.  Uber can just keep buying ads until they hit their numbers.

Driver ‘Growth’

Uber also experiments with more unique marketing channels from time to time.  There’s this hip term in Silicon Valley right now called ‘growth hacking’ and basically it’s a fancy way of saying creative marketing. Uber has launched programs like the Uber Brand Ambassador which was pretty creative: Uber paid people to set up shop at gas stations and offer free gas to people filling up if they signed up and became a driver – talk about your target market! Uber ended this program in 2016, but they signed up a lot of drivers while it lasted.

In the past year, Uber has also started encouraging riders to sign up by adding a ‘Drive With Uber’ option to the menu and often pushing it into the feed of the new Uber passenger app (I literally saw this in my feed when I opened up the app to grab a screenshot for this article).

This feature may seem innocuous, but when you think about the millions of people who use Uber every day, just a 0.01% conversion rate on a million riders a month is 10,000 drivers!

Why Driver Referrals?

If anything, I’d argue that driver referrals are one of Uber’s most expensive marketing channels, and you should take advantage of it while it lasts.  In other industries like personal finance and credit cards, a $100-$150 bounty for an approved application is an amazing payout.  But with rideshare, that’s a standard bonus and a great payout is in the range of $500-$1,000 (usually in top markets).

I am not an online marketing expert, but I’m pretty sure you could get more than 1 driver signed up with $1,000 worth of advertising on Facebook or Google, so why does Uber even bother with driver referrals?  I can only assume that it’s because it works.  While it may be expensive, they can sign up a lot of drivers quickly with driver referrals.  The high bonuses provide huge incentives to existing and new drivers and, typically, companies like Uber know they can bring down acquisition costs over time.  There’s a reason why Uber lost $3 billion in 2016 and it has a lot to do with subsidies like driver referrals (and weekly incentives/bonuses too).

Increased Supply of Drivers?

The reason why drivers complain about driver referrals though is because they feel it increases supply. Whenever you refer a new driver to Uber, it makes sense that the supply of drivers goes up. But what they also fail to take into account is that Uber needs a certain number of drivers each and every single month.

Let’s say Uber’s target is 50,000 new drivers a month.

It doesn’t matter where those drivers come from, but 50,000 is the goal.  And since driver referrals is only one of their numerous marketing channels, Uber is going to spend whatever it takes until they hit their goal.  So if they don’t get any driver referrals, they’ll just increase their spending in other marketing channels.

So if Uber is going to spend this money anyway, why not be there to take advantage of it?  Oh and if you want to use my code to sign up for Uber, it’s right here 😉

Drivers, what do you think about Uber and Lyft’s driver referral program?  Do you think it increases the overall supply of drivers or would Uber just spend the money on other marketing channels?

PS – I’m thinking about starting a membership site to help fellow rideshare bloggers and those considering starting a blog.  If you’d be interested, send me an e-mail with the subject line ‘Membership Site’.

-Harry @ RSG