How Lyft Works: Understanding Lyft Business Model & Revenue Model
Lyft is a ride-hailing app that can be best explained as a transportation-as-a-service marketplace which allows riders to find drivers for a ride. Founded on May 22, 2012, the app for taxi dispatch has raised a total of $4.9B over 23 funding rounds with the latest funding being raised on March 1, 2019. Lyft reported a revenue generation of $2.36B in FY2020 and such whooping numbers have attracted many entrepreneurs to build an app like Lyft. If you are also interested in launching a taxi dispatch app like Lyft, you are at the right place. In this space, we will answer some basic questions about Lyft, including:
How Lyft works?
What is Lyft business model?
What is Lyft revenue model?
Without any further delay, let us start answering these questions.
How Lyft Works?
Lyft works in a stepwise manner. When any user requires a ride, he searches for a nearby taxi via the ride hailing app and books a ride to commute from one location to another. When a booking is made through the customer interface of Lyft app, the Lyft drivers receive a notification on their end of the app. The community drivers available in the proximity of the user accept the ride based on their convenience and availability. On acceptance by a Lyft driver, the user receives a booking confirmation.
What Is Lyft Business Model?
Lyft Business Model Canvas
The Lyft business model operates around two major sections of customers – the users and the drivers. Lyft users are people who don’t own a car, don’t like to drive, or want a cost effective ride at their doorstep. The driver section of Lyft customers includes people who own a car and want to earn some money via it.
Partners in Lyft business model include people who make Lyft operations easier and smooth. Major partners in Lyft business model are –
Drivers with their cars form the backbone and essence of the ride hailing app.
Payment processors facilitate receiving payments from the customers and making payout to the drivers.
Map API providers help in route optimization for drivers and ride tracking for users.
Insurance companies share the financial load of the taxi dispatch company by insuring rides.
Value Proposition: The success of every service is dependent upon the value it adds to its stakeholders including users and drivers, in case of a taxi dispatch company like Lyft. Lyft offers a solution to the commute problem faced by people in their everyday life and while doing so it creates value proposition for both riders and drivers.
Value Creation For Customers-
To start with, Lyft offers a feeling of safety while booking a ride to its users. The tagline of this ride hailing app ‘Find A New Friend Everyday’/ ‘Your Friend With A Car’ is enough to make the rider feel comfortable, secure and safe when booking a ride.
Lyft adds financial value to users booking a ride with Lyft as it offers lower ride fare as compared to other taxi dispatching services.
Lyft offers multiple ride options to suit the diverse needs of the users. Users can book from options such as –
Lyft Standard, Shared, and Shared Saver when looking for affordable ride options.
Lyft Lux and Lux Black for luxury rides.
Lux XL and Lux Black XL when booking a ride for larger number of riders.
Lyft users enjoy different perks such as referral points, free rides,free credits, etc.
Cashless rides as users can make payments via Lyft app using multiple payment gateways.
Value Creation For Lyft Drivers-
Drivers are the backbone of ride hailing services like Lyft. Lyft creates value for its drivers to earn their trust and motivate them to drive for the company.
Drivers can work at their convenience as Lyft has a flexible shift model.
Lyft has a fast payout system so drivers receive payments immediately.
Drivers have an opportunity to earn from different sources including trip charges and tips.
Lyft suggests high booking areas to drivers to help them earn more by accepting rides in such areas.
The insurance partners of Lyft offer different coverage options to drivers such as liability, injuries and damages to the vehicle.
The primary expenses of Lyft business model are –
Technological Infrastructure costs involve expenses incurred on maintaining the taxi dispatching app and website. These costs also include any expenses related to research and development.
Second major expense in Lyft business model cost structure is the salaries paid to permanent employees such as operations team and customer support team.
The payout to drivers is also an expense as it is made out of the earnings of the company.
Insurance costs are the next key expense for the ride hailing company as it is required to provide basic insurance to the drivers as per local laws.
Last on the expenses list is marketing cost which includes cost incurred on advertising, rider incentives, compensation costs, driver incentives, etc.
The primary purpose of every business is to generate revenue. We have already discussed the cost structure of Lyft business model, but how does Lyft earn? Lyft revenue model has multiple revenue generating streams –
The primary revenue stream is the riding or booking cost charged to the rider. For every ride, Lyft keeps 20% of the price paid by the rider and the rest is paid out to the driver. Out of this 20%, the company has to pay out local taxes, as applicable, and the rest is its revenue.
The second revenue stream is surge price charged by the taxi dispatching company in case of high demand. Lyft provides a heat map to its drivers to help them identify high demand neighborhoods and encourage them to accept ride requests from these areas. This helps Lyft as the number of rides and earnings per ride increase.
A new addition to Lyft revenue model is a new Express Drive program initiated by Lyft. This program is targeted at drivers who do not own a car. Lyft connects these drivers with local car rental companies and earns by assisting the transaction between both parties.
Another new leaf in Lyft revenue tree is the new self-driving platform. Users can book bikes or scooters for last mile commute.
As of 2021, Lyft has experienced immense growth in the average number of users and associated drivers which have translated into increase in revenue. If you are also interested in building your own taxi dispatching app within less time at an affordable cost, choose our ready-to-use Lyft or Uber clone solutions that include rider and driver apps for both android and iOS platforms with a feature loaded admin panel. Let’s connect now!
August 26, 2021
Being a Senior Content Writer at Code Brew, Neha is intrigued by new trends and technologies in the digital world. She is fond of curating, developing, and designing different types of content to help businesses grow in this competitive era.