What do we do as delivery contractors when gas prices keep going up?
Is it worth it to keep delivering for Doordash, Uber Eats, Grubhub, Instacart and any of the others when gas prices are high and getting higher? Should these third party delivery companies start increasing what they're paying because of these increases?
Is it time to hang it up? Or is it time to double down a little?
Let's talk about the following:
- Are gas prices really that high?
- Why are gas prices getting higher?
- Should Doordash, Grubhub, Uber Eats, Instacart and other third party delivery companies increase delivery fees because of higher gas prices?
- How can independent contractors with Doordash, Instacart, Uber Eats, Grubhub and others protect their profits against higher has prices?
Are gas prices really that high?
As of March 8, the average cost per gallon of gas was $2.77. That's according to the US Energy Information Administration.
That's the highest that gas has cost in….
a year and a half.
That wasn't that long ago.
Anyone remember June of 2008? The average price got up to $4.11. This infographic, courtesy of TitleMax, provides a good look at the historical price of gas including making adjustments for inflation to see what they look like in 2015 dollars.
It's good to keep this in perspective. Gas seems crazy right now, but as part of the bigger picture, it's not as bad as we think.
That said, gas seems crazy right now compared to what we've been paying. It's no surprise that prices seem high when the average was $2.10 in November. It was a lot lower than that for a lot of us.
Average prices were as low as $1.77 in April 2020. That's a dollar increase.
So on the one side, gas prices aren't that high compared to the bigger picture. On the other side, they're still climbing as I write this. Who knows where they go?
Why are gas prices getting higher?
This is more about supply and demand than it is about politics.
It's not that politics don't have an impact. They absolutely do. But it's how politics (and everything else) relate to supply and demand that makes the biggest difference in gas prices.
Here's what it boils down to: If people need more fuel than what is available, gas companies can increase their prices and people will pay it. If there's less need than what's available, people won't pay the higher price because someone else will charge less.
I know it's far more complex than that, but the general rule is this: If gas prices shoot up, you can usually see that either the supply has been limited, or the demand has increased.
It seems like there's a little bit of both going on here.
Demand is growing as the economy begins to rebound.
Think about it: Whole industries were shut down. More people than ever are working from home.
If you were driving in the heart of the lockdown, you probably noticed one thing:
The lack of traffic was awesome! We could park right in front of the restaurants (though it was harder to find a place to park in the neighborhoods).
Notice that was right around the time that gas prices bottomed out?
What else have you noticed about traffic since then? I can tell you that I've noticed traffic is feeling a lot more ‘normal' as I go about delivering for Doordash, Uber Eats and Grubhub. Traffic jams are a thing again.
With vaccines getting out, people are getting out and about more often.
As a result, demand is increasing.
At the same time, supply dropped quickly.
The historic winter storm that hit Texas in February, 2021 took a big chunk out of the supply.
A lot of things happen. Losses of electrical power. Stuff freezing. While the storm itself was short lived, it shut things down for awhile.
Several weeks later, according to Bloomberg, only eight of the eighteen refineries that were shut down by the storm have come back fully online. Three are still completely shut down.
As the demand increases, supply has been cut back quite a bit. That makes a difference.
Another issue is the President's executive order shutting down construction of the Keystone XL pipeline. I don't think this really had much impact, but that's up for debate.
The thing is, that order didn't shut down anything that was already in production. It only shut down construction on something that would have made an impact on supply in a few years.
Not that I'd put it past any of the oil companies to use that as an excuse. They're going to jump on anything that looks like a perception that supply is impacted. Ever notice how they'll jack up prices based simply on a forecast?
Gas prices rising are because of a perfect storm of supply AND demand.
Pun only slightly intended.
Gas prices were bound to go up. Oil prices have been increasing already because they knew that demand and use were going to be ramping up now.
The main reason that prices went up so quickly has to do with the combination of higher demand and the unexpected shutdown of oil refineries.
I would expect things to level off soon, maybe even drop a little. I also expect to see prices start moving up more as we move into the summer. If this economy ever gets going full throttle again, we'll pay for it.
It's far less political than most people think.
I know that a lot of people like to give credit to the President when prices are down or blame the President when they're up.
You can make a case that the opposite should be true. In the absence of other factors like the winter storm that shut down refineries, gas prices are usually tied to the economy. If the economy is good gas prices go up. When the economy is struggling, gas prices go down.
More often than not, really low gas prices are a sign that things aren't all that good out there.
For that reason, I take the increase in prices as a sign of encouragement.
Should Doordash, Grubhub, Uber Eats, Instacart and other third party delivery companies increase delivery fees because of higher gas prices?
It would make sense, wouldn't it?
It's costing us more to go out and deliver. It only makes sense they should increase delivery fees.
Anyone remember the days between 2006 and 2008? Gas prices jumped up well over $4 in a lot of areas (not just California). A lot of businesses were adding surcharges because of the extra cost of gas.
Couldn't Doordash, Instacart, Uber Eats, Grubhub and all the others do the same thing and pay us more? It would be nice, I'm always in favor of getting more.
But here's the reality about Doordash, Uber Eats, Grubhub, Instacart, Lyft, Shipt and all the other gig economy companies. They're NEVER going to increase prices because it's the right thing to do.
Doing the right thing is not their business model.
They WILL increase prices if and when that's what they need to do to make sure orders are delivered.
They didn't increase fees during the pandemic to be nice. It happened because they really needed more drivers to meet the skyrocketing demand. You may have noticed a lot of delivery fees going down even though the virus was raging out of control.
This is because the delivery fees going up and down were based on supply of drivers compared to the demand (number of orders) and not on ‘doing the right thing' for drivers who risked their health to deliver. If there weren't enough drivers for the orders, fees went up. When there are more drivers than orders, fees go down.
Why I don't think increased delivery fees will actually help us.
Increased delivery fees do not necessarily mean more money for drivers.
You know what's going to happen if Doordash, Uber Eats, Instacart, Grubhub or any of the others pay us more. They'll charge the customer more.
If you've been paying attention, you know that doesn't mean more money for us overall. Look at what's happening in California.
Prop 22 passed in California, which increased the cost of providing services for these gig companies. They naturally passed that cost on to customers with higher delivery fees.
Did you notice what else they did? They decreased the amount of the tip that they recommended. Doordash and Uber Eats tended to drop the recommended tip by a small percentage. Grubhub simply defaulted to $0 suggested tip on a lot of orders.
Why would they do this? It's simple: Customers notice the bottom line on their order. They can tell when the total cost is higher. Doordash, Uber Eats and Grubhub don't want to lose orders because customers are unhappy about the higher price.
If they have to charge the customer more, they have to take something else away. Guess what it's going to be?
They proved this in California. They charged the customer more and in return reduced the recommended tip amount.
If these delivery companies add a surcharge to cover rising fuel prices, one of two things will happen: Either they will recommend a lower tip, or the customer is going to choose to tip less.
In the end, I don't think our bottom line is going to be any better if this happens.
How can independent contractors with Doordash, Instacart, Uber Eats, Grubhub and others protect their profits against higher has prices?
Whatever the reason, it's tough to take those higher gas bills.
There was a point in the pandemic where I could fill my car for less than $20. Now it's getting closer to $40. As much as we drive, that's a hit. We feel that hit more than any other expense on our car because the money is coming out of our pocket right then.
Episode 77 of my podcast talked about ways to save gas as a delivery contractor for Doordash, Uber Eats, Grubhub, Instacart and others. I recorded that in June when gas had gotten really cheap. That goes a bit more into detail than I'll do here, but here are some things to think about:
1. Keep things in perspective.
I averaged right around 5 miles per delivery in 2020. That's about a quarter gallon per delivery (my Equinox isn't the most fuel efficient vehicle out there).
Let's do the math here: A 60 cent increase in the cost of a gallon of gas then means 15¢ more per delivery.
Of course, those fifteen cents add up delivery after delivery. That said, it's only fifteen cents. This is not like it's wiping out everything we earn.
Here's the thing: Gas is actually just a small part of the overall cost of running your car. That 60 cent increase in the cost of a gallon? On my gas guzzler that's 3 cents a mile. Those of you driving more efficient vehicles are looking at 1 to 2 cents extra per mile.
The overall cost of operating a car usually starts at 30 cents per mile.
My point here? If you're freaked out about a 3 cent per mile increase in cost, are you paying attention to the overall cost of using your car?
2. Drive less.
How can you reduce the miles you're driving?
When the weather's good, I'm using my e-bike for deliveries almost as much as I use my car these days. That's one strategy.
Another is that I focus on areas where the deliveries are shorter and quicker. I learned awhile ago that it was well worth it to learn the best places to park downtown, because those deliveries were far more efficient.
3. Increase your price.
You can set your price as a delivery driver. As an independent contractor delivering with Doordash, Instacart, Uber Eats, Grubhub and others, you set your price by accepting and rejecting delivery offers.
If your cost is going up, sometimes you have to set your price a little higher. I use a 50 cent rule. An offer has to pay 50 cents per minute to be worth taking. So now I'm looking to make 51 cents or so. For me, I'm still going to use the same criteria but maybe lean more toward rejecting on those 50/50 offers.
Here's the thing. I've talked a lot about supply and demand. I think supply and demand is going to help us here. I think that as prices go up, enough drivers will get freaked out about the cost of gas that they'll stay home. That's going to thin the herd of drivers a little.
And that will allow us to be a little more selective.
4. Pay attention to gas saving programs.
There are a lot of ways you can save on gas. I don't know that any of them are fantastic, but every little bit helps.
Personally, I use the reward program from my grocery store more than anything. Every $100 of groceries earns us 10 cents off our next gas purchase. Some like Costco or Sams Club for the same reasons.
The following three links are referral links. Generally these programs offer a one time extra discount if you use a referral link, and I may receive a few cents off my next fill up.
GasBuddy probably has the lowest discounts of the bunch. Most of my purchases are only 2 cent per gallon discounts. That's not much.
However, those discounts are applied at my grocery store. So I get the discount on top of the points I get. That's one thing I like is that I can stack bonuses with them.
I don't use the paid program with them. They cap the extra discount so you can't get more in discount than what you pay. So what's the point?
GetUpside is a popular app among a lot of delivery drivers.
I think a lot of its popularity is because of how they market their referral program. If someone uses your referral code you get 15 cents a gallon off your next purchase.
Honestly, most times that I use GetUpside is if I get referral bonuses. My experience is that usually the “discounted” prices they show are higher than I'd pay at other gas stations.
GetUpside isn't really a discount program. It's a cash back program. You pay full price for your gas. Once they confirm the purchase, they'll add the cash back amount to your account, and you can cash out with gift cards or through Paypal.
Part of that is because there's a lot of Shell stations around. I could probably do better with their rewards program if I used them more. The Shell stations in my area tend to be a little higher priced, so it's not that often that it makes sense to buy from them.
Last thoughts on discount and loyalty programs.
I use all three that I mentioned above. Neither of them really has saved me a tremendous amount of money.
The thing to be aware of is, they can actually cost you more than you save. If you have to drive out of your way to get savings, there's a cost to that trip. Not to mention, that's time you could be spending on deliveries.
One reason I like GasBuddy is you can pull up a map of gas prices. GetUpside doesn't show as many prices and stations in my experience. Are you paying more after discount than you would at other stations?
Look at the big picture when using any of these programs.
Think of higher gas prices as a business challenge.
By that I mean, it's a challenge, not a hindrance.
I just said in that last section, to look at the big picture when evaluating any of the discount programs.
Big picture is important when you're running a business. The extra dollars you pay at the pump are a pain in the wallet, no question. But when you break them down by delivery, it's not that big.
Use this as an opportunity to hone your craft.
Honestly, I think that the higher prices can be a good thing. Two reasons:
One, it makes you more aware of the cost of doing business. Too many contractors aren't paying attention to that.
Two, this is going to weed out a lot of drivers who aren't good at math. They just think it's too expensive and quit without thinking things through. That's going to solve some of the over-saturation problem.
I really believe all four strategies I mentioned above fall under this idea of looking at this as a business challenge. Treat this like a business, respond like a business and you'll conquer the challenge of higher gas prices.