How Do Taxicab Companies Make Money?

How Do Taxicab Companies Make Money?
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While many taxicab companies make money by splitting fares with their drivers, others generate income by leasing their vehicles to the drivers, whose earnings are based on how many fares they get. Either business model can be lucrative to the savvy owner, but the best model for a company depends on the size of the fleet and how involved the owner wants to be.

Leasing Out Cabs

Many taxicab companies lease their vehicles to drivers by the day or the week, and it's up to the driver to meet his expenses and make a living. Cab leases can go for more than $500 per week, and the driver keeps his vehicle full time. This means the company has little direct interest in how much business the driver turns over, but if it has many drivers making good money, it stands to collect more money in lease fees.

Under a lease system, the driver pays for the gas, while the company pays for any repairs. The lease agreement is more common with larger taxi companies and can be lucrative if the company has more than 100 vehicles. Even if the driver owns his car, the company may still charge a "terminal fee" to cover insurance and dispatching.

Splitting the Fares

Some taxi companies split fares with the driver, giving the company an interest in how much business is dispatched. A ratio of 50 or 60 percent to the company is common, and either the company or the driver pays for gas. This arrangement is more attractive to smaller companies, and a cab can stay on the road for several shifts in a day to generate more income per vehicle.

Which Is Better

Companies that live by the split can sometimes make more money per vehicle, but management has to be more involved in day-to-day operations. Taxi companies that run on a lease arrangement make their money on how many vehicles are being used -- in effect turning them into car rental companies that provide dispatch services.

Taxi Company Expenses

Successful taxi companies own their vehicles outright, usually buying them used. Auto auctions are a favorite source for taxicabs, and the cars are usually retired police cars. Liability insurance is the big expense for companies, and the cost is figured into the lease or split. Other expenses, such as maintaining an office and dispatch system, are also figured into what the company collects from the driver.

Relationship With Drivers

With few exceptions, taxi drivers work as independent contractors. The company cannot really dictate how or when a driver works, but this arrangement gives a driver a greater stake in how she performs. A lease agreement puts most of the business squarely in the driver's hands; she often holds her own business license and pays for her own city and county permits. Many lease drivers rely as much on personal leads and their own regular customers for business as they do the company dispatcher.