Case Study

Lyft Toledo

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The primary goal of this case study is to maximize net revenue while maintaining high match rates and minimizing churn.

Available Data:

Current Situation:

- Ride fare: $25

- Driver's pay: $19

- Lyft's take: $6

- Match rate: 60%

- Driver CAC: $400 - $600

- Driver churn rate: 5% per month

- Driver rides per month: 100

- Rider CAC: $10 - $20

- Rider requests per month: 1

- Rider churn rate: 10% (without failed match), 33% (with failed match)

Experiment Outcome:

- Reducing Lyft's take to $3 increased match rates to 93%.

High-Level Analysis:

1. Impact of Reducing Lyft's Take:

-Increase in match rate: 60% to 93%

-Reduction in rider churn due to fewer failed matches

-Potential increase in driver satisfaction and reduction in churn

2. Net Revenue Calculation:

-Original net revenue per ride: $6 (Lyft's take)

-Net revenue per ride after reducing Lyft's take: $3

3. Long-Term Revenue Impact:

-Higher match rates and lower churn rates can increase rider and driver retention, resulting in higher lifetime value (LTV) and lower ​overall Customer Acquisition Cost (CAC).

Recommendation:

Reduce Lyft's Take to $3: This will increase match rates, reduce rider churn, and potentially reduce driver churn. Although the ​immediate net revenue per ride decreases, the long-term revenue is expected to increase due to higher LTV and lower CAC.

While this proposal does not directly provide data to support the financial benefit to Lyft from the churn reduction, the reduction in ​CAC can be inferred from the increased match rates and reduced churn rates. Over time, retaining more riders and drivers can lead to ​a more stable and profitable operation as the costs of acquiring new customers decrease.

To quantify the financial benefit, Lyft would need to analyze data on the long-term value of retained riders and drivers, the cost ​savings from reduced marketing and recruitment expenses, and the overall impact on net revenue. This analysis would help determine ​the return on investment for reducing Lyft's take and the overall financial benefit to the company.

The Boring Math Stuff:

-Original Monthly Revenue (60% match rate):

• Revenue = 60 rides * $6 = $360
  

-Monthly Revenue with Increased Match Rate (93% match rate):

• Revenue = 93 rides * $3 = $279
  

-Long-Term Revenue Impact:

• Increased rider retention: Less churn means more rides over time.
  
• Increased driver retention: Lower churn reduces CAC and maintains a stable supply of drivers.
  

-Example of cost savings from reducing driver churn:

• Original churn rate: 5% hypothetically based on 50 drivers = 2.5 drivers lost per month
  
• Projected new churn rate: 2% of 50 drivers = 1 driver lost per month
  
• Reduction in churn: 2.5 - 1 = 1.5 drivers retained per month
  
• Assuming the average Customer Acquisition Cost (CAC) for a new driver is $500 (midpoint of the given range $400 - $600)
  
• Cost saving per month = 1.5 drivers * $500 = $750
  
• By reducing driver churn from 5% to 2%, Lyft could save approximately $750 per month for every 50 drivers in this scenario.
  

Conclusion:

Although Lyft's monthly revenue decreases under this proposal, reducing Lyft's take to $3 is a strategic decision prioritizing long-term ​revenue growth over short-term gains, leading to potential savings of more than the lost revenue by the reduction of CAC. Lyft can ​create a more sustainable and profitable operation in Toledo, Ohio, by focusing on increasing match rates and reducing churn.