The cab services like Uber and Old have set a new benchmark in the market and encouraged many startups to jump into this business and hire app developers. They are also looking for ways to taste the same success with their on-demand taxi booking services and different revenue models.
According to BusinessWire, the global online taxi services market can grow from $23.42 billion in 2020 to $28.65 billion in 2021 at a compound annual growth rate (CAGR) of 22.3%.
In such exponential growth of the taxi industry, Uber has acquired the No. 1 position with a share of $11.1 billion in revenue and 93 million users worldwide.
Any idea how they are making such fantastic revenues every month? how to start a taxi business? What are their revenue models? Read this blog.
Further in this post, you’ll learn about:
- Types of users that are involved in the taxi business
- How does the taxi business work?
- Different revenue-generating models and channels
So, let’s start reading.
Table of Contents
What Types of Users Are Involved in the Taxi Business?
- Business Owners– Taxi platforms and taxi apps provide a good source of income for companies since they allow an individual or company to buy licenses to hand in taxi drivers, who pay them money in exchange.
- Customers– Taxi users are essential because they’re the ones that demand this type of service. Thus, they play a crucial role in the taxi business.
- Taxi Drivers– One essential part of a successful taxi business plan is hiring efficient taxi drivers. They make up a significant part of this industry since they’re the ones who generate revenue by transporting passengers.
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How Does the Taxi Business Work?
The taxi industry helps people get around town without the stress of owning a car. They are available 24/7 to take care of last-minute emergencies or schedules. Taxis are ordered through a mobile app in over 10,000 cities globally.
The business model for Uber has three segments: drivers, riders, and owners. Below, we will look into how each of these segments interacts with Uber’s business model.
a). How Do the Customers Use the App?
Cab users or customers use the app to get a ride at their location. They can choose their pickup location and an estimated time of arrival.
Additionally, they can also see how many drivers are in the area. When they are close to arriving at their destination, they will be notified by the app. They can also use it to track their ride.
b). How Do Drivers Use the App?
Drivers receive notifications of new ride requests through the taxi service provider’s application on their mobile device and respond accordingly. Once they accept, they will get trip details, including pick-up point, time, and destination. Once they reach the pickup point, the driver will request payment to ensure that the customer’s account is paid up to date and valid before stepping inside their vehicle.
The app also allows drivers to receive notifications of demand and pricing during high or low demand. If there is a surge in order, then drivers can expect an increase in fares. It also provides drivers with the customers’ estimated payment, arrival time, and destination to determine if they are willing to take the ride before accepting it.
Finally, the application allows drivers to receive notifications about promotions or other taxi service providers’ incentives.
c). How Does the Owner Manage the Taxi Business?
The owner manages the taxi business through the use of an application that serves as a dispatch system. The dispatcher will be assigned drivers and vehicles to ensure that there is always at least one driver per vehicle. It prevents them from having more cars than drivers to take care of them or vice versa.
All information is also stored in a database that you can access anytime. This helps with customer service because the taxi company has access to all its records and can respond accordingly to customers’ needs. It also reduces turnaround time when it comes to customer service.
What are the Revenue Models for a Successful Taxi Business Like Uber?
Taxi booking online applications and software development businesses are becoming very profitable. Several people want to use such taxi booking services as they find them more convenient and reliable than traditional transport. The revenue model of the taxi business plan is also perfect compared to other online companies like e-commerce ventures.
All the technology, infrastructure, and operations are outsourced to a third-party company that manages these apps. The revenue generated from this business is shared between the app service provider and the taxi driver who uses the services of this platform.
The models for generating revenue in this business are different, and there are various decisions about how much investment should be made when setting up the business. Though, you can also ask a mobile app development company to guide you better on this note.
So, let’s peek into the successful revenue models of the taxi business:
1. Revenue from Individuals
Under this model, individuals using a taxi booking app can book a taxi for themselves or a group of people. If a single person wants to book a vehicle, the commission is fixed as 20% instead of 10%, but if there are five or more people in the booking party, the commission is reduced from 30% to 25%.
We can also say that the more people in your booking party, the less you pay commission under this revenue model.
2. Revenue from Services
In this taxi business plan, service providers use such apps to allow customers to book cabs. This service is more suitable for business people.
The conditions remain almost similar to individual bookings, but when it comes to the commission share, the fixed rates are increased up to 25% in this case.
3. Revenue from Corporate Booking
It is a crucial revenue model for the taxi business, but it’s facing stiff competition from other ventures at present. Under this service, the company’s clients are provided dedicated vehicles with professional drivers for traveling to airports or railway stations. The rides can be booked in advance through these apps also. A fixed percentage of around 25% of the total fare is charged as commission.
4. Commission from Credit Card Payments
Most people these days use credit or debit cards for making payments, and this service provides them with the facility to pay for their rides through these means. The service provider gets a fixed amount of commission for each payment made by the user. However, the percentage is less than other models, and it varies from 15% to 20%.
5. Commission for Outstation Bookings
When people book a taxi through such apps for traveling long distances or visiting places outside their home cities, they have to pay more than the cost of a local trip fare. The service provider makes more profit from these long-distance trips, charging around 30% of the total fare as commission.
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6. Commission for Rentals & Leasing
If you want to make a living by leasing your taxi vehicle or renting it to other taxi operators, you can also use such apps to provide you with clients. The service provider will charge 10% of the total fare as a commission.
As you can see, there are various revenue models for a successful taxi business like Uber. Still, the one with an individual client is most popular because individuals are more likely to use such services than corporate clients or small-scale businesses.
Apart from these revenue models, there are other choices for this business. For instance, you can also implement a prepaid model in which the client will pay 25% of the total fare in advance, or you can also go for a postpaid plan under which users will pay the total amount once they reach their destination.
The most crucial consideration in this business is the location and availability of vehicles. These services work better in cities where people regularly use public transport or taxis. If they don’t find taxis easily, those who opt for such services will be disappointed with the experience.
7. Dynamic Pricing Model
In a dynamic pricing model, there is no limit on the size of the group, and it can be for any number of people. This variation is that booking through an app usually means better management of cab fleets, so the operation becomes more efficient, resulting in lower prices.
8. Pay Per Hour Model
The pay-per-hour model comes with a restriction on the number of hours a car is rented out. It works well for people who need cars for individual trips only. In this case, you won’t have to pay more than 20% of the total fare as commission.
9. Alternative Rides
Alternative means of transport are another revenue generation model for this industry. Under this model, booking is made for a vehicle to travel by roadways that are not common destinations like waterways, etc. The commission charged is the standard 30% of the fare in this case.
10. Ride Sharing
Ridesharing is another alternative revenue stream for individuals in the taxi business, but it doesn’t work well in all cases. For instance, if you don’t have enough clients to share the ride during peak hours, this won’t be very profitable because of low occupancy rates. The commission charged can be around 25% in this case.
11. Ride-Hailing
Ride-hailing is a revenue-generation model for taxi and ride-sharing businesses like Uber and Lyft. A mobile phone app will be used to make bookings that are then fulfilled by drivers associated with the company. The commission charged in this case varies from 25% to 35%.
What are the Different Channels Used By Cab Services To Generate Revenue?
Cab services need to understand their customer when it comes to generating revenue. The cab companies use different channels to generate income, and here are the five different methods they use to generate revenue.
1. Customer Segmentation
Every business is aware of the basic principle of marketing, which states that one should keep their target audience in mind while making any advertising or promotional campaign. It helps in creating better strategies to attract and retain customers.
This makes it easier for investors in taxi businesses to identify the behavior of different groups of users to manage their demand and supply properly. In short, this helps implement a pricing strategy suitable for each group.
Customers are categorized according to age, gender, profession/income groups, location, etc. This customer segmentation helps cab services identify what kind of services and products will be most used by different groups and ensure that their prices are proportional to each group’s income.
2. Customer Data Processing
Cab services have been using data processing to track customers’ preferences, location, and travel time. In addition to this, they also monitor the type of car a particular customer prefers. It helps cab service providers streamline their operations by improving how they prioritize requests coming from different customers.
3. Charges via Subscription/Cancellation
Cab services believe that if customers are not willing to subscribe to their service, there is no point in taking up expensive real estate on roads since they would be forced to compete with other cab services. This has led cab services to increase their subscription charges.
In addition, cab services have started implementing charges for canceling a booking after the customer has already been assigned a car. This makes it compulsory for customers to decide on whether they want to use the service or not before the cab reaches them at their place of residence.
Cab services can afford to take such steps since they have already collected a confirmation charge from customers when they book a car.
4. Surge Pricing
As mentioned earlier, customer demand and supply determine the prices that cab services charge for their service. However, this dynamic is inverted during peak hours, and cab services charge extra money to customers who want the service.
It becomes better for both the customer and the cab service since they are not losing any money but still charging extra from those who need it more. Additionally, it helps drivers stick to their schedule and not go off-duty during peak hours, ensuring that customers are charged with less waiting costs.
5. Advertising & Promotional Collaboration
Cab services have been using promotional collaboration like promo codes, discounts, and offers to increase their reach and attract more customers. In addition to this, cab companies also use advertising as a tool to promote their brand.
To make these collaborations successful, cab service providers should consider factors like location, pricing strategy, customer segmentation, etc., before finalizing a partnership with another firm.
Summing Up!
The taxi business is a great option for business owners and investors. The scope is even more enjoyable if you have unique ideas about new models. You need to hire a software development company in India and a proper marketing strategy to attract customers worldwide.
The future of the taxi business depends on how efficient you are in implementing these revenue models because it is pretty similar to the software industry. So, if you find yourself competent and hold the required expertise, then the taxi booking apps business is definitely for you.
Good Luck!
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FAQs
Q. What is the Successful Revenue Model of Taxi Business with On-Demand Online Taxi Booking Apps?
A. The successful revenue model of taxi businesses with on-demand online taxi booking apps is that some apps provide you the facility to book a cab anytime. Whether you require it during the day or night, just book it. It is beneficial for those who are always in need of taxi services. However, they don’t want to wait at any time.
Q. When did the taxi app business start?
A. On-demand online taxi booking apps started at the beginning of the new century. They provide their clients with comfort and convenience to avail themselves of any time service on short notice.
Q. What are the requirements to use On-Demand Online Taxi Booking Apps?
A. The requirements of on-demand online taxi booking apps are pretty simple. You require a smartphone with an internet connection which you can quickly get these days anyway.
Q. Why is the taxi business successful?
A. On-demand online taxi booking apps provide their users with excellent service because they are reliable and don’t have to think about where the next taxi will come from. You can book your ride without any hesitation or worry that your cab isn’t going to arrive at the expected time.
Q. How much does it cost to develop a taxi app?
A. Taxi app development costs can vary depending on what features the app will need and the programming language it is being developed with. An Android taxi app’s average cost starts at $10,000, or $5 per developer hour with a 2-hour minimum charge. Of course, as complexity and level of service increase, so does the cost.
Assuming that you’re looking to develop just an Android taxi booking app, then here’s what we would suggest:
Breakdown
Total Estimate – $12,000* *Depending on features included in your initial estimate. Price includes 3 months of updates and supports with a lifetime 24/7 support agreement and “No Updates No Life” policy.
Q. How do the taxi owners make money?
A. These apps make money because they provide their clients with excellent services anytime and anywhere. They also use advertisements to introduce themselves as a reliable source of taxi booking so that people feel comfortable and start using them.
