How does Lyft make money?

While similar to Uber, Lyft is a totally different animal

The Lyft/Uber competition is heating up. Just one month after Lyft raised a $250 million round of funding that puts its total just above Uber’s, Uber is now reportedly raising a round of funding at a $10 billion valuation. That’s after Uber urged Lyft drivers to “shave the ‘stache” and come drive for Uber. And earlier this month, Uber offered $500 to any driver of a rival car-sharing service to come try out UberX.

Lyft is much smaller than Uber, but it’s reportedly growing at a much faster rate. But how does it make money?

Lyft has a pretty interesting business model. In most of the markets in which it operates, it runs on “donations.” As in, payment optional. Nevertheless, Lyft drivers are guaranteed $15 an hour (in Los Angeles, at least), and can make as much as $35 or $40 an hour. Lyft takes a 20% cut of each transaction, leaving the other 80% to the driver.

From its humble days as Zimride (one of the very first companies I covered for VatorNews! Aw!), Lyft now operates in 60 U.S. cities—24 of which were added in a single day last month. All told, it now operates in 100 cities worldwide.

While the company hasn’t released hard numbers in terms of revenue, it did reveal last December that it’s growing at a rate of 6% per week. That adds up to 20x growth over the course of a year. By comparison, Uber—which was generating $20 million a week in revenue as of December 2013—was growing at a rate of 2.5% per week during the same time period.

And the company is expanding its product line. Last week, Lyft revealed its new premium service, Lyft Plus. The company partnered with West Coast Customers to design specialty Ford Explorers that come with custom interior leather, an illuminated entrance with custom under-car LED lights, Spotify Premium, ports to recharge your devices, and even a custom grille featuring a brushed steel mustache.

The new line will definitely help Lyft compete more effectively with Uber, which has cornered the high-end market but has been taking aggressive measures to crush smaller competitors in the low-end market.

The next market Lyft will need to jump on is families. Last week, Uber launched its premium family service for customers traveling with young children. It costs an additional $10 on top of the regular fare, but comes with a pre-installed child car seat.