The 144 Million Dollar Button

Your math for the $144 million button makes for a good headline, but seems a bit dodgey. Plus, why is this article linked to instead of the New York Times article it references with actual information?<p>WHEN TIP WAS 10%: BASE REVENUE = 82,497 TIP REVENUE = 8,250 TOTAL REVENUE = 90,747<p>TIP UP TO 22%, ASSUMING SAME BASE REVENUE BASE REVENUE = 82,497 TIP REVENUE = 18,149 TOTAL REVENUE = 100,646<p>TIP REVENUE INCREASE = 9,899<p>CREDIT CARD FEE AT 1% = 1,006 2% = 2,012 3% = 3,018 4% = 4,024 5% = 5,030<p>13,267 CABS<p>LETS ASSUME THAT EVERY FARE WERE PAID WITH CC.<p>ASSUME 5% CC FEE, BECAUSE THE NEW YORK TIMES ARTICLE SAYS "higher tips are tempered by a 5 percent service fee applied to fares that are paid with plastic," TOTAL REVENUE, LESS CREDIT CARDS = 95,616<p>TOTAL TIP INCREASE = ~131.3 MILLION TOTAL CC FEES = ~66.7 MILLION<p>TOTAL INCREASE FOR CABS, LESS CC FEES = ~64.4 MILLION<p>Now, since the credit card tips are going to have to be fully declared for tax purposes, since they will come back to cab drivers in paychecks and with 5% of the TOTAL FARE taken out, I would actually guess cab drivers are seeing LESS MONEY than they were before the credit card machines were installed. I would bet that the 10% tip average pre-card machine is actually low based on undeclared cash tips, and having tax taken on a full 22% will drop the net significantly. When factoring in credit card fees and taxes, cab drivers are probably making less on this deal. But hey, at least Visa and MasterCard must be psyched.<p>NYT: Told of the statistics that showed higher tips, some drivers scoffed. “I know that’s not true,” said William Lindauer, a driver and coordinating member of the New York Taxi Workers Alliance. “They get no tips, or less tips.”

Not being from the States I really don't like tipping, I guess at least with this system it gets rid of the variables, like is tipping expected? How much is acceptable? etc.<p>To me, tipping is just a sign that a business isn't charging enough for the service.

The figures are based on the tips that were reported by drivers. Drivers have an incentive to under-report cash tips (income that's not reported can't be taxed), but not credit-card tips (which can easily be audited).<p>It's possible that drivers aren't earning more, they're just reporting more.

I always wonder why they just don't build this tip amount into the price, factoring in a decent wage for the driver. These kind of things seems similar to having the cheapest price for something online but making up for it with inflated shipping charges.

Charities achieve the same effect with their donation tiers -- people very often donate the minimum for a particular tier. Looking at the FreeBSD Foundation donors page, they've received $148,968 so far this year, and adding up the "minimum donation to be listed in this tier" numbers gets you up to about $144,000.<p>For that matter, I did the same thing -- Tarsnap was towards the top of the 1000-4999 $ range from its December 2011 donation (which due to accounting and postal delays counted as a 2012 donation) and yesterday I said "screw this, let's hit the magic number" and wrote them a check for the remaining amount I needed to be in the $5k+ tier instead.<p>I've seen multiple charitable organizations engage in lengthy debates about whether they should add an $X tier and hope that people below that level will bump up their donations or whether they'd lose too much from people who were currently donating more than $X instead reducing their donation down to $X.

The lesson here is that default settings are very important and you should spend some thought on them.

Why the increase? Thoughts:<p>1) Easier and quicker to push options (20/30/40%) than key in lower amount.<p>2) Pre set options may lead to mistakes.<p>3) Customer doesn't want to embarrass themselves by entering an anoint so just pushes a button.<p>4) The average fare and average cash in hand leads to per tips versus card payment. Eg Avg fare $9 and most payments with a $10 note.<p>5) Customers willing to tip higher due to preference towards card payments.<p>6) Peak in typing due to early adopters using technology.

I wonder if they've ever AB tested, somehow doubt it.<p>Would tips go up if the buttons were changed from 20/25/30 to 25/30/35, or would people type in their own amount more, or pay no tip more? What about if there was only one suggested tip rate, 25%? Or a slider you could drag from X to Y? Or...

If you're forced to pay a minimum 20% "tip", it's not a tip.

Technically, three buttons.

This number is revenue, but don't forget about cost. Cab drivers only started incurring credit card fees when the city made them start taking cards. I tip more when I use my card than when I pay by cash to help the driver offset the few-dollar fees. It's not a very high-margin business.

You can also enter your tip manually - which I do often - so the 20%/25%/30% buttons themselves necessarily don't account for <i>all</i> of the change in tipping patterns.