How to Start a Car Rental Business?
By
Avantika Shergil
|
Feb 20, 2024 |
Automotive Business Strategy Startups
The car rental industry is a lucrative one with the top five companies in the USA having around $35 billion market capital. Although a car rental business demands a lot of planning, legal paperwork, inventory and hard work, it has a decent payoff. With diminishing parking spaces and a high cost of owning a car more people now prefer to rent a car instead of owning it.
Many entrepreneurs want to get a share of the car rental pie but don’t know where to start. If you are one of those entrepreneurs, this blog will give you the basic steps you need to take to start an automotive rental business. We will also show you how a mobile app can boost the success prospects of your vehicle rental business.
Table of Contents
Why Start a Car Rental Business?
The global car rental market is poised for explosive growth in the coming years. The market size for the car rental business was estimated to be around $102.29 billion in 2023 and is expected to reach $176.17 billion by the end of 2028. The rising costs of owning a car, the millennial and Gen Z priority to rent something instead of owning it, and the cost-effective online model of leasing a car are the factors that will drive the growth of the car rental industry in the future.
Getting into the car rental industry is not easy, but with a proper plan you too can start a successful car rental business. Let’s start with the process of opening a car rental business.
How to Start a Car Rental Business?
To ensure the success of your car rental startup, you need a robust car rental business strategy. A good amount of research and market analysis is required to ensure that you don’t burn cash in your car rental agency.
Here are some steps you can take to start a car rental business:
Building a Business Plan
A business plan lays a foundation for your car rental business that helps you map out a core business idea, pros and cons, and competition analysis, which is presented to investors or potential partners to better comprehend the business vision and mission. Before starting a car rental business, the business needs to do in-depth research and analysis to come up with the right facts.
The car rental business plan includes everything from the type of car rental business to the type of product/services offered to car rental charges and expected ROI. The outline of the marketing plan and future upgrades are also mentioned in brief. This roadmap helps businesses to stick to their vision without losing track during the launch of a startup. In a nutshell, the car rental business plan summarizes the following points-
- Business Overview
- Product/services
- Market analysis
- Competition analysis
- Sales and marketing strategies
- Financial plans
- Operational plan
Decide the business model
Before you start your automotive rental business, you need to be clear about the type of car rental business that you want to start. You might want to work with a car dealership, build your own brand or choose the franchise model.
Let’s take a closer look at some of the car rental business ideas.
Finances
How to start a car rental business without getting the necessary funds? Starting a car rental business demands sky-high investment to buy a fleet of vehicles and related expenses. It makes it essential to raise capital for business. There are many ways to raise funds such as getting bank loans with a good business plan and high credit score, opting for SBA-guaranteed loans, receiving funds from government grants, raining venture capital by providing an ownership stake, crowdfunding, and reaching out to family or friends to provide funds.
Of all of the options, bank loan and SBA loan options are the best to consider for financing a fleet of vehicles or office equipment.
Franchise
With a franchise model, you get the added support of a well-known and successful brand name and the guidance to launch and grow your business.
automobile rental businesses like Thrifty and Hertz provide franchise opportunities to budding entrepreneurs.
The major drawback of going for a franchise business model is that you will lose some autonomy over your business and will need to face some higher costs.
Dealership
Another option to set up your car rental business is you could set up an agreement with a car dealership to offer car rentals to the dealership’s customers. In most cases, your customers would be people who come for repairs in the car dealerships and want a car for a short time till their car gets repaired. The benefit of going with a dealership is that you can start your business with a lower initial cost as you won’t need to own a large fleet of cars to start the business. The drawback is that you will have a limited pool of customers.
Independent small business
Having your own automobile rental business is another option that you can take. The major advantage of having your own car rental business is that you can make decisions independently. The disadvantage is that you will have to spend a considerable amount of money and time on building your brand in the independent vehicle rental business model.
Determine your target audience
Targeting the wrong and right customers can be the difference between a failed and a successful startup respectively. This is why customer segmentation is an important part of your car rental business strategy. The same holds true for a car rental business also. You would have done hard work to acquire precious startup funding for your company of car rental and you do not want to waste precious funds on marketing to customers who are not interested in renting a car.
Your target audience could be
- Tourists
- Business travelers
- Customers of mechanics or car dealerships
- Long-term rentals for people moving into the city
To determine your target audience, have a look at your location and assess the needs of the local population. If the place where you want to start your car rental business is a tourist hot spot, then you need to provide cars that cater to the requirements of the tourists. The type of cars you offer will depend on the taste of the customers. For instance, a luxury car rental business has proven to be a good idea in places like southern France and the Bahamas.
Register car rental business
Once you have finished the internal process and are clear about the kind of car rental agency that you want to build, then the next step would be to finish the legal paperwork. The paperwork includes choosing the type of business entity and registering it with the concerned authorities.
Common types of business entities include sole proprietorships, LLCs, corporations, and partnerships.
While a sole proprietorship is an entity with the least paperwork, this is likely not the best choice for an automotive rental business. This is because you will be risking your personal assets to any legal action taken against your car rental business. A corporation or an LLC can prove to be a better choice as it separates your business and personal assets.
Have a look at the pros and cons of each type of business entity before you make the decision.
You will need to acquire the appropriate licenses and permits from the concerned authorities. Consulting with a business attorney might be a good idea to ensure that you have the proper licenses to operate a car rental startup because every state or city has unique local licensing and permits requirements for a car rental business. don’t overlook it at any cost as it may result in heavy legal penalties or business shutdown.
Acquire cars for your business
If you have access to funds, then you can consider purchasing cars. You could either go to purchase new cars or start with second-hand cars. An important part of the car buying process is to select the type of vehicle. The choice of car would depend on factors such as the location of your business, the type of customers you would be serving and the cost of cars.
The business with deep pockets can opt for IOT-based connected cars that help car rental businesses reap the advantages of advanced navigation, high safety, entertainment services, and reduced costs.
Another way to build a fleet of cars without actually owning them is to build an on-demand car rental platform. In the on-demand model, you would act as a connecting point between the people who want to rent out their cars and the people who want to get cars on rent. Zipcar and Sixt are examples of such on-demand car rental businesses.
Prepare a rental contract.
A rental contract is a contract between the rental car company and the customer who rents the car. The contract covers liabilities in case of an accident and an explanation of who is responsible for what. Consult a legal professional to ensure that your rental contract protects the rights of your business as well as that of your customers.
Ensure digital presence
Establish an online presence for your auto rental business to ensure that customers can find your business easily. There are a few ways in which you can build your online presence.
- Build a website
- Build a mobile app
- Create business social media pages
By being active online, you will build a brand as well as attract new customers. You cannot expect to have much business if nobody knows about your company.
Fleet insurance
Contact an insurance company to get insurance coverage for your cars as well as the physical spaces from where your business operates. There is no such specific amount set for fleet insurance, it totally relies on insurers. It helps car rental businesses easily recover from financial losses due to natural disasters, accidents, and others.
There are different types of insurance policies designed for distinct businesses based on their offerings and associated risks. When as a startup, you are unsure of the risk that businesses may have, general liability insurance is the best to opt for.
Build Your Team
Despite building a car rental app for your business, you need a team of professionals that help you set up and run the business smoothly. From customer service reps and accountants to mechanics and marketing leads are required to execute the business operations. Starting from the home office won’t require hiring employees but as the business grows, workers with different roles are needed.
Before hiring employees, you should be clear with the number of employees you need for specific roles and perform duties. Don’t forget the associated employment contract and workers’ compensation.
Time to Start a Rental Car Business
When you are just starting a car rental business, the process can seem cumbersome. But with some patience and attention to detail, you can open a car rental business. build a thriving car rental business. A car rental mobile app can help you in your endeavor. Having a car rental app for your car rental startup would not only help you streamline your business it would also boost your chances of success. Contact the top automotive app development companies to build a robust car rental app for your business.
Frequently Asked Questions About Start a Car Rental Business
Are car rental franchises profitable?
Building a car rental business is an expensive endeavor but when the business succeeds to make a brand, then the rental franchise becomes profitable. The billion-dollar industry has great potential to make bundles.
How long does it take to start a car rental business?
Car rental business setting up involves finding a location to the fleet of vehicles acquisition that takes time from 3 to 6 months.
How does the car rental business work?
Car rental businesses when having a license and permit to rent cars against a specific sum of amount for a pre-defined time, they allow customers to pick up and drop off the cars from the physical branches.
How can I develop a car rental app?
You need to get ready with a business plan summarizing the car rental business idea and its features, then partner with a reliable app development company to get build the high-performant car rental app.
The car rental industry is a lucrative one with the top five companies in the USA having around $35 billion market capital. Although a car rental business demands a lot of planning, legal paperwork, inventory and hard work, it has a decent payoff. With diminishing parking spaces and a high cost of owning a car more people now prefer to rent a car instead of owning it.
What are the ongoing expenses for a car rental business?
Once you start the vehicle rental business, you must account for certain ongoing expenses required to run the business. The ongoing expenses will include:
- The salaries of the employees.
- The maintenance costs of the cars.
- Marketing expenses.
- Rent of the office space and parking lot.
The following is a ball-park range of the expenses, remember that the expenses will vary depending on your location and the size of your fleet.
Salary expenses: $8- $25 per hour, depending on the type of employee.
Utilities: High-speed internet and server costs, maintenance of automobiles, and office expenses like cleaning and electricity will add up to $25,000-$35,000
Marketing costs: Although there is no upper limit for marketing your vehicle rental business, you must allocate at least $500-700 per month.
To avoid hiccups, ensure that you always have enough working capital on hand to run your business.
What will be the revenue model for your car rental business model?
The primary source of revenue for your business would be from car rentals, the money you get by renting out the vehicles to those who need it for a short period. Another source of revenue can be the ad revenues that you get from your website and app. You could also tie up with people related to the automotive industry or travel and hospitality industry for cross-selling products. For instance, a local hotel can tie up with your car rental business to put ads on the website or app and even in rented cars.
How to ensure repeat business?
Like any business, the success of your vehicle rental business will depend a lot on how much repeat business you can generate. To generate repeat business, the quality of your mobile app and website matters a lot. Make the car reservation process easy and keep in touch with customers who have rented your cars once. Under car rental marketing strategy, you should gather data regarding the customers and gain rich insights to preempt sales.
Business travelers, for instance, will make monthly or quarterly visits to a place, and will give you repeat business if they like your service. Offer a wide range of vehicles to the customers. Ideally, your fleet should consist of the right mix of luxury and economy cars. You should even try to include a healthy mix of compact cars, SUVs, and sedans to cater to the needs of a wide variety of customers. Finally, ensure that your vehicles are always clean and in good condition.
Avantika Shergil
| Feb 20, 2024
An enthusiastic Operations Manager at TopDevelopers.co, coordinating and managing the technical and functional areas. She is an adventure lover, passionate traveler, an admirer of nature, who believes that a cup of coffee is the prime source to feel rejuvenated. Researching and writing about technology keeps her boosted and enhances her professional journeying.
