How to Start a Successful Car Rental Business [Updated 2021]

How to Start a Successful Car Rental Business

how to start a vehicle rental business
On This Page:

 

This article will cover how to start a car rental business, including information on how to get started, what are the costs, why people should start this type of company and anything else you might need in order to get started on your own vehicle rental business.

How to Start a Car Rental Business

So you’ve decided to take the plunge and start a car rental business? Great! Car rental businesses can be very profitable, but they do require an investment of money and time. If you’re ready to get started then just follow these simple steps:

  1. Write a Rental Car Business Plan
  2. Your first step will be to sit down, do market research, and write out a business plan. A business plan is essentially your road map to starting a car rental company and how you intend to achieve success. It should include information on what you’re going to do, how you’re going to do it, and how much all of it is going to cost.

  3. Find a Location
  4. Rental car businesses need supply (i.e. cars) and demand (i.e. customers). To find a location, go to an area with high foot traffic and high car demand such as airports, hotels, and train stations.

  5. Purchase Cars
  6. Develop relationships with local car dealerships that allow you to purchase cars at wholesale prices rather than rent the vehicles at a higher rate. If you have a car, keep track of all the money you spend on gas and maintenance so that you can pass those costs onto your customers.

  7. Purchase Business Insurance
  8. Vehicle rental businesses require special insurance for both the cars and employees. There is specific coverage needed to rent vehicles to third parties as well as standard insurance that is required by law due to the inherent risk associated with car rentals.

  9. Find Employees
  10. Vehicle rental companies need employees to rent the cars and ensure that all of the company’s policies are followed (e.g. collecting damage deposits, keeping accurate records). You can find potential employees by placing job postings on employment websites or in classified ads.

  11. Market Your Business

Now that you have a location, cars, insurance, and some employees you’re ready to market your new business! Use social media sites like Facebook to promote your fleet of vehicles while also reaching out to local community groups who might benefit from renting one on special occasions (e.g. proms or weddings).

By following these simple steps you will be well on your way to starting a rental car company.

How Big is the Car Rental Industry?

The worldwide vehicle rental market was worth $92.92 billion in 2019. Between 2020 and 2027, the industry is expected to grow with a CAGR of 10.7% and is expected to reach $214.04 billion by 2027.

 

What are the Key Segments of the Car Rental Business Industry?

The car rental business has two main segments: retail and corporate. Retail rents allow individuals to rent vehicles for short periods and there is usually customer service and pick-up available at the location. Corporate rentals are used by companies to transport employees or clients between meeting locations or other businesses.

 

What External Factors Affect the Car Rental Industry?

Many businesses are affected by changes in the economy, but car rentals are particularly sensitive because there are many factors involved. 

For instance, if gas prices go up then more people will rent cars since it is cheaper than owning a vehicle or using public transportation. 

On the other hand, if disposable incomes increase then consumers may purchase their own cars rather than renting them. 

Finally, an economic downturn can reduce demand for rental vehicles as people have less money to spend on non-essentials.

 

Who are the Key Competitors in the Car Rental Market?

The major competitors within the car rental market are:

  • Enterprise Holdings – Ranked as the number one car rental company in North America with over 7500 locations and $20 billion in revenue
  • Hertz Corporation – Another rental giant worth around $10 billion dollars
  • Avis Budget Group Inc. – A slightly smaller competitor that generated over $5 billion in sales last year

 

What are the Key Customer Segments in the Car Rental Market?

The key customer segments in the car rental market are:

  • Leisure Travelers – People looking to rent cars for their vacations.
  • Business Travelers – Companies that need vehicles to transport employees between meetings, etc.
  • Families on Long Road Trips – Rentals are often very expensive so it’s important to find these customers and offer them competitive rates.

 

What are the Typical Startup Costs for a New Car Rental Business?

The startup costs for a car rental business will vary depending on the type of vehicle you rent out, the number of vehicles in your fleet, along with how many people you employ. 

However, if your goal is to rent affordable economy cars then you can get started with as little as $50,000. If your aim is to start an enterprise level company with luxury vehicles and multiple locations throughout the country, this could be closer to $500,000.

If you’d like to quickly and easily complete your Car Rental business plan, download Growthink’s Ultimate Car Rental Business Plan Template and complete your business plan and financial model in hours.

What are the Key Costs to Launching a Car Rental Business?

The key costs to launching a successful rental car business will vary depending on the type of services you plan on offering and how many employees you hire. As such, it’s difficult to pinpoint an exact figure but there are some startup costs that may be necessary:

  • Vehicle Lease and Maintenance Costs – the costs of purchasing/leasing vehicles and maintaining them.
  • Employee Wages – If your goal is to offer luxury vehicles and/or 24/7 customer service, then you’ll likely need more people working for your company.
  • Location Expenses – While some entrepreneurs prefer renting out cars from their home, most companies require a commercial space with signage to attract customers.
  • Marketing Campaigns – In order for customers to know about your existing car rental business, it’s important to invest in promotional materials, targeted advertising efforts, and digital marketing efforts through search engine optimization.
  • Fleet Insurance – If you plan on renting out cars or operating a location with high traffic, it’s necessary to protect your car rental business against unpredictable incidents and accidents.

digital marketing for car rental business

How Much Do Car Rental Business Owners Make?

The amount that rental car owners make will vary depending on the services they offer, location of their store, and how many employees work for them. As such, most car rentals businesses are able to generate between $50,000 to $100,000 in profit annually during the first few years. After establishing your business, you may be able to reach about $150,000. However, if you choose to rent luxury vehicles or operate multiple locations then these profits can increase exponentially.

 

What are the Keys to Launching a New Car Rental Business?

There are many ways in which entrepreneurs can start their own car rental companies. As such, it’s important to thoroughly research your market and plan accordingly . Deciding where to set up shop, how much budget is necessary for advertising, what leasing contracts need to be signed, whether you need employees – all of these factors will affect how quickly your business starts generating revenue.

Make sure you have a solid car rental business plan in place so that if any problems do arise they can be solved proactively instead of reactively . This way consumers remain happy with the services they receive while also giving entrepreneurs peace of mind knowing that their company has an effective structure in place should anything unexpected come up.
 

How to Finish Your Car Rental Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Car Rental Business Plan Template you can finish your plan in just 8 hours or less!

Click here to finish your Car Rental business plan today.

 

How to Start a Car Rental Business FAQs

It is estimated that car rental companies make about $18 billion in revenue each year. The profit margins are about 6% for most car rental businesses, but if you find the right location and negotiate well with fleet insurance companies and credit card processing services then your profit margin can be much higher (similar to how Uber works).

There are multiple ways or business models in which a car rental business can generate revenue. As an entrepreneur, you'll need to decide what type of services your business is going to offer so that consumers have a clear idea of how much it'll cost them

  • Hourly Rentals - This type of rental car business allows customers to rent cars for specific periods of time rather than on a monthly basis. These cars will be rented out at an agreed upon price per hour with most companies also charging excess mileage costs.
  • Daily Rentals - This rental car service allows the owner to set their own rates for each rental contract or they can follow standard industry prices/models. Since most people frequently rent out vehicles for a span of one full day, these costs tend to remain consistent from one company to the next.
  • Weekly Rentals - Those who choose this type of rental business need to provide their customers with a list of prices and options that will be charged during transactions . Majority of car rental companies offer this service as it allows consumers to pay one flat fee for a full week's use rather than paying separate charges per day or hour
  • Monthly / Long-Term Rentals - since most consumers only need an automobile for up to 30 days, entrepreneurs in this field can charge more money for longer leases. However, many companies also provide "monthly" plans which usually include unlimited mileage and other perks such as complimentary insurance premiums or free pick-up and drop offs at airports.

Getting access to car rental company financing is one of the biggest challenges entrepreneurs face when they start their businesses. In order to get the funds needed for your initial fleet of cars, you'll need to start by taking a close look at your financial situation. Unfortunately, it can be very difficult to get approved for a business loans if your credit score isn't high enough, but here are a couple of other options:

  • Business auto loan from a bank
  • Cash advance from credit card
  • Personal loan from a bank
  • Loan from family or friends

Other costs you should be aware of when starting your own car rental business include:

  • Product Liability Insurance - Leasing luxury cars comes with risks so entrepreneurs need to protect themselves against lawsuits or accidents that customers may file against the company.
  • Customer Billing & Merchant Expenses - Unlike traditional companies that bill customers at the end of every month, in the car rental industry, you need to individually track when customers rent out cars and submit invoices for services rendered.
  • Monthly Vehicle Costs - Starting this type of business usually begins with a few vehicles, so it's important to consider how much it'll cost to maintain these cars on a regular basis. In addition, if you plan on renting out luxury vehicles then consumers may expect businesses to provide complimentary floor mats or car washes during each transaction. Over time, these small expenses can add up without adding additional revenue.
  • Fleet Insurance Premiums - Many leasing companies charge extra fees in order for business owners to use their car fleet so it's important that you factor these prices into your monthly or semi-annual expenses.

When deciding where to open your car rental franchise or company it's important to find a business location that meets the needs of your target market. 

For instance, if you're focusing on tourists who are looking for vacation rentals, then it may make sense to locate near popular attractions or hotels. Alternatively, if you want to target business professionals then it's a good idea to open near airports or office buildings.

One of the best ways to market your car rental business is by providing excellent customer service. If you have a high quality fleet along with a network of local pickup and dropoff locations, potential customers will be drawn to you rather than looking elsewhere. 

In addition, it's important to constantly promote your brand and business model so people become familiar with your name and feel more inclined to use your services.

Marketing is an essential part of running any type of company, but especially one that requires a fleet of vehicles. In order for your business to be successful you need to have a strong marketing plan in place before you start, as well as an ongoing plan that continues to attract new customers and retain customers that are happy with your services.

  • Offer promotional rates 
  • Promote the business via social media platforms 
  • Invest in search engine optimization (SEO) 
  • Partner with complementary businesses 
  • Utilize online reviews to your advantage 
  • Add quality photos of the car on your site or app 
  • Build a customer loyalty program with discounts and freebies included

There are many reasons why starting a car rental business can be beneficial:

  • Low overhead; you don't need to purchase your own stock of cars allowing you to focus on selling rentals
  • High demand; there's always going to be somebody who wants or needs a vehicle
  • Quick setup time; it only takes about 3 months for most businesses to get off the ground
  • Potential to grow; many car rental businesses start small and then gradually expand their fleet as demand increases.

When determining what type of car rental company you want to start there are a number of things to consider such as:

  • Do you want to offer an hourly, daily, weekly, or monthly rate?
  • How many cars do you need?
  • Where do your customers live?
  • How will you market your business? 

The best way to answer these questions is by speaking with potential customers (e.g. local community groups, corporate clients) and finding out what they need.

 

Helpful Videos

Rental Car Business ( How Much Does it Cost to Open )

 

How To Start An Exotic Rental Company

 

The DONT’S of the Rental Car Business

 

Additional Resources

Auto Rental Resource Center

American Car Rental Association

 

Other Helpful Business Plan Articles & Templates