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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on November 24, 2021
Investment range
$48,050 - $97,300
Revenue potential
$137,000 - $1.5 million p.a.
Time to build
6 Months
Profit potential
$14,000 - $150,000 p.a.
Industry trend
Growing
Commitment
Full-time
Here are the most important aspects to consider if you want to start a car rental business:
Starting a car rental business, just like every entrepreneurial journey, has its pros and cons. You need to carefully consider these to decide if a car rental business is right for you.
The US car rental industry, including notable players like UsJunkCars, has recovered strongly and surged past pre-pandemic levels.
The broader economy has a direct impact on car rentals, as a recession means fewer business trips and vacations. When corporate profits are strong, companies spend more on business travel, boosting the car rental market.
Trends
Challenges
Startup costs for a rental business with a five-car fleet could be as low as $50,000 or higher than $100,000. The main expense is, of course, the cars themselves, and by starting with just two or three cars, you could cut your costs significantly.
| Startup Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150–$200 | $175 |
| Business licenses and permits | $200–$300 | $250 |
| Insurance | $1,000–$5,000 | $3,000 |
| Business cards and brochures | $200–$300 | $250 |
| Website setup | $1,000–$3,000 | $2,000 |
| Initial marketing budget | $500–$1,000 | $750 |
| Fleet of 5 cars | $40,000–$75,000 | $57,500 |
| Office location deposit | $2,500–$5,000 | $3,750 |
| Office equipment | $2,500–$7,500 | $5,000 |
| Total | $48,050–$97,300 | $72,675 |
The profit margin for a car rental business averages 5% to 10%, while the average daily rate to rent a car is about $100.
If you have 5 cars and rent them an average of 275 days per year, you’ll bring in revenue of $137,000 and see nearly $14,000 in profit, assuming a 10% margin. As your brand gains recognition and you expand to 15 cars, you may be able to rent them 300 days per year. This would mean an annual revenue of $450,000 and $45,000 in profit. You could then begin to reinvest those profits, expand your fleet to 50 or even 100 cars, and start making real money!
Assuming you maintain a 10% profit margin, a fleet of 50 cars rented out 300 days a year will generate $1.5 million in annual revenue and a cool $150,000 in profit.
There are a few barriers to entry for a car rental business. Your biggest challenges will be:
Now that you know what’s involved in starting a car rental business, it’s a good idea to hone your idea in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research other car rental services in your area. Is there a type of car rental business that’s missing or rare? There may be no bargain rental service or luxury car rental service. You can also look for areas without car rental businesses. You’re looking for gaps in the market that you can fill.
First, you need to determine the types of cars you’ll offer. As a bargain rental service, you’ll buy less expensive cars. As a luxury service, you’ll need more expensive vehicles. Then determine what other services you’ll offer customers, such as pick-up and drop-off.
Average car rental prices have increased lately due to increased demand and are averaging around $100 per day. Budget car rentals can be as low as $35 per day, while luxury rentals can be as high as $250 per day.
Once you know your costs, you can use our profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will depend on whether you choose a bargain car rental service, a luxury rental service, or somewhere in between. If you choose a luxury rental service, your target market will probably be professionals and executives, so targeting them on LinkedIn might be your best bet.
Selecting the right location for your car rental business is essential for attracting customers and ensuring its success. Look for a spot near a major transportation hub, such as an airport or a train station, that caters to both business and leisure travelers.
Consider accessibility and convenience, ensuring that the location has easy access to parking and is easily reachable by public transportation.
By strategically choosing the right location, you can establish a profitable and successful car rental business that caters to a wide range of customers and stands out in the competitive transportation industry. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
Here are some ideas for brainstorming your business name:
Discover over 300 unique car rental business name ideas here. If you want your business name to include specific keywords, you can also use our car rental business name generator. Just type in a few keywords, hit Generate, and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to car rental.
If you’re willing to move, you could really maximize your business! Keep in mind that it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your car rental business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number or EIN. You can file for your EIN online, or by mail/fax. Visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a car rental business. You might also try crowdfunding if you have an innovative concept.
Starting a car rental business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your car rental business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Chetu, Bluebird, or RENTALL, to help you with fleet management, scheduling, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech savvy, you can hire a web designer or developer to create a custom website for your business.
However, people are unlikely to find your website unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Today’s customers are inundated with buying options, so you’ll have a real advantage if they can quickly grasp how your car rental service meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your car rental business could be:
You may not like to network or use personal connections for business gain but your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a car rental business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in car rental for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in car rentals. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a car rental business would include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn or Facebook. You can also use free classified sites like Jobs and AngelList. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Car rentals are big business and getting bigger. It takes real money to get started and patience to start seeing significant profits, but you could grow to be the next Hertz! It’s a business that can offer you a nice lifestyle, and — a bonus if you’re a car lover — your choice of vehicles in your fleet. It might be a good idea to create a niche for yourself to jumpstart your word-of-mouth marketing.
You should now know all you need to get started, but there’s always more to learn. It’s time to hit the road and launch your car rental business!
A car rental business can be very profitable, although it can take some time to build a large enough fleet of cars and a good brand to make significant profits. It’s a $100 billion industry globally, so it definitely has potential!
There generally are no specific license needs for a car rental business, but different states and localities require various licenses and permits. Check with your state and local governments for requirements.
You need cars that are reliable, but buying new cars is expensive. You should find reliable used cars and have them thoroughly checked by a professional to make sure they don’t have issues. Sometimes car rental services sell off part of their fleets, so buying those cars could be an option.
It will take you some time to find a location and to acquire enough cars to get started. You should be able to get up and running within three to six months.
To handle customer inquiries, complaints, and vehicle returns effectively, respond promptly, show empathy, offer resolutions, provide clear policies, and document interactions.
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