Back to Business Ideas

How to Start a Car Rental Business

Updated on June 21, 2022

How to Start a Car Rental Business

How to Start a Car Rental Business

People are always going to travel, and many will need a vehicle while on the road, which means a car rental business has steady demand and can be a lucrative entrepreneurial venture. It’s a large and growing industry, and if you’re able to capture just a tiny sliver of the $100 billion global market you’ll do just fine.

But of course, you’ll have to work hard and be patient. It’s crucial that you arm yourself with the relevant knowledge, as detailed in this step-by-step guide, before you set out on the road to car rental business success!

Fast Facts

Investment range

$48,050 - $97,300

Time to build

6 Months

Industry trend

Growing

Revenue potential

$137,500 - $450,000 p.a.

Profit potential

$13,750 - $45,000 p.a.

Commitment

Full-time

Step 1: Decide if the Business Is Right for You

Pros and Cons Balance. Chalkboard on wooden office desk

Pros and Cons

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.

Pros

  • High Demand – Steady demand from travelers and people getting car repairs
  • Profitable – Sizable fleet can mean big money
  • Simplicity – People pay to use your cars

Cons

  • Startup Costs – A fleet of cars is a huge up-front expense
  • Maintenance – Need to keep your fleet road-ready
  • Damage – Accidents happen

Industry trends

Market research firm IBISWorld values the U.S. car rental industry at nearly $45 billion due to steady growth over the past decade, apart from the pandemic economy of 2020.[1]https://www.ibisworld.com/industry-statistics/market-size/car-rental-united-states/ Research firm Fortune Business Insights expects the global car rental market to grow more than 150% by 2027, hitting $144 billion overall.[2]https://www.fortunebusinessinsights.com/car-rental-market-105117

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.

How much does it cost to start a car rental business?

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.

Start-up CostsBallpark RangeAverage
Setting up a business name and corportation$150 - $200$175
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

How much can you earn from a car rental business?

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 $137,500 and see $13,750 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 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!

Once you know your expenses and prices you can use the Step By Step profit margin calculator to project your actual profits.

What barriers to entry are there?

There are a few barriers to entry for a car rental business. Your biggest challenges will be:

  • Startup Costs – Cars are expensive; you’ll have a large up-front cost
  • Competition – It’s a competitive market, takes time and $$ to build a brand

Step 2: Hone Your Idea

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.

Why? Identify an opportunity

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 that have no car rental business. You’re looking for gaps in the market that you can fill.

What? Determine your products or services

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.

How much should you charge for car rentals?

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.

Who? Identify your target 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.

Where? Choose your business premises

In the early stages, you may want to operate your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers and may also need to rent out an office. Find commercial space to rent in your area on Loopnet, Craigslist, Crexi, and Commercial Cafe.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should You Start a Car Rental Business

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “car rental”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator

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 at a web cataloging site such as NameChk. 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. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your car rental services in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.

Step 5: Register Your Business

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!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states offer real advantages when it comes to car rental services.

If you’re willing to move, you could really maximize your business!

Choose your business structure

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 four main options:

  • Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner: you get to keep all the profits, but you’re personally liable for all debts.
  • Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses.
  • Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.

We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.

Business structure comparison infographic

Step 6: Register for Taxes

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 or 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.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.

Step 8: Apply for Licenses/Permits

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, health license and permit 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 licenses 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.

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.

For peace of mind and to save time, 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 you to make sure you’re fully compliant.

Step 9: Open a Business Bank Account

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.

Step 10: Get Business Insurance

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:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

Hand writing on a checklist document for daily planning

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, 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.

You can create your own website using services like WordPress, Webflow, or Squarespace. 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.

Essential software and tools

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. For starters, it’s a good idea to use industry-specific software such as Chetu, Bluebird, or Navotar to help you with fleet management, scheduling, and payments.

Marketing

Some of your business will come from the casual passerby or online visitors, but still you should invest in marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, make sure you link to your social media accounts and vice versa. Social media is a particularly good way of promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Step 12: Build Your Team

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:

  • Customer Service – greet customers, make reservations
  • General Manager – hiring and firing, scheduling, fleet management
  • Marketing Lead – SEO strategies, social media marketing

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.

Step 13: Start Making Money!

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to 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.

Some signature USPs for your car rental business could be:

  • Reliable discount rentals
  • The perfect luxury experience
  • Family owned and operated
USP venn diagram

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as 50% off your first day if you schedule now.
  • Optimize calls to action – Experiment with text, color, size, and position of calls to action such as “Schedule Now”. This can sharply increase purchases.
  • Signage – Put up eye-catching signage at your office and website
  • Flyering – Distribute flyers in your neighborhood and at industry events
  • In-Person Sales – Offer your products/services at local markets, trade shows

Consider a Niche

You should consider creating a niche for yourself by specializing in a certain aspect of your industry. This could jumpstart your word-of-mouth marketing within your niche market.

Build Affiliate Relationships

Affiliate marketing is advertising in which you compensate third parties (i.e. your affiliates) in order to generate traffic to your website. You can develop long-term relationships with these affiliates and generate traffic for each other on an ongoing basis.

Wrapping it up

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. 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!

Car Rental Business FAQs

Is a car rental business profitable?

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!

Do I need a special license to run a car rental business?

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.

How should I buy cars for my car rental business?

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.

How long does it take to start a car rental business?

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.