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How to Start a Car Rental Business

Written by:

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 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.

How to Start a Car Rental Business

Fast Facts

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

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!

Step 1: Decide if the Business Is Right for You

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

Car Rental Industry Trends

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.

Industry Size and Growth

car rental industry size and growth

Trends and Challenges

car rental industry Trends and Challenges

Trends

  • Increasing use of car booking apps that also manage the fleet and monitor the location of vehicles
  • Revenge travel after the pandemic lockdowns will boost car rental sales

Challenges

  • Competition from on-demand transportation services like taxis and passenger vehicles
  • High fuel prices are deterring road trips and car rentals

What Kind of People Work in Car Rental?

car rental industry demographics

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.

Startup CostsBallpark RangeAverage
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

How Much Can You Earn From a Car Rental Business?

car rental business earnings forecast

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.

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

Related Business Ideas

If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
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Step 2: Hone Your Idea

develop a business 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.

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.

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 without car rental businesses. You’re looking for gaps in the market that you can fill.

What? Determine Your Car Rental Fleet

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. 

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.

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 Car Rental Location

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.

car rental business idea rating

Step 3: Brainstorm a Car Rental Business Name

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: “DriveNow Rentals” over “Luxury Auto Rentals” or “Sports Car Rentals”
  • A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

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.

Step 4: Create a Car Rental Business Plan

Here are the key components of a business plan:

what to include in a business plan
  • Executive summary — A concise overview of the car rental business, summarizing its goals, strategies, and potential for success
  • Business overview — Detailed information about the car rental business, including its mission, vision, and the specific niche it aims to serve in the market
  • Product and services — Clear description of the range of vehicles and services offered by the car rental business, including any unique features or advantages
  • Market analysis — Thorough examination of the target market, including demographics, trends, and potential demand for car rental services in specific locations
  • Competitive analysis — Evaluation of key competitors in the car rental industry, highlighting strengths, weaknesses, and opportunities to differentiate
  • Sales and marketing — Strategies for promoting the car rental business, acquiring customers, and maintaining a competitive edge in the market
  • Management team — Introduction to the individuals leading the car rental business, emphasizing their skills, experience, and contributions to the company’s success
  • Operations plan — Details on how the car rental business will operate, including logistics, fleet management, and customer service processes
  • Financial plan — Projections and analysis of the car rental business’s financial performance, including startup costs, revenue forecasts, and profitability estimates
  • Appendix — Supplementary materials such as additional data, charts, or supporting documents that provide further insight into the car rental 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.

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 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.

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 main options:

types of business structures
  • Sole proprietorship — The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General partnership — Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • 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.
  • C 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. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corporation — This refers to the tax classification of the business but is not a business entity. A corporation or an LLC can elect to be an S Corp for tax status. In an S Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

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.

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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/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:

types of business funding
  • Bank loans — This is the most common method, but getting approved requires a rock-solid business plan and a strong credit history.
  • SBA-guaranteed loans — The Small Business Administration can act as a 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.
  • Friends and family — Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding — Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal — Self-fund your business via your savings or the sale of property or other assets.

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. 

Step 8: Apply for Car Rental Business Licenses and Permits

Business Licenses and 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 (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.

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:

types of business insurance
  • 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 clients who say 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

Launching a Business

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

You may want to use industry-specific software, such as Chetu, Bluebird, or RENTALL, to help you with fleet management, scheduling, and payments.

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 of filing incorrect tax documents can be harsh, so accuracy is crucial.

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.

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. 

Marketing

Here are some powerful marketing strategies for your future business:

  • Local SEO — Optimize your website with SEO best practices for car rental-related search terms and encourage customers to leave positive reviews to boost local visibility. Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
  • Professional branding — Ensure your branding communicates ease, accessibility, and quality service, across all your visual and digital touchpoints.
  • Direct outreach — Forge partnerships with local travel agencies, hotels, and businesses to offer corporate rental programs or joint deals.
  • Social media engagement — Utilize Instagram, Facebook, and Twitter to showcase your fleet, share special offers, and highlight customer experiences.
  • Travel and vehicle tips blog — Post articles about travel destinations, road trip tips, and advice on choosing the right rental vehicle for various travel needs.
  • Customer experiences and reviews — Feature positive reviews and stories from customers to underscore the quality of your service.
  • Informative guides and videos — Create video content and guides explaining the car rental process, insurance options, and tips for a hassle-free rental experience.
  • Open house events — Organize events at your location where the community can test drive vehicles and access special deals.
  • Partnerships with travel and tourism companies — Collaborate with travel agencies and tour operators to offer bundled packages that include your rental services.
  • Email marketing — Maintain contact with your audience through newsletters featuring travel tips, fleet updates, exclusive offers, and company news.

Focus on USPs

unique selling proposition

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:

  • Reliable discount rentals
  • The perfect luxury experience
  • Family*owned and operated

Networking

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.

Step 12: Build Your Team

Building a Team for a New 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:

  • Customer service — greeting customers, making 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: Run a Car Rental Business — Start Making Money!

Running a Business

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!

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.

How can I handle customer inquiries, complaints, and vehicle returns effectively?

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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How to Start a Car Rental Business