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How to start a car rental business?

by GK August 05, 2019
Steps to start a car rental business

There are many resources and guides on the internet about starting a car rental business, but hardly a few talks about how it began. After ride-sharing business ported to the internet, we saw businesses like Uber and Lyft coming into reality. It was a time when not just ride-sharing but a whole lot of other businesses were also transitioning to the online sphere.

The concept of eCommerce was evolving, and not just retail and ride-sharing services were making it to the internet, people were now requesting service online, hiring freelancers online, and selling goods directly to other consumers. During this time, the concept of service marketplace became prevalent.

P2P Car Rental Marketplace | The Business Model

The popularity of the marketplace model led to the birth of peer-to-peer connections. A brand new business model that was already popular in eBay’s retail business but saw a much bigger implementation in Airbnb’s rental business model. A concept that built a connection to let one user rent his/her house to another user.

P2P Car rental marketplace came as a combination of traditional car rental business, Marketplace model, and peer-to-peer connections. It used the same P2P concept of Airbnb to connect the car owners with customers. It works the same as the vacation rental marketplace of Airbnb where car owners replace homeowners and travelers replace the people who want to rent a car. 

Car Rental Business – The Prospects

The overall car rental business is a $125-160 billion market, which is growing at a CAGR of 12.5%. What’s more impressive? The global market is on the boom. Europe and North America already own the biggest share of this pie, while the market in the Asia Pacific is also growing at a rate of 10% annually.

This boom has encouraged entrepreneurial minds to come up with unique business ideas across the potential markets, and has flooded the internet with questions such as ‘how to start a car rental business?’, ‘How much it takes to start a car rental business?’ and many more. 

Besides that, the increased environmental concerns and awareness of the harmful vehicle emissions have primarily encouraged start-up car rental businesses as an alternative. People are also carpooling to drop the number of cars on the road. In 2014, where the average global car rental market increased by 2.2%, right after 4 yours in 2018, the same was 0.6% bigger, as compared to the preceding year.

With the hope to get increased mobility and freedom from the hassles of costs associated with car ownership, businesses offering auto rentals via websites and mobile apps are growing exponentially in the first world markets like North America and Europe. Furthermore, the combined prospects of the existing car rental market and m-Commerce have made booking processes seamless and encouraging more users to book a car for rental anytime and anywhere. Eventually, encouraging entrepreneurs for starting a car rental business as per flexible demands.

Tourism is a huge accelerator

The massive growth of the global travel and tourism sector is also a contributing factor to the growth of the car rental market. Travel and tourism is a huge 8.8 trillion market, which shares at least 78% of the expenses on leisure. As international tourism is on the boom, Europe and Asia-Pacific have grown as a major market for car rental companies, which provide transport services to tourists.

Traditional rental companies starting a car rental business in collaboration with tour companies and offering cars in the tour packages is a trend these days. Besides that, tourists also book cars in advance from far off places, without even visiting the physical locations of the rental companies.

A simple idea of offering a car rental app can let you leverage the combined benefits of car rental, m-commerce, tourism, daily ride-sharing, and much more together. Keep reading because we are going to discuss this niche in detail and comprehend every aspect of how to start a car rental business.

What should you know about starting a car rental business?

You should think of the level of service you want to offer to your target audience. Who is the target audience? Tourists, locals, businesses, or perhaps government institutions. How will you meet the demands of cars? You would get the cars from peers, transport companies, or perhaps from both. What other B2B services you require to run the business smoothly? Insurance, logistic, software development?

Areas of specialization in starting a car rental business

Before going into the deep discussion on how to start a car rental business, you must know about the array of services you can offer into different categories. Based on the target audience, you can specialize in one or all of the following domains of a car rental business:

  • Transport services

Offer services to individual users as a solution to their daily commute problems. Let people rent and keep your cars for longer durations in periodic packages. For example, monthly, quarterly, or yearly subscription packages. 

  • Leisure services

Let users rent a car for a short duration or a trip. These are one-time contracts where you can target people who want to rent a car for an individual jaunt. For example, rent for a day or two, or take a car to a short trip outstation.

  • Corporate services

Offer transport services to other bodies or businesses in the long term or short term contracts. For example, a monthly contract with a company to offer daily shuttle services to its employees. In addition, short term contracts with a company to offer transportation services during an event such as a seminar.

  • Individual services

These are short but periodic services, to begin with starting a car rental business, more like an alternative to public commutes and taxi services. People would book individual rides or daily hires for specific distances and hours and would return the car sooner as compared to the other three types of services on the list. 

  • Fleet composition

What will form your fleet, Regular, or luxury cars? A posh car is a great expense, which may turn into a prodigious revenue stream. More people these days, rent luxury cars instead of buying one. They rent for both short and long durations. For example, rent one for a date, event, or take it for a vacation.

How to start a car rental business in multiple ways?

Once you are up with preferred services and decided vehicle types you want to keep in the fleet, the next job in knowing everything about how to set up a car rental business is organizing comprehensive market research of the ownership model. Be advised that, ownership model has a deep impact on the location of the business activities, too.

For example, if you want to serve near the airports, you may require acquiring several permissions to be able to open a franchise in the airport or collaborate with existing transport business in the airports. People at the airport look for a commute, which you can solve well with economical and mid-range cars.

If it’s a tourist destination, the target customers may be willing to rent luxury cars. However, that would also depend on the type of tourist destination. For example, the demand for off-road vehicles would be more than posh cars in hilly areas.

Based on these aspects, here are four major ways of starting a car rental business into different ownership models:

1.      Consider Buying a Franchise

Several big car rental chains have already acquired a big market, and people are aware of them. You can get involved with them by purchasing a franchise into their existing brand name. For example, if you want to start a car rental marketplace in a remote area in the US, you may collaborate with existing businesses like Turo and see if they are interested in selling their franchise for that location. 

However, it’s hardly possible that an online business would consider franchising instead of expanding, but it’s worth a shot. Once you have a franchise, you get all the benefits of the brand, which includes all the advertising, paperwork, licenses, and business training you need for the job. This is one of the approaches to knowing how to start your own car rental business following altered ways. 

Be advised that you would be bound to sign a contract under which you are required to pay every year to the brand for using its name. They will be controlling most of the aspects of your business to make sure you do not harm their brand image. If the contract expires, there is no guaranty that they would be interested in renewing it.

2.      Buy an Existing Car Rental Business

You may see it as a better alternative to getting a franchise. With better control over our business, you would be able to secure all the benefits for yourself and avoid paying a royalty to a third party. Though you might not need to know the deepest secrets about how to start a car rental business from scratch, it’s not easy to find someone who would be willing to sell an existing car rental business.

Besides comprehensive research and financial analysis of the existing business, you need to perform deep market research to identify a business with potential prospects. You cannot just buy a business that is in loss and has no prospects. Valuation of existing assets such as car fleet is also important.

3.      Starting a Car Rental Business with Partners

You may collaborate with existing car rental businesses in the market and offer them an online platform for better business prospects. This B2B collaboration should offer value to both your business and the partners. In return, you may demand a commission on the bookings they get from your platform.

Though this approach does not answer much about how to set up a car rental business from scratch, it could be a profitable way to solve the fleet acquisition problem. You may collaborate with multiple businesses as per demand, type of services, locations, and requirements of the vehicles. However, first, you need to answer the following questions before you can proceed:

  • Which car is best for the business?
  • Who can supply these cars seamlessly?
  • How many cars do you need to meet the demand?
  • Who would be responsible for the maintenance of the cars?

Answering these questions will lead you to the first part of the business collaboration, and one-step closer to the MO of how to start a car rental business. With better research, you would be able to identify the best business partners for your start-up. Once, you know your partners, you can proceed with the rest of the aspects like legal contracts, insurance, software solutions, which we will discuss in the latter part of our discussion on how to start a rental car company. So keep reading.

4.      Starting a car rental business under the P2P model

One more way to starting a car rental business without owning a fleet is adopting the peer-to-peer model. It’s almost similar to that of collaboration with other businesses; except the partners, here are the private car owners. Same as Airbnb, you can let people with cars rent the same to other people on your platform and earn money. Following is how a typical P2P car rental business works:

  1. Listing: Car owners list their cars on the marketplace with necessary details.
  2. Verification: The marketplace verifies the car details and conducts an inspection.
  3. Approval: Marketplace approves/declines the listing after verification results.
  4. Search: Customers search for a car under specified requirements.
  5. Matching: A list similar to the requirements is populated on the customer screen.
  6. Booking: The customer checks out the car details and books a car from the listing.
  7. Confirmation: The car owner is notified of the booking request and accepts it.
  8. Delivery: The customer collects the car at the specified venue and time.
  9. Trip: The customer completes the trip.
  10. Return: The customer returns the car at a specified time and venue.

How P2P car rental businesses make money?

The basic revenue generation model includes the commissions earned from the car owners. However, the business may further sophisticate the model to increase revenue. For example, Turo knows how to start a rental car company with the best revenue models. This is how Turo, a popular P2P car rental app, makes money:

How Turo Car Rentals Make MoneyTuro takes a fixed commission cut on the total value of the transactions from the car owners. Besides, it also takes extra charges from the customers to offer value-added services like car delivery, additional mileage, and protection plans. You can also adopt a similar model based on your prospects.

Features of a car rental marketplace

We are going to comprehend the architecture behind how to start your own car rental business with a basic set of features for a P2P car rental platform. We’ve divided features into three categories based on the key users: Features for the marketplace admin; Features for the car owners; Features for the customers.

Features for car owners

  • Registration and login: Register a user account and provide details for verification.
  • Car listing system: List a car and provide the required details.
  • Booking system: Receive booking request, View customer detail, View trip details, chat with the customer, and Accept/Reject the request.
  • Availability: Update car availability; hide listing for a specific period, etc.
  • Payment system: Admin to owner payment system includes earnings analytics and payouts of the earnings.
  • Navigation system: Track a trip/vehicle in real-time using GPS.
  • Reviews and ratings: Review a trip, rate a customer.

Features for customers

  • Registration: Sign up for a customer account.
  • Personal profile: Update personal details and public profile.
  • Search: Access search portal and search cars for renting.
  • Filters: Apply different filters to refine the search results as per requirements.
  • Dashboard and booking system: Select a listing and request for booking. Also, cancel a booking on the requirement.
  • Navigation system: Use the navigation system to discover pick up location and assistance during the trip.
  • Chat: Chat with car owners.
  • Reviews and rating: Review a trip and rate a car listing as per trip experiences.

Features for Marketplace Admin

  • Site administration: Manage site and all other setups on the site.
  • User management: Analytics and management of the customers on the app/site.
  • Owner management: Analytics and management for all the car owners.
  • Listing management: Analytics and management for all the listings by the owners.
  • Revenue channels: Manage different revenue channels
  • Commission management: Analytics with features to manage commissions and payouts.
  • Block/Unblock: Ban users/owners from the marketplace
  • Chat/communication: Admin-Owners and customers-admin communication through chat or email.

Technology to build a car rental app suite

You would require the following basic set of software solutions to operate as a car rental marketplace seamlessly:

  • Android App – 1: Customers
  • Android App – 2: Car Owners
  • iOS App – 1: Customers
  • iOS App – 2: Car Owners
  • Website (Front-end)
  • Admin panel (Back-end)

Besides this, each solution given above will need the following third-party resources and services to operate. You will need to integrate these resources into your solutions as APIs for starting a car rental business online:

  • Map API for navigation
  • Payment Gateway APIs
  • Push notifications tool
  • Email Marketing tool
  • SMS notification tool
  • CRM tool API for analytics
  • Content Delivery Network

How much does it cost to build a car rental app from Scratch?

Setting up a car rental business is a tough job, but not building an app for it. There were days when you have to spend not less than $50,000 to develop a basic car rental website. Considering cost as low as $50/hour, a car rental solution (website and mobile applications) will take at least 2000 hours of development from scratch. Therefore, if you also want mobile apps for Android and iOS then the cost would easily reach up to $100,000.

This cost estimation of how to start your own car rental business from scratch does not include the expenses for purchasing different APIs and SDKs mentioned above in the article. Here is a breakdown of the time and cost estimation for the entire suite:

Why Readymade Script is cost-effective?

This is the era of clone scripts and readymade software solutions. Like every popular business idea, Shopygen can help you with this too. You need not worry about starting a car rental business from scratch.

You can simply use our turnkey rental marketplace software and set up your P2P car rental platform in just a few hours. The best part is you don’t need to spend a single minute on coding anything. Everything is ready-made and coded by our developers. You just have to install the script on your web host and set up the site using a graphical user interface. This is all you have to know about how to set up a car rental business without spending restless nights in software development. The package comes with the following benefits:

  • Open-source code
  • Self-hosted solution
  • Full website Script
  • Android mobile app
  • iOS mobile app
  • Free Installation
  • Free Technical Support
  • Free Upgrades
  • One-time payment/no recurring fee

This script is capable of building any kind of peer-to-peer rental marketplace for start-up car rental business. Not just car rental, but you can also use the script to build other kinds of rental marketplaces such as homestays rental, boat rentals, hardware rentals, and equipment rentals, etc.

The script comes in two packages:

  • Basic: All website solutions at $999.
  • Complete suite: Website + Android + iOS apps at $1999.

Note: Price may decrease even further based on on-going offers and discounts.

With similar control, flexibility, and scalability like the development from scratch, starting a car rental business via rental marketplace script is a more economical alternative. With a price as low as $1999, you can get a ready-made set of every solution you require to run your car rental business. Of course, it’s not only an effective answer to the question – “how to start a rental car company from scratch” but also economical than spending $100,000 on the development of the platform from scratch.

Challenges for car rental businesses

Car rental is not an easy business. Especially when it’s P2P, the challenges just multiply with the increase in the ROIs. Here are a few of the biggest challenges for starting a car rental business.

Safety concerns

It’s risky to let a stranger take your car on rent. Car owners are generally afraid of giving out their cars. You never know someone might just elope with your car. Apart from this, customers might not handle the car properly and create problems like meeting with an accident, legal actions, damage the car, tamper the accessories, etc.

To tackle these challenges different car rental services implement different safety assurance to the car owners:

  • Document and identity verification of the customers
  • Only experienced drivers are allowed to rent a car
  • Insurance from the marketplace against any damage
  • Compensation from the customers on damages
  • Refundable security deposits from the customers
  • Add certain customers with bad history to the “Do Not Rent” list

Supply chain and Chicken-egg problem

Car owners would sign up only on popular marketplaces with a good number of customers using their services. However, you can’t expect to get new customers until you have some cars listed. This creates a loop with chicken and egg problem where car owners don’t sign up if there are no customers, and customers do not sign up until there are cars to rent.

To tack this, car rental marketplaces work on developing both ends at the same time. At one end, they run lucrative promotions for the customers, while they also run dedicated campaigns for car owners. Factors like free first ride and discount coupons attract customers. Whereas they entice car owners with better and lucrative incentives than other competitors. This brings us to the next challenge.

Tough Competition

Starting a car rental business is not as tough as it is to survive the market. There are many popular names already ruling the sphere. You need a unique and lucrative car rental business plan to acquire the customers. The best way to tackle this is by undertaking comprehensive competition research and coming up with fresh ideas.

For example, Turo offers equally great value to both customers and owners. It not only allows a customer to choose from a wide variety of cars but also lets owners earn from their cars instead of just keeping them in the garage. 

Another player that has gained a substantial market is Car2Go. Its USP is that customers need not pick up or drop a car at a specific point. Instead, they can leave the car anywhere at a legal parking spot after completing the trip. Similarly, other players offer the same service with different benefits such as free parking, Refund for refueling, no surge charges, no toll tax, etc.

Trends to look out for starting a car rental business in 2019

The car rental marketplace is evolving and so are the revenue channels. What used to be a wonder a few years ago is now a common sight on the internet. If you intend on knowing how to start a car rental business in 2019, you must consider the latest trends and happenings in the market first. It doesn’t matter if you want to develop your solutions from scratch or use a turnkey rental marketplace software, make sure you have everything according to the latest trends in the market:

Flexible pick up and drop:

Traditionally customers either pick up the cars from a specified location or meet a person to collect the keys. It’s indeed a way to ensure the safety of the cars by giving the keys in person, but not according to the trends.

There are businesses, which are using keyless access to eliminate pick up points or in-person delivery. The customer can now see a car’s location on the map. They can arrive at the car’s location and simply unlock a car by using a passcode from the smartphone app.

This allows owners to avoid delivery hassles, rent their cars more frequently, and make better money. On the other hand, customers find it more convenient and time-efficient to pick a car from the nearest parked location.

Telematics

The advancement in telematics technology is a big breakthrough for starting a car rental business more reliably. It can automate almost every aspect of the car rentals through long-distance data transmission.

There could be an array of applications for telematics in the car rental industry. For instance, it can read fuel consumption with precise accuracy, which can be used by the marketplace to calculate the fuel charges correctly. Moreover, some special hardware can be utilized to report odometer reading and any physical damage to the car. Ultimately, eliminating the need for manual inspection.

Electronic Vehicles

One of the major reasons for the boost in the vehicle rental market is the wide adoption of electronic vehicles. Unlike oil-run vehicles, EVs are easier to manage. They are perfect for automated marketplaces as it is not only easier to implement a keyless access system but also the telematics works well with them.

EVs would soon become a center of attraction, and in fact, governments in many countries are offering lucrative benefits to the businesses coming up with a business-related to EVs.

  • Cost-effective
  • Good for the environment
  • Businesses get tax benefits
  • No hassle of fuel theft

To Sum up: Starting car rental business

To sum it all, we can conclude the entire process and discussion about how to start a car rental business in the following points :

  1. Type: Decide the type of rental contracts you would want to start with. After the initial research, you would have a clear idea of the types of car rental services you can go for. Contract hire, Daily hire, corporate contracts, etc.
  2. Brand: Choose a name for your car rental business. Select a name that is not only remember-able but also the social media usernames and domain names should be available for them.
  3. Location: Choose a locality for your business considering the competitions and business prospects. If you are starting from the ground, don’t just jump into a face-to-face with established businesses. Start from a location with less competition.
  4. License: The licensing policies and business registration process for starting a car rental business are different at different locations. You should consult a legal adviser to help you obtain your business license from your local & state department. You would have to state the information such as the name of your business, services, and the workforce you would be hiring.
  5. Taxes: Register for business in the tax department. Based on the location, you would have to register into VAT, Service tax, GST, or other forms of taxes.
  6. Insurance: Business insurance and insurance of your assets are necessary. You should ensure all your cars if you are dealing with in-house vehicles. Check if the owner has insured the same if you are out-sourcing the cars. Lastly, get in terms with a life insurance company to offer accidental and other insurance to your customers as well.
  7. Pricing: Fix your rental rates. You should consider everything from gas price, overhead cost, vehicle maintenance, insurance cost, and competitors’ pricing to your profit margin to fix the rental rates.
  8. Agreement: Write down a detailed and quality Rental Agreement for your customers and your start-up car rental business. Include your business policies, terms and conditions, different penalties, insurance schemes, and everything that concerns the customers.
  9. Fleet: Based on the business and car ownership models we discussed above in the article, build your fleet in one, two, or all of the models.

As per building your rental marketplace platform is concerned, you know from this article, how to build a rental marketplace using different approaches. All that is left is to know how to start your own car rental business with proper marketing and business development. Set up a business-marketing plan and launch with a proper thump in the existing market. Utilize every possible modern and traditional marketing channel to build a strong brand identity. Print, Social Media, Videos, Referral, SEO, Paid AdWords, or TV and Radio, leverage everything that your budget allows.

Did you find it?

Did you find what you are looking for? Any unique idea to start your car, bike, home, or even boat rental marketplace? It’s time to pitch your idea to the investors. Define your core idea and identify your target audience, their pain points, and prepare a solution for that pain. We have got the development part covered for you.

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