We take a look at 8 of the key considerations when starting your own car rental business in Australia.
1. Know the industry
Before getting started on any business venture, it's important to understand the industry you are entering.
The car rental industry in Australia had a major shakeup in 2020, thanks to the COVID-19 pandemic.
When interstate and international travel bans were enacted, demand for rental cars dropped significantly, with some providers reporting a drop in fleet utilization from 90% to 1% overnight (ABC News). As a result, many companies slashed their fleets by up to 80% (AFR).
However, with restrictions easing on both domestic and international travel, there's been increased demand for rental cars - but many providers haven't been able to restock their fleets due to supply chain shortages and increased demand for freight (Drive).
The car rental industry in Australia is currently valued at $805.3m and is expected to grow by 8.2% in 2022 (IBIS World).
2. Conduct market research
When you're starting or running a business, market research is essential. It gives your business direction and helps you stay on top of what your customers want, what your competitors are doing, industry challenges and potential costs (Business Victoria).
Before starting a car hire business in Australia, consider:
Who uses rental cars?
Do you know who uses rental cars? You might be surprised.
Although you might think that rental cars are mostly used by business travellers, there's a variety of people who use rental cars for different purposes. Travellers, both domestic and international may use them. People also rent cars for special events or occasions or to simply run errands.
Understanding who uses rental cars will allow you to identify which niche to target, which in turn informs where you should establish your business, who your competitors are, and what approach you should take with your marketing strategy.
Where are rental cars in demand?
Once you understand the niche you’d like to target, you’ll be better positioned to determine where you should establish your business. For instance, if you are targeting international tourists, you may consider setting up near airports, or if you are targeting those who rent cars to run errands, you may consider setting up your business around high-density housing, closer to cities.
Who are your competitors?
It's important to understand who your competitors are within the car rental industry as it'll allow you to identify any niches or areas currently not being served by those competitors, whilst also allowing you to learn from your competitors successes or failures.
Some of the well-known brands in the car rental business in Australia are as follows:
- Car Next Door
- East Coast
- Go Get
What costs will you face?
Starting a car rental business can be a capital-intensive project. There are a lot of expenses to consider including the cost of acquiring cars, insurance, permits, rent and salaries.
Having a clear idea of your costs will enable you to determine how much money you'll need to get established and how much you'll need to earn from the business to be profitable.
3. Choose your business structure
Franchise, existing platform or start from scratch? This is an important decision to make when getting started in the car rental industry.
A lot of Australian car rental companies offer franchise models which come with many benefits such as a known name and brand, an existing business model, customer base and economies of scale not often available to new businesses.
Another option is to leverage off an existing platform, such as Car Next Door. Using an existing platform will give you access to an existing customer base whilst also eliminating many of the costs and risks associated with starting a business, including the cost to set up a website and app and the costs of marketing. It’ll also reduce the amount of capital you’ll need to get started and means that you can leverage off the permits, coverage and legal set-up of the platform.
Starting from scratch can be more difficult initially as you'll have to bear the brunt of start-up costs and establish yourself within the marketplace. It can also be a rewarding process, allowing you the freedom to innovate and drive your own strategy and marketing initiatives.
Another factor to consider when choosing your business structure is whether you’ll have a brick and mortar presence or if you’ll operate mainly online. Having a physical location can create a greater sense of credibility and allows you to target customers in a particular location; however, may attract additional costs including rent. Having a digital offering will mean you need to consider where your customers can pick up their cars, but also allows you to experiment in a variety of locations, enabling you to determine where you’ll get the most demand.
4. It’s all in the name
You’ve done your research, chosen a business model, and now it’s time for the fun part… picking a name!
A good business name is catchy, memorable and stays top of mind.
5. Understand your legal obligations
Starting a new business attracts a number of legal considerations.
First, you must consider which legal entity to register your business as. Will you operate as sole trader, partnership, company or trust? Each has benefits and drawbacks and you must choose the structure best suited to your needs. The Australian Tax Office has some great resources to help you get started.
You’ll also need to consider which insurance policies your new business will require. Some types of insurance relevant to car rental companies include rental vehicle insurance, general insurance, liability insurance, commercial auto liability insurance and workers compensation.
A business also requires many legal documents to operate. These may include a Certificate of Incorporation, Operating Agreements and a Business Licence.
6. Raise startup capital
As car rental is a capital-heavy undertaking, you'll need to consider how you'll finance your venture. Will you draw from savings? Sell a property? Apply for a loan? Or will you acquire finance from investors?
The type of business structure you choose will play a significant role in determining the amount of capital you require to get started. For instance, using a platform such as Car Next Door may help you get started with lower capital investment, given you can even get started using your own car.
7. Hire employees
Your employee requirements will vary based on the size and your chosen business and structure. You’ll need to consider the range of skills required to run your business. Some key areas of expertise to consider are mechanical, knowledge of marketing and strategy, legal and customer service. You may want to start with a smaller staff that grows as your business does.
8. Plan how to market your business
Now that you have planned the foundations of your business, you’ll need to turn your mind to how you’ll acquire customers. You’ll need to create a marketing strategy to identify which customers to target, what channels you'll need to use to reach them and how you'll target them to return to your business each time they need a rental. You'll also need to consider who your competitors are and how you can stand out from the crowd.
The information published on this blog is of a general nature only and does not consider your personal objectives, financial situation or particular needs. The information published on this site/page should not be relied upon as a substitute for personal financial or professional advice.
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