Rental car companies make their money by renting out cars to people who need them. But how do they make sure they’re making a profit?
Let’s take a look at the percentage of rental car company revenues that goes to net profit margins, and find out what makes these businesses so successful. We’ll also touch on the topic of auto insurance for rental cars, and whether or not it’s worth the extra cost.
Primary and Secondary Profit Sources for Rental Companies
The primary way rental car companies make money is by charging customers for the use of their vehicles. This includes base rental fees and non-optional add-ons such as taxes, surcharges, and cleaning fees.
However, that’s not all — since they are a business, rental car companies generate more income through things like:
- Gas fill-up programs
- Additional driver’s license fees
- Optional insurance like collision damage waivers (CDW)
- Roadside assistance plans
According to SharpSheets, despite these multiple income sources, most rental car companies have a rather low net profit margin of around 0% to 5%. They say this is likely driven by “competition, high variable & fixed costs.”
Expenses Every Rental Car Company Faces
In addition to income sources, there are also a number of expenses rental car companies face.
These include the cost of acquiring vehicles, maintaining them, and providing customer services such as roadside assistance. In addition, they have to pay staff salaries and cover other administrative costs.
SharpSheets reports operating a modest car rental business with 30 vehicles in the United States requires an estimated monthly expenditure of between $53,500 and $62,500.
Given all of these expenses, it’s no surprise rental car companies have such low-profit margins.
How Secondary Income Revenues Make All the Difference
A closer look into how rental car companies make money reveals that the vast majority of their revenue comes from usage charges for renting a car.
A small but significant percentage of rental car companies’ revenue comes from other sources like insurance premiums, gasoline refills, and more.
Gas Fill-Up Programs
Customers may be asked to “prepay” for gas in their rental car. This is known as a gas fill-up program. In general, the customer pays for a full tank of gas at the rental counter and returns it empty.
Rental car companies make a small profit from this service since they don’t have to pay employees to refuel their vehicles and can charge slightly more than market prices.
Additional Driver’s License Fees
If a customer wants to add an extra driver to the rental agreement, they usually have to pay a fee that goes directly to the company’s bottom line.
This fee is usually nominal, but it can help rental car companies make a small amount of extra money for each additional driver.
Optional Insurance-Like Collision Damage Waivers (CDW)
Insurance is a major source of income for rental car companies. They will often offer their customers the option to purchase a collision damage waiver (CDW) that provides coverage for any damages or theft related to the rental vehicle.
These insurance premiums are typically quite high and can make up a large portion of the company’s revenue.
Roadside Assistance Plans
Rental car companies also make money from offering roadside assistance plans to their customers. They will typically charge a flat fee or monthly subscription rate for these services, which can provide an extra source of revenue.
Overall, rental car companies make the most of their money by charging customers for the use of their vehicles. However, by taking advantage of these secondary sources of revenue, rental car companies can help increase their profit margins and stay competitive in the market.
Cutting Costs to Stay Net Positive
Rental car companies have mastered the art of operating on a tight budget and minimizing their costs in order to remain competitive.
They are able to achieve this goal through the use of fuel-efficient vehicles as well as by reducing overhead spending on personnel, marketing, and office space.
By maintaining a lean operation, rental car companies are able to not only save money but make a considerable profit through low net profit margins.
From gas savings alone, rental car companies can maximize their margins while also cutting down on emissions and ensuring an environmentally friendly solution for customers who require access to a vehicle without the hassle of ownership.
When to Get Additional Rental Car Insurance
When renting a car, customers should always consider whether or not they need additional insurance to protect themselves.
Rental car companies make money by offering customers the option to purchase extra coverage in case something goes wrong. However, depending on the customer’s personal auto insurance policy and credit card benefits, they may already be covered.
It’s vital for customers to understand the details of their coverage before agreeing to additional insurance. That way, they can make sure they are making an informed decision and not wasting money on unnecessary coverage.
What if a customer doesn’t have existing coverage?
Here’s an important car rental tip for travelers: If a customer doesn’t have coverage through their credit card by other means, they should seriously consider looking into purchasing the rental car company’s coverage.
This way, they can get peace of mind knowing that any damage to the vehicle will be covered and they won’t have to worry about financial repercussions associated with an accident or theft.
Understanding rental car insurance can be the difference between stress-free travel and unexpected costs later on down the road.
Understanding Rental Car Profit Sources Can Make You a Better Customer or Potential Owner
A savvy consumer should understand how rental car companies make money.
Especially if it’s not a short-term solution and you might be looking for a long-term alternative to owning a car when you live in a large city.
It’s not just a matter of renting for a fee: Rental car companies have to have smart financial strategies that keep their profits high and losses low.
Inversely, if you’re considering opening a rental car business of your own, understanding these profit sources can help you create a competitive advantage and turn your business into a success.
By keeping up with current trends, cutting costs where possible, and providing customers with the best insurance options available, rental car companies can maximize their profits while keeping customers satisfied.
And, by understanding their pricing mechanisms and the potential fees they may charge, you can secure the best deal on your next rental car or maintain a profitable business of your own.
Luke Williams writes and researches for the auto insurance comparison site, AutoInsurance.org. His passions include insurance and studying businesses in the auto industry.