The taxi industry has been around for many years and still plays a major role in how people commute.
With the rise of technology, the taxi business has evolved, leading to the ridesharing model, which uses apps to connect customers with drivers on demand.
Today, traditional taxi businesses and ridesharing services coexist to meet the transportation needs of the population.
If you want to enter the taxi industry, you need to understand that there are two different models—traditional taxis and ridesharing—each with its own cost requirements.
This blog will explore the costs of starting a taxi business, covering everything from licensing and vehicle acquisition to operational expenses and marketing strategies.
We’ll look at both traditional taxi services and ride-sharing platforms.
Keep in mind that these costs are estimates and may apply to both business models or just one. It's important to analyse which costs align with your business plan to make accurate financial plans.
The Cost Of Starting A Taxi Business
When you start a taxi business, there are many things that you should consider with regard to the cost aspect.
Some of them are common for both traditional taxi businesses and ridesharing businesses, while others may apply to just one. Let's take a look at what these are.
Licensing and Permits
Licenses and permits are essential requirements for starting a taxi business and these licenses typically come with a fee, which varies depending on your local government's regulations.
The permits you need may include:
- Business licenses - To legally operate your taxi business.
- Taxi-vehicle permit - To ensure the standards of each vehicle.
- Commercial vehicle permit - To earn revenue through the use of the vehicle.
- Ridesharing business platform license - To operate an app or website-based taxi business.
Although costs may vary regionally, you can anticipate paying between $200 and $1,300 for your licenses, depending on the types of licenses you need.
Vehicle Acquisition
When you decide to start a traditional taxi business, acquiring a fleet of vehicles is a major expense.
In this case, you have the option to buy new vehicles, old vehicles, or even lease cars.
#1 Cost of Purchasing New Vehicles
Buying new taxis can be expensive upfront, but it can save on maintenance costs and provide reliability in the long run.
New vehicles also come with warranties and the latest features, that offer a better experience for both drivers and passengers.
When getting a new car, your budget on average is $30,000, and it could go well over $50,000 even.
#2 Cost of Purchasing Used Vehicles
Used vehicles are a more budget-friendly option, but they may lead to higher maintenance costs over time. So, ensure that any used vehicle is thoroughly inspected and meets the required safety standards.
Typically, the cost of a used taxi vehicle is $20,000 to $30,000.
#3 Cost of Leasing Vehicles
Leasing taxi vehicles can be a viable option too, and its costs depend on factors like vehicle specifications, lease term, mileage allowance, and maintenance coverage.
The cost of leasing a vehicle for a 3-year period typically ranges from $18,000 to $54,000.
#4 Vehicle Modification Costs
Once you have your vehicles, you'll need to modify them by adding taxi essentials.
Metres are generally used in some traditional taxi vehicles for calculating fares accurately, and you also need to install signage indicating that the vehicle is a taxi available for hire.
Custom branding and decals help make your taxis easily recognisable and can promote your business. This includes your company logo, contact information, and any unique design elements that set your fleet apart.
Buying and installing these required modifications can cost you between $100 and $150 for a single vehicle.
Rental Premises
When starting a traditional taxi business, having an office is essential. This is where your managers and phone operators will work.
Office space rent depends on size, location and amenities. On average, a 1,000-square-foot office in the US can cost you $2,960 per month.
On the other hand, physical office space may not be as essential if you run a ridesharing business, at least in the initial stages.
With either of the models, you can choose to rent a small, efficient space that meets your needs if you want to save costs.
Also, when you run a traditional taxi business and own your vehicles, you'll need a place to park them when they're not in use.
The more cars you have, the more parking space you'll need, which can increase your rent. Parking space costs can start at around $100 per month, depending on the location and size.
Since commercial rent can be high, consider alternative parking solutions. You might lease a private property or allow your drivers to take the vehicles home overnight.
Hiring Staff
When you operate a traditional taxi business, you need to hire drivers for your taxis.
In this model, you also need a team to handle the administrative side of your business. This can include
- Dispatchers to coordinate rides
- Accountants to manage your finances
- Customer service representatives
- HR personnel
- Office managers
To hire these staff, you may need to pay for job ads on various websites or use recruitment agencies.
The expense of recruiting these staff can range from $500 to $2,500 or more depending on the size of your business.
With the ride-sharing model, administrative and support staff needs are typically much leaner, as the ride-sharing platform handles many operational aspects.
Driver onboarding costs are also lower, as drivers can sign up directly through the ride-sharing app, reducing the need for extensive job ads or agency fees.
Therefore, the cost of recruiting staff with a ridesharing business ranges from $500 to $1,000.
Technology and Equipment
Technology plays a pivotal role in the operation of your taxi business when you follow the ridesharing model.
With this model, you need to develop a taxi booking app like Uber or Lyft, and this will be your major cost.
So, you need to understand that there are two approaches to creating an app like Uber: custom development and ready-made solutions, and each comes with different cost requirements.
Custom development involves building your platform from scratch, typically by hiring a development company. You outline the platform's requirements, and they develop it accordingly.
On the other hand, opting for a ready-made solution means purchasing a pre-built platform tailored to your business type. This platform comes with the necessary features, and you can customize it to fit your brand.
Both methods come with pros and cons based on your requirements, which differ from one business to another.
However, focusing solely on cost, custom development is a process that involves substantial labour, with expenses typically averaging around $65,000.
Ready-made solutions, on the other hand, already have the needed features. You can launch them quickly after rebranding them, which is often included at no extra charge.
So, they cost around $7,000 on average, making them more cost-effective.
Before you make a decision, it's better if you learn how both can benefit your business with respect to your business model and understand their differences to identify which one is a suitable option.
With a traditional taxi business, office equipment such as computers, telephones, and furniture can be essential and cost around $5,000 to $10,000, depending on the size and needs of your business.
Marketing and Advertising
Marketing is important for both traditional taxi businesses and ride-sharing businesses, and the cost you spend can vary accordingly.
For traditional taxis, sticking logos on the cars is an effective way to get noticed. It helps people know who you are and how to get in touch.
This can cost you anywhere from a few hundred bucks per car, depending on how many cars you have.
Things like local billboards and teaming up with nearby businesses can also be effective, and they'll cost you for stuff like designing and putting up ads, printing out business cards, and such.
With ridesharing businesses, you rely on online marketing channels, like getting your business and your app to show up when people search on Google or in the app stores. This will require you to spend some cash too.
Costs for things like Google Ads and making sure your website pops up on searches related to taxis can vary. You should also keep investing to show up in search results.
Overall, you may set aside up to $15,000, or 3% of what you expect to make in a year, for marketing.
Operational Expenses
Running a taxi business involves various monthly operational expenses. Paying your drivers is one of the largest ongoing expenses.
Salaries can vary from $30,000 to $50,000 per year per driver, depending on experience and location. Ensure that your drivers are well compensated for maintaining a motivated team.
Fuel is a significant and variable expense. It's influenced by the number of trips, current fuel prices, and the fuel efficiency of your vehicles, which could be $1,000 to $3,000 per month per vehicle.
Keeping a close eye on fuel consumption and optimising routes can help manage these costs.
Regular maintenance is essential for keeping your fleet in good working condition. This includes routine services like oil changes and tyre rotations, as well as repairs and unexpected fixes.
Vehicle maintenance costs can vary widely, ranging from $500 to $1,500 per vehicle per month, depending on the age and condition of your vehicle.
When you Invest in regular upkeep, you can prevent more costly breakdowns and ensure passenger safety.
Financing Options When Starting Your Taxi Business
Starting a taxi business requires a significant initial investment, and there are several financing options available to help you secure the necessary funds. Here are some key methods to consider:
Bank Loans
This is the most common method of financing a new business. To get approved for a bank loan, you need a rock-solid business plan and a strong credit history.
Banks will want to see detailed financial projections, market analysis, and a clear plan for profitability.
Interest rates and terms will vary, so it's important to shop around for the best deal.
Personal Funding
Some entrepreneurs choose to self-fund their businesses through personal savings or by selling property or other assets. This method allows you to retain full ownership and control of your business but also involves significant personal financial risk.
It's important to carefully consider the potential impact on your personal finances before deciding to self-fund.
Investor Funding
Seeking investment from venture capitalists or angel investors is another option. Investors provide capital in exchange for equity in your business. This can be an excellent way to secure significant funding without taking on debt.
However, you will need to give up some ownership and control of your company. A compelling business plan and a strong pitch are essential to attract investors.
By exploring these financing options and choosing the one that best fits your needs, you can secure the funds necessary to start and grow your taxi business.
Careful planning and research will help you make the best choice for your financial situation and business goals.
Conclusion
While we've outlined the various costs involved in starting a taxi business, you should also remember that these are not definitive figures.
Costs can vary significantly based on many factors, like location, market conditions, your chosen business model, and other individual choices.
You can also seek expert opinions and consult with industry professionals and other successful taxi business owners to get valuable insights into maximizing your returns on investment.
They can offer guidance on cost-saving measures, efficient operational practices, and smart investment strategies.
This can help you manage your expenses more effectively and help you grow your taxi business in the long term.