I wanted to share some of my experiences starting an Orange County Limo biz. We have been in this business in Arizona and decided to expand and set up a second headquarters in Orange County. Here's what I've learned:
- Low cost of entry
It's a pretty easy business to get into - you can spend as little as $5k-$20k for a old beater Lincoln limo, maybe even a pink one, or convert a school bus into a party bus. Or, use credit to finance a newer vehicle. Get insurance! the liability of moving passengers and making sure your broker is selling you the correct insurance for your size vehicle can be a few stumbling blocks - especially if you don't have a good driving record. Make sure you are licensed with the local regulating authority(s). Then spend some money on advertising to make the phone ring and make some bookings.
In the beginning you can drive yourself. You can take calls during the day, and drive at night. It's fun to be out in the party scene as the sober chauffeur.
- Organization is key
If you don't have a good software system or ability to track your reservations, you can actually ruin somebody's important event. You don't want to be that limo company that no-showed for a wedding - bride and groom standing there a little tipsy - wondering how they are going to get to their hotel.
- Margins are slim
The biggest problem in this business is not making enough per vehicle and spending too much. You start growing and adding vehicles to your fleet. Your payments go up and your insurance goes up. You spend more money on advertising to get those vehicles moving. Because you are so busy getting vehicles serviced and booking reservations since your phones have gotten busier - you stop driving and hire chauffeurs.
Now you have staff and all that associated cost. Then it gets a little slow for a few weeks, and you are starting to crack under the weight of all your overhead. You wonder why you got into this mess in the first place. So you discount your rates to try and "make it up in volume".
So then the marketplace becomes accustomed to paying crazy low prices like $95-$110 per hour for a Hummer limo (when in most markets Hummer limos are $150+ per hour for this $110,000+ vehicle). We saw this with our business in Phoenix a little while back.
- React to Economic Conditions
Then the economy goes into a downturn and people aren't spending money on entertainment and travel and then you start to get really desperate to make the payments, insurance, payroll, advertising, etc.
So then you really start to drop the price. Just to make the payments and insurance - you let everybody go and you stop advertising. And then - what I feel is the worst case scenario happens - the marketplace really gets wind of our industry's desperation. You have prospects calling you saying "I have $300 that is all I want to spend for 6 hours in a Hummer limo". They think they are in the power position.
- Other Businesses Don't Drop Prices
I don't think anybody would ever think of walking into a Morton's Steakhouse and said "I have $50 - I want a 2 filets, 2 salads and 2 sodas and $50 including tip is all I want to spend".
But restaurants haven't let the marketplace think they are desperate (at least until they shut their doors). Because we have such a low cost of entry into our business we have a lot of very small, under-capitalized limo business owners signaling their desperation to the market-place. They make the prospects believe they will do anything to move their vehicles. Not even giving thought to making sure they cover actual costs like payroll and fuel.
I guess there could be a new generation of people thinking what a great business it would be to start a limo business - not too expensive to get into. . . and they can start the whole cycle over again
Are you a local business entrepreneur with a story to tell? Let us know about it in the comments.