For the past several years, starting a taxi cab company was risky business. Many small companies, including one-person taxi services, were going out of business due to increases in costs and unprecedented competition from ride-sharing services.
However, the market has begun to stabilize. In some places, the costs have come down, particularly for licensing, and the novelty of Uber and Lyft has subsided. In some markets, this may be a great time to get into this business, although this won't be the case in all cities for some time to come.
The requirements for a taxi service vary widely depending on where you are located. If you're in a small town in Maine, you may only need a business license and a state license, costing you a couple hundred dollars. If you're in a major city, licensing costs alone can be a few hundred thousand dollars. In some cities, there may even be a restriction on starting a new taxi company, in which case you will have to wait a year or more or look at an alternative business, like becoming an Uber or Lyft driver.
The best thing to do is to check with your local and state government to see what is required for you to start a cab company. Then, find out what local airports require, as they usually have their own licensing regulations. With this information in hand, you'll know if it is feasible to start planning now.
In most places, you need two licenses to own and operate a taxi: one for the driver and one for the vehicle. The vehicle license may be called a "hire plate" in some cities or a "medallion" in others. Many cities limit the number of taxis that can operate and charge a significant fee for medallions.
When medallions are in exceptionally high demand, with hundreds of people applying each year and only a few available, cities will often offer them through a lottery system. In these markets, you may not be able to apply every year, and if you do apply, it can be several years before your name is drawn.
In Maine, the cost of a hire plate is only $70, but in cities like New York and San Francisco, the cost is likely to be a couple hundred thousand dollars, although this can change from year to year. Fortunately, when the cost is higher, your ability to earn revenue should be higher too, but this is not always the case in all cities.
Everyone knows the taxi business has gone through a lot of changes in recent years, primarily due to ride-sharing services like Uber and Lyft. Traditional taxi revenues have fallen dramatically while costs have gone up. In many cities, owning a taxi business was once a guaranteed ticket to make a good income, but in recent years, the opposite has been true. There have been widespread reports of taxi businesses going bankrupt, and in 2018, NPR reported that seven drivers committed suicide in New York City alone because of the high costs and dwindling revenue.
A lot has changed since 2018, and more changes are expected in the coming years. Before basing your own financial future on a taxi business, you should carefully research the market in your city as well as on a national level. For example:
- Are the costs of medallions expected to rise or fall in the future?
- How much are you able to charge for fares in your city?
- Are self-driving cars expected to be rolled out soon?
- Has your state passed laws on self-driving cars?
- Is your city considering restrictions on ride-sharing services?
- How many taxis are in your city now?
- Are taxi drivers able to make a good living?
In 2019, total revenue for taxi and limousine services was $31 billion according to IBISWorld, with a growth rate of over 10% from 2014 to 2019. However, the largest growth was experienced by e-hailing businesses, including ride-sharing services with an online presence. Increases in federal funding to mass transit could also negatively affect the taxi industry in coming years.
If you don't already own a vehicle that would be suitable for a taxi business, you'll need to buy or lease one. Not all cars make the best cabs. You'll want something reliable with good gas mileage, and you'll also want something with lots of room in the back seat. Imagine, for example, driving a two-door coupe and asking passengers to crawl in behind the front seat.
Fortunately, there are many great reviews for cars that combine all the features you would seek for a taxi business or for an Uber or Lyft business. Consumer Reports puts together such a list every couple of years based on safety ratings, size and gas mileage. Its most recent top picks were:
- Toyota Prius (2014+) It was rated best overall, with exceptionally good fuel economy. In addition to ample leg room, it has 27.4 cubic feet behind the rear seats for luggage. The leatherette option for seats is easy to clean.
- Toyota Camry (2015+) Rated the best sedan, it has good gas mileage, which is even better in the hybrid model.
- Kia Soul (2016+) Rated the best affordable car, it has abundant interior space and an option for leather seats.
- Honda CR-V (2015+) Rated the best for bad weather, it features all-wheel drive, which is particularly important if you have to drive in the snow.
Insurance can be one of the most expensive parts of running a cab. Once you have decided on a vehicle, find out what insurance you will need to get and then request a quote from your insurance company. The state of Maine, for example, bases insurance requirements on the number of passengers your vehicle can carry behind the driver's seat as determined by the vehicle manufacturer.
In Maine, if you have a sedan with a maximum of three passengers behind the driver, you would need $125,000 in combined single-limit liability insurance or split-limit liability of $50,000 per person as well as $100,000 per occurrence for bodily injury and $25,000 for property damage.
If you have a van with the ability to carry more passengers, your insurance requirements would be higher. If you were going over state lines, Maine would again require more insurance in addition to what Vermont or New Hampshire would require. Don't forget that the age and model of your vehicle will also affect your insurance rates.
With licensing costs, insurance costs and vehicle costs in hand, you can begin to figure out how much you will need to earn in order to make a living. Based on the rates your city allows you to charge and the cost of gas per mile, you should be able to ballpark how many hours you will need to work each day in order to pay your bills and make a profit.
You will need to have a way of getting customers and a method for accepting credit card payments, and this will add to your costs. For many fares, you will be able to simply wait in public areas like train stations and airports for people to hail you. However, you will also need a way for people to contact you directly, including a cellphone and an online dispatch system.
Credit card processing systems and online dispatch systems are relatively inexpensive today, as they are available as subscription-based services. You can pay for them on an annual or monthly basis, so no large upfront investment is required.