Set up a taxi booking company

By Shonali Advani

The taxi booking segment is getting organized as more players enter the space that is set to witness a huge spurt in growth in terms of demand and supply. Apart from self-branded companies, there has also been a rise of aggregators, companies that bring together an unorganized market of small and medium fleet operators. The demand for GPS-assisted radio cabs has been increasing and there’s enough scope to fill the supply gaps. Poor public transport, coupled with increasing disposable income, has given rise to this opportunity. According to industry estimates, the industry has grown at a CAGR of 42 percent since 2009 in terms of market revenues and will reach 30,000 radio taxis by 2017. So, if you want to capitalize on the taxi booking segment, here are crucial tips to look into before you set out on a long drive to success.

Investment required
If you are planning on setting up your own fleet as a taxi booking company, the investment would be to the tune of Rs. 100 crore towards buying tendered licenses, cars, IT infrastructure and contact center. Phone fleet taxi licenses can be bought from the MMRTA in a tender.

This should enable you to own about 1,600 cars (mix of big and small) and employ about 100 people at the call center, to give you an indicative idea of capacity. However, if you opt to be an aggregator, then the investment required is to cover the basic costs of setting up.

This would include registering the company, developing and hosting the website, setting up a call center for customer care and hiring people. There are no special licenses required except software licenses.

All told, at the minimum this would require around Rs. 2-10 lakh depending on the size of operations you want to build.

Venture capitalists have started to invest in this segment too, given the potential it holds. However, as is the case with any other business they invest in, they would like to see a certain amount of traction before funding you.

So, if you can’t round up your own seed money, angels are a good option for the same to help you build and sustain operations till you reach a critical mass that’s attractive for venture capital.

Building your fleet
This is the most crucial aspect of a taxi booking business. When you are starting up, the biggest challenge is to make the vendors or local players understand the benefit of tying up with you. For this, you will first need to understand their pain points and, therefore, how your business model can solve the same.

For most, taxi operators the two primary pain points are acquiring customers and receiving timely payments.

Your job whilst building relations is to convince them of the viability and credibility of your company. As an organized player, good customer service is an unavoidable part of your business, so it is imperative you spend enough time training drivers on sensible use of technology and customer etiquette.

Building the model
At the front end for a customer, you are a car rental company and it is imperative that you give your customers the same level of quality each time. This means your processes and standards need to be consistent, irrespective of the city your customer is in. At the back end, for reasons like the local context that is required in running this kind of business and to have an asset-light model, aggregating local vendors is a good way to go. But you need to set benchmarks for yourself viz-a-viz the kind of vendors you bring into your network, the level of customer care and the kind of cars and drivers you would like to have in your network too.

All this will determine your operational costs. Once selected, use local vendors as building blocks to build processes on top to control the customer experience. Usually, aggregators look at a pay-per-lead model, whereby your vendors will pay you a percentage on every lead they get from you. You can also look at a pre-paid model, where vendors pay you irrespective of the number of leads they get.

However, experienced entrepreneurs say the former is a wiser option. Needless to say, you will have to negotiate competitive rates before adding your mark-ups and that will require careful thought.

If you are an aggregator, you should aim at making 10-20 percent margins on average, so work out the economics accordingly. However, as an owner-cum-operator, you can look at making 20-25 percent margins on average.

Marketing modes
This industry works through word-of-mouth and trust from happy customers. However, this doesn’t mean you can avoid marketing your venture at all. Google Ads and SEOs are good options in the initial years. And if you want to tap corporate clients, develop an internal sales team to reach out to them.

Radio advertisements too, say some entrepreneurs, help generate leads and market your firm in terms of building brand recall value. Above all, social media tools like Facebook and Twitter are the best business tools you can use today as a young company to market your venture. These forums also allow you to engage with customers and get their feedback.

Your own taxi ads work as well to catch the attention of innumerable passers-by. You never know who could be watching, so make your fleet as attractive as possible to grab the attention of every commuter out there.

© Entrepreneur India December 2012
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