Parking lots can be a profitable business venture, but they require a lot of careful planning and execution to be successful. If you’re planning to acquire or start a parking lot business you are probably asking yourself – are parking lots profitable? – and are wondering what and how long it will take to start generating profits.
Like with all businesses, with a parking lot business too, you will need to carefully evaluate all of your revenue sources and make reasonably good revenue projections including on a month-by-month basis throughout the year. You will also need to be clear about operating expenses that your business will incur so that you can achieve operating profitability as quickly as possible.
However, a parking lot investment is made for the long-term and you will be able to depreciate it. So you shouldn’t forget to see how these impact your net profitability. And some of these long-term investments, especially those in acquiring real estate, could require you to raise capital or take on debt.
In this article, we will review the different potential revenue sources for a parking lot business and also take a look at some of the expenses that you will need to incur to keep your business running.
We’ll cover everything from choosing the right location to hiring staff at the right times and review our top tips for a successful parking lot business. So if you’re thinking about starting your own parking lot, read on!
When Are Parking Lots Profitable?
Parking Lots could need a high upfront investment if you purchase the land or have high fixed costs if you choose to rent the space. And you will need to cover these costs regardless of whether your parking lot is full or empty.
And so your parking lot can be profitable if it is in an area with enough parking demand, if you have utilization that’s high enough and/or if you keep your costs low by linking your costs to your revenue.
For instance, if you have your parking lot in a business district that is virtually empty over the weekend, you could have fewer staff working on weekends. This way you lower your costs when you have lower revenue.
But in order to achieve profitability, you’ll first need to find a location for your parking lot that makes sense. The best locations for parking lots are usually near high traffic areas like shopping centers, sports stadiums, airports, or downtown business districts.
The reason for this is that people are more likely to be willing to pay for the convenience of having a parking spot close to their destination. And so, if you can find a location near one of these areas, you’ll be in a good position to start generating profits from your parking lot business.
What Are the Operating Expenses of a Parking Lot Business?
The top 7 operating expenses that most parking lot businesses incur are:
- Rent or Mortage for the space
- Labor
- Automated ticketing system (if you have one)
- Parking lot maintenance
- Insurance
- Advertising and Promotion
- Taxes
The biggest operating expenses for a parking lot will be the rent (or mortgage if you’ve purchased the parking lot) and the cost of labor. You’ll need to hire staff to man the parking lot, collect fees, offer valet parking and handle any problems that may arise.
One way to lower labor costs will be to have an automated system in place to handle transactions. This can be a simple ticket machine that customers can use to pay for their parking. But such a system can be a large upfront cost and will require regular maintenance. And if the system breaks down your parking lot will be inaccessible to customers.
Another way to reduce labor costs is by only staffing the parking lot during peak times. As we saw in the previous section, you can staff your parking lot according to when it is being used the most.
For instance, if your parking lot is near a business district, you’ll want to have staff on weekdays during business hours. But on weekends or evenings, you may not need anyone manning the parking lot as there won’t be as many customers.
Of course, this means that you’ll need to have some way to restrict access to the parking lot during off-peak times. This can be done with a simple gate or barrier that can be closed when no one is manning the parking lot.
The costs of maintaining and repairing your parking lot will also need to be considered as part of your operating expenses. As the owner of a parking lot, you’ll be responsible for fixing any damage that may occur, such as potholes, cracked pavement, or broken signage.
You’ll also need to regularly sweep and clean the parking lot to ensure that it is presentable to customers. And if you have an automated system in place, you’ll need to factor in the costs of maintenance and repairs for that as well.
In addition, you’ll need to pay for insurance and for marketing and advertising, depending on how you plan to attract customers to your parking lot.
You will need to carefully consider all of these expenses when estimating the profitability of your parking lot business.
What Are the Potential Revenue Streams for a Parking Lot Business?
Here are 6 Potential Revenue Streams you can consider for your parking lot business:
- Customers who park their vehicles (the most obvious one)
- Premium customers (who pay monthly for a fixed spot)
- Charging stations for EVs
- Vending machines
- Advertising (eg. with billboards, a parked branded truck, etc)
- Event Parking (making a deal with an event organizer)
The most obvious revenue stream for a parking lot business is from customers who do not have their own parking space and so will use your parking lot to park their vehicles.
You’ll need to charge a fee for customers to park in your lot, and the amount you charge will depend on factors such as the location of your parking lot, the type of customers you’re catering to, and the amenities you offer.
For instance, if your parking lot is located in a busy downtown area, you’ll be able to charge a higher fee than if it were located in a more suburban area.
And if your parking lot offers features such as electric vehicle charging stations or valet service, you’ll be able to charge a premium for those amenities.
In addition to the fees charged for customers to park in your lot, you can also generate revenue from advertising.
If you have a large parking lot with high traffic, you can rent out space for billboards or other types of advertising. This can be a great way to generate additional income, and it can also help to offset the costs of maintaining the parking lot.
You could also put vending machines in your parking lot to generate additional revenue.
Finally, you may also be able to generate revenue from event parking. If your parking lot is located near a popular venue, you can charge a premium for customers to park there during events. You could make a deal with the event organizers and offer discounted prices to their customers.
This can be a great way to generate income on nights and weekends when your parking lot would otherwise be empty.
Tips for a Successful Parking Lot Business
There are some things you can do to increase your chances of success with a parking lot business. Here are our top 7 tips for success:
- Pick the perfect location
- Factor in all potential expenses
- Keep your operating expenses to a minimum
- Be creative about new revenue streams
- Get adequate insurance coverage
- Keep your parking lot safe and clean
- Advertise and Promot your parking lot business
Let’s look closely at each of these.
1. Pick the perfect location
Like with hotels and restaurants, the location of a parking lot can make or break the business. After all, most parking lots are a commodity and people don’t care whether they park in one parking lot or another. All they are looking for is convenience.
And so the perfect location for a parking lot is one that is in close proximity to where people need or want to go by foot. So, look for a spot that is near popular restaurants, shopping centers, sporting venues, or other businesses that generate foot traffic.
Another thing to keep in mind is that the closer your parking lot is to these businesses, the higher you can charge for parking. It might be worth getting a premium spot that costs more upfront but will generate more profits in the long run rather than finding a cheaper parking lot that you struggle to fill up. Do your calculations and simulations before picking the final location.
2. Factor in all potential expenses
A common mistake new business owners and entrepreneurs make is to underestimate their operating expenses. They think they have a handle on their costs but then they get hit with all sorts of unexpected bills and expenses that they didn’t factor in.
When you’re budgeting for your parking lot business, make sure to factor in all potential operating expenses, such as property taxes, insurance, utilities, repairs and maintenance, marketing, and labor costs.
Err on the side of caution and add buffers to your estimates. Remember that your expenses are likely going to be higher than what you imagine.
3. Keep your operating expenses to a minimum
One of the best ways to ensure profitability is to keep your operating expenses as low as possible. This can be tricky with a parking lot business because you will have fixed costs, such as rent, taxes, maintenance, and insurance, that you can’t do much about.
But there are other ways to keep your costs down by linking them to revenue. As we’ve seen earlier in this article, you can lower labor costs by not having staff during slow periods or using technology, such as parking meters, to automate the parking process.
You can also save on marketing costs by partnering with local businesses or using word-of-mouth advertising and social media to promote your parking lot.
4. Be creative about new revenue streams
The most obvious source of revenue for your parking lot business will be customers looking for a car park. But you can be creative about how you charge for this.
For instance, you could have different rates for different times of day or week. You could also offer monthly or yearly contracts for regular customers. You could offer fixed spots for premium customers for an additional fee. In short, use techniques like price segmentation to charge different prices to different customers based on their willingness to pay.
You can also be creative in thinking about other revenue streams some of which we have already seen, like putting EV charging stations, negotiating event parking, adding vending machines, etc.
There are all sorts of possibilities when it comes to generating revenue from your parking lot business. The key is to be creative and think outside the box.
5. Get adequate insurance coverage
Parking lots can get sued for all sorts of reasons, such as someone slipping and falling or their car being damaged while it’s parked in your lot.
Inadequate insurance can really hurt your business or even put you out of business. At the minimum, it will seriously impact your profitability and limit your ability to make further investments.
Make sure you are fully insured against all eventualities. Get legal advice if necessary or at least talk to an insurance agent who is familiar with parking lot businesses to make sure you’re adequately covered.
6. Keep your parking lot safe and clean
This should be a no-brainer, but it’s important to keep your parking lot safe and clean. This means regularly sweeping and clearing debris, fixing any potholes or cracks, painting lines and signage, and making sure the lighting is adequate.
A well-maintained parking lot conveys a sense of professionalism and care to your customers. It will also make your parking lot more attractive to potential customers, which can lead to increased revenue.
Also, there is a question of safety. A well-lit and well-maintained parking lot is less likely to have accidents or crimes. This will lower your insurance costs and also reduce the likelihood of getting sued. It will also help you attract certain customers like women or families with children looking for a parking lot in the late evening or after dark. You may also want to consider keeping a security guard at certain times of the day.
7. Advertise and Promote your parking lot business
A common mistake that parking lot owners make is not promoting their business. Just because you have a parking lot doesn’t mean people will automatically know about it or use it. You need to let them know that your parking lot exists and that it’s a safe and convenient place to park their car.
There are all sorts of ways to promote your parking lot business. You can put up signs and billboards in strategic locations. You can distribute flyers or coupons to local businesses. You can partner with local businesses to promote your parking lot by giving discounts to their employees and customers.
Summary
Are parking lots profitable? That’s the question we have tried to answer in this article and we have shown you ways in which you could make your parking lot business profitable.
The key to a profitable parking lot is to ensure that you have adequate utilization. This begins with finding the best possible location for your parking lot. Remember, that a parking lot is about convenience. So, find a location where people have no choice but to park their car somewhere. This could be close to businesses that have a lot of footfall – like shopping centers, downtowns, sports stadiums, airports, etc.
Before starting your parking lot business consider all possible revenue sources. Remember, that you can make a lot of money from non-parking services. This could include EV charging stations, valet service, vending machines, etc. Think also of making long-term deals with individual customers who may live nearby and not have their own parking space or with businesses who may be looking for parking space for their employees or customers.
Most of all, be aware of your expenses and keep them under control. The most common operating expenses that parking lot businesses incur are rent/mortgage, labor, maintenance, insurance, advertising/promotion, and taxes. Be clear about your estimates of these expenses and don’t low-ball them. Err on the side of caution and assume these expenses will be more than your initial projections.
In the end, the profitability of a parking lot business is no different than that of other businesses – constantly look for new revenue sources and be creative about it, keep a lid on your expenses, and don’t let them out of hand.
Good luck with your parking lot business!
