Does Zipcar Really Prevail?

Image from GeekWire

Nitin Subramanian (’24) | Feb 10, 2023

If you’re like me, you’ve probably found yourself inside a Zipcar at one point or another. As one of the most convenient forms of transportation on a college campus, vehicles are booked almost back-to-back and are only a few steps away from the dorms and apartments. But convenience is not the only reason Zipcar has gained so much popularity — its price and free gas make it more affordable than any rideshare on the market. As this seems way too good to be true, the question becomes, what is their business model, and how are they making any money?

Let’s take a closer look at a single one-hour zip car ride in a Kia Forte which comes to a grand total of $10.96. Given that the MPG of that Kia is roughly 35, and a gallon of gas costs about $5 in Los Angeles, you would need to go drive over 70 miles in that hour for Zipcar to generate a loss. However, even if you drive only 30 miles and use a single gallon of gas, Zipcar only profits $5.96 from that trip. That doesn’t include the price of maintaining the car and any of the repairs that come with driving which reduces the profit margin even more, if not entirely. So, how is Zipcar pulling off the seemingly impossible?

While your guess might be as good as mine, there are a few things that are important to consider. One is that Zipcar charges a yearly subscription of $90 as a fee to get access to their vehicles. It wouldn’t surprise me if the vast majority of these subscribers only used Zipcars a handful of times per year as many people like to keep it on hand in case of emergencies or an unexpected need for a car in a large city. The other key factor is in late fees — something that is taken right out of Blockbuster’s book. In the year 2000, Blockbuster made $800M from late fees which made up 16% of their revenue. In a similar way, Zipcar charges a $50 late fee for anytime a car is returned between one and 60 minutes late. As Zipcars are almost booked back-to-back, these late fees make sure that users return their cars punctually. But, if even just 15 zip cars are returned late per day, in each of the 500 cities that Zipcar is in, that comes out to nearly $3M in yearly profit. While there could be many other revenue streams for this automobile giant, they seem to be pulling it off every single day with happy customers, and in the end, that’s all that matters.