How to Start a Costume Rental Business

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Our guide on starting a costume rental business covers all the essential information to help you decide if this business is a good match for you. Learn about the day-to-day activities of a costume rental business owner, the typical target market, growth potential, startup costs, legal considerations, and more!

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Start a costume rental business by following these 9 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your costume rental business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

STEP 1: Plan your Business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

  • What are the initial costs?
  • Who is your target market?
  • How long it will take you to break even?
  • What will you name your business?

Luckily we have done a lot of this research for you. Skip on ahead to the Business Overview for more detailed answers to all your questions.

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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STEP 2: Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your costume rental business is sued. Consider using a registered agent service to help protect your privacy and stay compliant.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

STEP 4: Open a business bank account

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

STEP 7: Get Business Insurance

Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.

STEP 8: Define your brand.

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

STEP 9: Establish your Web Presence

A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Business Overview

While there is a greater demand for costumes during the Halloween season, many consumers have a need for costumes throughout the year. A costume business offers its customers costumes, wigs, and makeup for special events, theater performances, holidays, and festivals. Successful shops offer a combination of items available for rental and purchase, depending upon the needs of their customers.

Who is this business right for?

This business is best suited for individuals who are creative and passionate about the entertainment industry. Due to the nature of this business, owners should enjoy working with people. Many customers will enter your store feeling self-conscious; your passion for putting together costumes should be infectious, helping ease their apprehension.

What happens during a typical day at a costume rental business?

Many consider the costume industry a seasonal business. If you build a proper marketing strategy, however, there are a number of ways to minimize downtime and ensure a profitable business year round. A typical day will look something like this:

  • Check and answer emails and phone messages
  • Set up and attend meetings with clients who need assistance putting outfits together for a special event
  • Checking in and inspecting returned costumes
  • Cleaning returned costumes before re-stocking on shelf
  • Placing orders to replenish inventory
  • Researching the latest trends

Additionally, there are a number of administrative duties you’ll be tasked with. As revenue increases, consider hiring a trusted team member to handle the day-to-day office tasks.

What is the target market?

Most consumers have the need to shop for a costume at least once a year. The bulk of your business, however, will come from specific niches, such as: theater groups, schools, churches, and musicians. These are often very tight knit communities, so establishing a positive reputation with these groups will help your business achieve success.

How does a costume rental business make money?

Shops generate revenue through the sale and rental of costume items. Shop owners set rental prices, which vary from item to item. In addition to the rental fee, customers put down a deposit in case the item is lost or damaged. For sale item profits vary depending upon wholesale cost; shop around and build relationships with wholesalers to minimize inventory costs.

What is the growth potential for a costume rental business?

Just the Halloween retail and rental industry alone is worth over $7 billion annually, and is still rising. Stocking inventory that caters to niches previously mentioned will help achieve your business goals. Some costume shop owners prefer to remain small, limiting their service to members of their community, while others strive for a multi-million dollar business. With commitment and a strong business plan, your shop has the potential to grow on a national level.

What are some skills and experiences that will help you build a successful costume rental business?

Owning a costume rental shop is exciting, as it appeals to one’s artistic side. Many artists find it easy to get caught up in their passion, forgetting there is a business to run. It takes a disciplined individual with strong business and marketing acumen to ensure the business is set up for success. Strong interpersonal skills are a must, as you’ll spend much of your day catering to the needs of customers.

Your client base will consist of individuals from every demographic. Many will have an idea in their head of what they’re looking for, yet unable to express it clearly. The ability to listen, ask the right questions, and draw answers out of customers will help you consistently deliver excellent service. As mentioned, a creative mind will serve you well in this industry. Perhaps even more important, however, is having an eye for detail and a passion for research. If a theater group needs you to furnish the costumes for their newest play, set in Ireland in 1926, you don’t want to deliver items modeled after 1926 London.

As part of your research, make sure you stay abreast of the latest trends. Organizational skills are also beneficial in this industry. Starting out, you might only have twenty or thirty costumes. As your business grows, however, you’ll find yourself with hundreds of costumes. Implementing a strategy for keeping things organized from the onset will ensure inventory is properly managed and easy to find.

What are the costs involved in opening a costume rental business?

Before making any business purchases, a location must be chosen. Setting up shop near a theater, school, or church is a great way to start building a loyal customer base. Once you’ve settled on a location, start designing and filling your space. Ample storage and display cases will help with maintaining organization. These can often be purchased used, which will allow you to reallocate a portion of your budget. If your work space’s current floor plan doesn’t already have changing rooms, consult with a reputable contractor to discuss renovations. Building specifics, local code, and scope of the project will define contractor costs, ranging anywhere from $3,000 to more than $20,000. Before signing a lease, have a general contractor inspect the building and discuss your needs. This will safeguard against unexpected issues and ensure you budget properly.

Whether you offer rentals only, or plan to sell as well, your business will need to be set up like a retail space. Business tools such as a cash register, credit card machine, computer system, and business software will lay the foundation for a successful shop. Set aside $3,000 - $4,500 of your budget to purchase or lease these items.

Additional items you’ll need are:

  • Name and logo design that will draw people in
  • Business cards
  • Website - Cost for a simple site build ranges between $1,500 - $3,500. If you plan to sell inventory online, invest in an Ecommerce site. This has the potential to double your initial website cost, but is a great way to increase profits.
  • Insurance
  • Inventory - Costumes, wigs, makeup, and jewelry. Pieces vary in price from just a few dollars, to several hundred.

Total start-up costs, assuming your storefront doesn’t require major renovations, average from $5,000 to $27,000.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

What are some insider tips for jump starting a costume rental business?

The following are some tips from successful costume rental shop owners:

  • Before committing, research and visit the local competition. Identify their strengths and weaknesses Their weaknesses offer an opportunity to bring something unique to the community.
  • As part of your initial and ongoing investment, start a library of period and present-day costume books. This will serve as a great reference when a question pops up.
  • Include a section for fancy dresses. Themed parties have gained popularity in recent years and will increase your profits year round.
  • If possible, choose a location in an area where people are well off.
  • Don’t try to do everything at once. When building your collection, focus on purchasing costumes that represent the latest trends, as well as the staples every costume shop should have. Stock up on the most popular sizes first; you can always add more sizes later.
  • If your initial budget is slim, invest in a little lower quality costumes, at least until you have the essentials. Once you’ve built up a collection and more capital, you can start replacing them with better quality pieces.
  • Those with a larger budget should invest in high quality costumes from the start. The pieces will last longer and you’ll build a reputation for quality goods and services.
  • Remember to carry an ample supply of plus size pieces.

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Growing Your Business

How to promote & market a costume rental business

Because the costume business ebbs and flows, your marketing strategy should be focused and analyzed for improvement regularly. An online presence, particularly on social media, is a great way to reach potential customers.

Target previously mentioned niche groups. Direct mailers and advertising in school yearbooks and play programs are effective strategies for getting your name remembered throughout the community. Many of these niche communities are very tightly knit. Take the time to get involved and get to know them on a personal and professional level. Participate in parades and set up booths at local special events - networking could prove to be your strongest marketing tool.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

September and October are big months for the costume industry, with merchandise flying off the shelves as fast as employees can stock them. To build a solid customer base that generates revenue year round, you’ll need to get creative. Research other costume shops in your area. What are they lacking? What do they have too much stock of? What target opportunities are they not catering to? By offering items the community is lacking, you have a leg up on the competition. Above all else, consistently delivering quality products and services will help ensure customer retention.

How and when to build a team

To save on overhead expenses, running the business yourself is a viable option. Once business starts to pick up, or the busy season starts, you can start building a team. Many costume shops hire temporary employees to get them through the busy season. High school and college students are a great option, as they understand the latest trends and often attract friends and family who might otherwise not have visited your establishment.

Once you’ve built a trusted team, you’ll have more opportunities to focus on the aspects of the business you’re most passionate about. Just be sure you have a knowledgeable and well-rounded team, so all your clients needs are met.

Legal Considerations

Federal Business Licensing Requirements

If creating your own costumes, make sure to comply with the Federal Trade Commission’s regulations for labelling clothing products.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a costume rental business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

Resale certificates allow retailers to purchase goods wholesale and sell them individually. This method helps reduce the amount of tax paid by the retailer.

Maintain Personal Asset Protection

Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Two of the simplest steps that will protect your business, and yourself, are to:

Open a business bank account

  • This separates your personal assets from your company's assets, which is necessary for personal asset protection.
  • It also makes accounting and tax filing easier.

Get a business credit card

  • This helps you separate personal and business expenses by putting your business' expenses all in one place.
  • It also builds your company's credit history, which can be useful to raise money and investment later on.
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To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

Earning Potential

How much can you charge customers?

Costume rentals range in price from $35 to $250. Customers pay a flat fee per day. To accommodate longer rentals, consider offering special pricing and discounts.

What are the ongoing expenses for a costume rental business?

Aside from the standard operational expenses, your biggest overhead expense will be payroll and inventory. Each new trend signals the need to purchase new costumes and accessories. That, coupled with the need to replace pieces that were lost or damaged, means you’ll need to consistently expand your collection. Specific costs vary, depending upon the type and quality of costumes and how many are purchased.

How much profit can a costume rental business make?

Smaller businesses report an annual profit of $35,000 - $50,000. Shops located in urban areas are generally larger, allowing for a higher profit margin, generating a profit of up to $250,000. One entrepreneur started her business out of her home. With an emphasis on princess parties, she was able to work part-time and realized a profit of $27,000 in her first year.

How can you make your business more profitable?

Successful entrepreneurs continuously seek out innovative opportunities to generate more profit for their business. The following are a few strategies other costume shop owners have implemented to ensure a more profitable business:

  • If you enjoy the process, consider manufacturing your own costumes and accessories that could be sold or rented to individuals. While your start-up and ongoing expenses will increase, as you’ll need to invest in reliable equipment and quality fabric. The profit margin on your own creations, however, is much higher than on items purchased wholesale.
  • Host community workshops or courses, where you teach students how to make their own costumes.
  • Expand your business to include the sale and/or rental of decorations and props for theaters and parties.
  • If your business strategy includes catering to the acting community, offer delivery service. Just make sure you track transportation and maintenance expenses and charge a fair delivery fee.
  • Sell costumes and accessories online.
  • Consider offering franchising opportunities.

Next Steps

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