Due to the conditions that exist with most towing businesses, I believe it is short-sighted for tow company owners to become too dependent on any one source of revenue. Not only is the risk too high, with regards to the fear that the company or entity you become dependent upon may go belly-up, but due to competitive pressures, many times, these types of relationships require price concessions on the part of the tow company owner. Another thing you must consider when partnering with any of the entities that haunt the towing industry is what makes a towing company sellable. If you’re too dependent on low-paying motor clubs, your business may not be valuable to buyers when you’re ready to sell.
Tow Company Owner Beware
Just look at the concessions required to be primary for some of the clubs.
Many a towing company owner has experienced the “privilege” of Primary Service Provider status with some of the motor clubs. To attain that “lofty” status of Primary, they must agree to specific terms. They may be required to maintain a certain level of call acceptance, be available 24/7 (with no premiums for after-hours calls,) and agree to accept less-than-desirable rates. All these concessions, the towing company is willing to agree to because they’re hoping that the motor club will provide them with enough volume to outrun what it might cost to service the club’s members. But guess what happens when a primary service provider is unable to accept a call the motor club?
When a primary service provider is unavailable to take a call, the motor club will then look for a towing company outside of the network. And since there is no contract in place with this out-of-network towing company, the club usually agrees to pay the towing company their standard commercial rate, which can be as much as double, or more, than what the primary service provider would have received.
Besides being required to give-in on price, in order to be awarded the honor of servicing a club’s members, there’s another reason NOT to fill your basket solely with motor-club eggs. Motor clubs and insurance companies must compete with each other, (that’s one reason they pay tow companies so little.) They’re all going after the big car manufacturers, cell phone carriers, and any other large block of customers they can get. Many times these contracts are awarded by region. And because they compete for basically the same blocks of customers, there’s always going to be winners and there’s always going to be losers. So, If your towing business happens to be heavily invested in one of the losers in your region, guess who’s call volume just dropped?
Here’s an example of what can occur:
Let’s say there are just 2 motor clubs vying for GM’s business. And Motor Club #1 (MC1) wins the contract with GM for the entire city of Miami, Florida. To service those customers, MC1 must either find a large and dependable towing company to be primary, or they must ensnare enough smaller towing companies to handle the volume.
So let’s say you’re a small tow company owner in Miami. You have a couple of trucks and tow truck operators, and you’re doing really well. You’re bringing in enough money to maintain your trucks and equipment, your tow truck operators are making good money, and you’re able to take money home.
Then, out of nowhere, MC1 comes to you and asks if you are able to handle more calls. “Of course,” you say, dollar signs in your eyes. And in a short while your little towing business is doing 3 times the amount of calls.
So, to handle the increased volume you’re required to staff-up, and even buy a couple of new tow trucks.
Two years later you’re still with MC1, you now have 5 trucks and 6 drivers. Your expenses, as a percentage of revenue, aren’t as good as before but you’re ok with it because the increased volume has also brought with it a slight uptick in profits.
And…yeah…you’ve got a couple of truck notes that you didn’t have before. But…you reason, “these are justified by the increased volume.”
There’s just one little problem, MC1’s contract with GM just expired. And a new motor club, MC2, has the contract now. I think you know where I’m going with this.
Don’t Fall For This Trap
The point being, to truly partner with top insurance companies, and make a decent profit, you’ve got to be conservative. And putting all your eggs in one basket is synonymous with becoming too dependent on any one type of customer, especially the type who can snatch your livelihood away arbitrarily.
To avoid having this happen in your towing business you need a wide and varied customer base. But before we cover how to achieve this, let’s first examine the concept of putting all your eggs in one basket.
The origin of; “Putting All Your Eggs In One Basket,” comes from the novel, “Don Quixote,” “It is the part of a wise man to keep himself today for tomorrow, and not ventured all his eggs in one basket.”
Meaning, if you have all your eggs in just one basket, if you trip, or if someone steals your basket, all that you’ve worked for is gone. Makes sense, right?
Well…Not everybody thinks so.
In 1885, multi-millionaire Steel Magnate Andrew Carnegie challenged this axiom. He gave a commencement speech in which he expressed his belief that the opposite was true. He said, “Don’t put all your eggs in one basket,” is all wrong. I tell you, “put all your eggs in one basket, and then watch that basket.”
Although his statement may seem contrary to how I believe successful tow company owners should operate, I do agree with his line of thinking. In that same commencement speech, Mr. Carnegie also said, “The concerns which fail are those which have scattered their capital, which means that they have scattered their brains also. They have investments in this, or that, or the other, here, there, and everywhere.”
What he meant by this was; Business owners, rather than working on continuous improvements to their businesses, are constantly distracted by the next great thing. Some other “big opportunity” always seems to supplant the original opportunity, making it very difficult to realize success.
Distraction Diffuses Your Energy
This is 100% true, most people are afflicted with a phenomenon known as “the grass is always greener on the other side of the fence.”
Unless you’ve had a lobotomy, most of us are never satisfied with what we have. We always want more. Some of us make-up things and work hard to get what we want, while others make excuses. Of course, most business owners would point to this dissatisfaction as the very reason why they started out on their own in the first place. But therein lies the problem.
If you believe that (whatever you want to call it) a trait, or the habit of being dissatisfied, has led to the successes you’ve already experienced, then you’ll be hard-pressed to set aside what you believe has served you so well in the past. Which means you’ll keep being distracted and have a hard time getting what you want.
To be clear, I agree with Mr. Carnegie that we should “…watch that basket.” But, for tow company owners, your basket should NOT contain only one homogenous strain of customer. On the contrary, it should constantly be replenished with a steady stream of various types of customers. And there’s no reason you shouldn’t already be doing this.
In 2015, AAA service providers alone assisted more than 32 million motorists. By 2019 the average age of the more than 250 million cars on US roads is expected to rise to 11.7 years. And, as of 2017, there were officially more cell phones in the US than people. This all means that there are more cars on the roads than ever before, that these cars are older than ever before, and that distracted driving will remain a problem well into the future. Are you seeing where I’m going with this?
With all of the challenges afflicting motorists in the US, and the fact that no single provider or all the motor clubs combined could possibly provide towing and roadside assistance to all of them, there is ample opportunity to plant your flag precisely where these people are looking. Doing this will inevitably fill your basket with the type of customer you’re looking for.
As I’ve mentioned many times before, for the tow company owner, the stranded motorist is your ideal customer. Of course, there are price-shoppers everywhere, but if you use effective tow company dispatching techniques, for the most part, stranded motorists will be willing to pay reasonable rates to have their problems solved in a timely manner.
Rather than waiting on hold for the next available motor club call receiver, only to be transferred again and again, in an over-bloated, bureaucratic hamster-wheel called “Roadside Assistance,” savvy motorists know that they have the power to take matters into their own hands.
So what do stranded motorists do when they need towing or roadside assistance?
That’s right, they pick up their smartphones and Google “Towing” or something related.
When a stranded motorist needs towing or roadside assistance, they usually use their phone and call for help. But who they call and how they find the services of a tow company varies. Most of the time, a stranded motorist will use 1 of these 4 basic sources when seeking to procure the services of a towing company.
– Law Enforcement
– Motor Clubs
– Referrals(like a trusted Auto Repair Shop)
– Online Search
This means that, as a tow company owner, you will want to exploit each of these to the fullest extent.
– Law Enforcement: Even if you aren’t on rotation with local law enforcement, you’ll want to make yourself known to them.
– Motor Clubs: Use motor clubs to leverage relationships with repair shops, gain exposure, and gather online reviews. All the while decreasing your dependency on them by creating an authoritative presence online.
– Referrals: Foster relationships with mechanic shops and body shops. Motorists have stronger relationships with these businesses due to the frequency of visits.
– Online Search: Most people don’t plan ahead for car problems, but they all have one thing in common, they all have a smartphone and the ability to search for a “tow truck near me.”
The successful tow company owner knows that price controls ruin markets and that surrendering their business’s sovereignty to any one type of entity, like motor clubs, can spell disaster. To build a strong towing company, you need to take advantage of every available resource. Think of your business as being supported by customers made up of a tightly woven net with thousands of connections. If one connection breaks and you lose a customer, you’re still good because you have the remaining connections. One word of warning, though, due to the nature of the beast that is the towing business and the fact that customers only need you WHEN they need you, you must continue to build out your net with a steady stream of new customers.