The Monthly Costs Associated With Running A Towing Business

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The Monthly Costs Associated With Running A Towing Business

Written By Don Archer Connect with him on Facebook

Now that you’ve read the post How to Get Started in The Towing Business and have a rough idea of the possibilities with regard to income you need to continue your investigation into the towing business. To determine if this is a good fit for you, you’ll need to know what recurring expenses you’ll have on a monthly basis.

With every business, there are two sides to the profit equation; Income and Expenses. Obviously, you want to have more money coming in than going out and you do that by either spending less, selling more or both.

Before we go further we’re going to establish certain assumptions:

All numbers here are hypothetical and are dependent upon your circumstances.
You’re an individual with no employees.
You operate one tow truck, wrecker or carrier it doesn’t matter.
You either operate out of your home or an existing business that has another source of revenue.
These expenses do not include any amounts for overhead such as real estate mortgage, rents, electricity, trash, and other expenses that go along with an office, garage or storage facility. If you run this business out of your home you’ll need to check with the authorities to be sure you’re operating within the rules.

The average costs of running a one-truck operation will vary depending upon your choices. You’ll obviously have a higher monthly mortgage and increased insurance payments if you finance a new truck. On the other hand, purchasing a used tow truck will cost less up front but it may eat you up in repair bills. The choice is up to you.

Recurring Monthly expenses for a towing business can include


Tow truck mortgage $1,288
($80,000 truck financed for 6 years at 6%)

I’m not suggesting here that you mortgage a truck, in fact, it can be difficult getting financed since, if you’re just starting out, you won’t have a track history of income. What I do suggest is, the best route for entry into the towing industry is to pay for a truck with cash. I understand that this can be difficult due to the fact that a decent used tow truck can run anywhere from $25,000 to $45,000. Unfortunately, this is the reality we live in.  This is one BIG barrier to entry into this business, however, those who do have the ability to discipline themselves and sock away money for a lofty goal such as this will have given themselves a huge advantage. Not only will they be unburdened by a monthly payment but the process of saving and focusing on a goal will provide them with the fortitude they need in the years to come as they grow their towing business.

Fuel $1,282-
(220 calls @ 20 miles each & 13mpg with $3.79 gal/ diesel)

Most tow trucks have diesel engines. The reason for this is two-fold. Diesel engines operate at a much higher compression than gas engines which provides both cost savings with regards to mileage, as well as added power for getting the job done. One of the caveats with operating a diesel truck is repairs are usually more expensive, especially on newer models.

Insurance $600- (high deductible)

The monthly insurance premium for tow truck operators just starting out is one of the other BIG barriers to entry. In recent months, one of the largest insurance companies in the towing industry, Progressive, after pulling out of the market, has re-entered in various areas. This move has increased insurance premiums substantially.

The types of insurance you’ll need are

  1. General Liability
  2. On-Hook
  3. Cargo
  4. And, if you have a storage facility you’ll need Garage-Keepers coverage as well.

Also, depending upon the entities you work for, insurance companies, motor clubs, law enforcement, and the like, you may be required to obtain an umbrella policy upwards of $1,000,000 or more.

Repair Bills $500-  (Repairs and maintenance will vary depending on many factors)

Depending on the age of your truck, the type of truck and bed you buy, how well it’s maintained, and how you use it, your repairs and maintenance will vary.  I would suggest not buying anything that’s 7 years or older, that’s because, for the most part, these truck will have racked up the mileage, and even though it might look good and sound good, there may still have been neglect that’s too far gone to remedy.  Maintaining your truck is one of simplest ways to avoid or put-off costly repairs. Checking oil and other fluids daily, changing oil per manufacturer’s suggestions, lubricate all moving parts on both the chassis and bed increases the life and usefulness of your tow truck.  Another factor that can decrease the frequency of repair is not using your truck and bed outside the manufacturer’s suggestions. Both your Cab & Chassis as well as your bed have specific capacities and load limits that must be adhered to avoid damage and to keep everyone safe.

Marketing $1500- (Variable but expect to invest this minimum)

Marketing your towing business is a must, unfortunately, this is the most overlooked part of growing a towing business. Rather than thinking of customer acquisition as something that should be addressed head-on with a decided budget, most tow company owners use a “Field of Dreams” approach, thinking all they have to do is put a sign on their truck and the calls will start rolling in. And when the calls don’t start coming in as quickly as expected, they land square in the lap of the motor clubs. But now they are desperate.

Why do you think motor club rates are so low?  Because there are not enough service providers who understand exactly how to properly work with the motor clubs and insurance companies. They’re setting rates too low and harming themselves.

A smart towing business owner understands that marketing their business is just as important as putting fuel in their trucks, maybe even more so. Because without customers, what need is fuel or trucks for that matter.

Gone are the days of the Yellow Pages. Today, there’s a new sheriff in town, and that’s Google. There are basically 4 ways in which a motorist finds the services of a towing company, and you’ll want to exploit all 4.  Motor clubs, Law Enforcement, Referrals, and Google.  Not everybody has a motor club, not everyone will think to call a friend or repair-shop for a referral, and not everyone will call 911 and ask for help, but everyone has a smartphone and the ability to search for the services of a towing company.  Unfortunately, there are charlatans in every trade and it’s difficult to know who to trust. If you are looking for marketing for your towing business contact The Tow Academy. We have a proven process of increasing online visibility so your business gets found more often.

Phone $100-

Damages $300-

Unfortunately, there will be times when damages occur. Depending on your attention to detail, damages to a customer’s vehicle may not happen for an extended period.  We suggest that you budget at a minimum $300 dollars per month for each of tow truck operator you employ. This number may sound high to you, and it is, in fact, an over-exaggeration of the problem but when damages do occur, if you’ve put this amount of money into a separate account, it will hurt a lot less.

Als0, if you work motor vehicle accidents, you may encounter situations that are barely tenable. On some recoveries, you may be required to do additional damages to the vehicle in order to remedy the situation. For example, an accident where two vehicles are merged, or locked together.  They can’t be towed together that way, so sometimes you have to break a few eggs to make an omelet. Unfortunately, some motorists do not understand the limitations that exist, in these instances. And they may complain to their insurance company that you did more damage than was necessary, or that you were neglectful in your work.  That is why it is always best to carry a damage waiver.  and have the customer sign it before commencing the work.

Of course, under certain circumstances, it is not reasonable or required for you to get a signed waiver. For example, in the middle of a busy 4-lane highway where clearing the road quickly can mean the difference between life and death.

And, know this, even if you do get a signed damage waiver before you begin the work, it may not cover you in all instances. So, document the recovery with photos before you touch the car.

Uniform $75-

Miscellaneous $50 Ticket Book and Office Supplies

This list doesn’t include any expenses you’ll pay annually such as Licenses, taxes, subscriptions, and dues. And you’ll make other discretionary spending choices when it comes to training and upgrading equipment throughout the year. This is a good place to start so that you understand how much money you’ll be required to bring in monthly to make it.

About the Author:

Don G. Archer is the former owner of a 12 truck, 20 employee towing business. He now spends his time helping others build and start successful towing businesses around the country. Don is a multi-published author, educator, and speaker and is known as the tow-evangelist, www. thetowacademy.com Want to learn more? Email him direct at don@thetowacedemy.com

27 Comments

  1. Demetrius L Pierce sr October 20, 2017 at 9:46 am - Reply

    Hi , my name is Demetrius Pierce “Big Dee” I had a towing in 90’s and early 00 loss it due to divorce and I was thinking of starting up again but was wondering is the money still there like it was years ago…Some of my friends that are still in it say no because of insurance and how the price of trucks have gone up , so I was wondering can you still make above living verses staying working a job at 40,000 yearly..

    • Don Archer October 20, 2017 at 11:55 am - Reply

      Big Dee, Of course you can still make money in the towing business, if you’re smart. That means steering clear of dependency on motor clubs, staying away from working in cities where the rotation is controlled by 3rd-party dispatching companies, and being found where good, cash paying customers are looking for your services. Go ahead, Get in the game.

  2. Adam January 14, 2018 at 2:27 pm - Reply

    Hi Don, I am willing to start a small towing company in Edmonton Canada. But I am not sure how goes the business here, is the money good here. as I head here is no motor clubs or dispatching companies like US. The market seems good I guess! But I wondring if you have any hook up here or any informations how the business goes?

    • Frankie March 11, 2018 at 1:34 am - Reply

      Hi Adam, I think you are in a great position to start towing in Canada. The pay will be better than using the motor clubs. Some do pay reasonable rates, but if the register owner is willing to pay. You will get much better rate per mile. Best of luck.

  3. PHUMELELE January 24, 2018 at 4:31 am - Reply

    Hi DON G i am willing to start a truck towing company in Johannesburg SOUTH AFRICA. my problem is that i don’t have clear information about this kind of business i already have few trucks. as i am not sure how the business goes here can you please help me with information of what to do if things are like this.

  4. Kevin February 12, 2018 at 12:22 am - Reply

    Good evening Don.
    I am starting up my own roadside assistance business here in Arizona. I was planning on using my personal vehicle and having the logos for the company put on it with lights. I was also going to start the business utilizing the motor clubs for jumps, gas, lock outs and what not. Is this a good approach to get started or should I try to find an old good used wrecker to start?
    I am currently in the towing industry as a driver so I know a lot about the field. Just think it’s time to branch out on my own. Thanks

    • Don G. Archer February 12, 2018 at 8:21 am - Reply

      Kevin,
      Thanks for commenting. I appreciate the question and understand your desire to get into the industry as inexpensively as possible, but there are many things to consider before jumping in this way. Check out the last comment on this post, it should shed a little light on the challenges of choosing this route.

      Thanks again.

  5. Dawn Grantling March 10, 2018 at 10:19 am - Reply

    Hello Don

    My name is Dawn and me and my Husband are wanting to start a towing business in GA but I’m kind of wondering if it would be worth it because I’m looking at cost and I’m kind of confused I’m just needing some help with some guidance can you help me please is there a class I can take to find out more or anyting I’d appreciate it thank you.

  6. Antoine Leeper March 16, 2018 at 2:05 pm - Reply

    Hey Don I love the info. I live in Indianapolis thinking of starting a tow truck company and I would be the only driver. Family time is important to me and I was wondering if there’s a way to run A non 24/7 company and still make enough to provide for my family? Not trying to get rich just make a decent living being my own boss. I’d appreciate a response thanks

    • Don G. Archer March 19, 2018 at 10:52 am - Reply

      Antoine, I work with several non 24/7 companies, and yes they do make enough money to make a living. There are limitations of course. Motorists need the services of towing companies regardless of the time of day or night. Which means, you’ll be hard-pressed to get any work from law enforcement. There are many things to consider before jumping in though. Here are just a few. First; many of your customers will come from referrals, which means you’ll need to take the TIME to develop relationships with local repair shops and other business owners. Second; a towing business is not something you can do as a part-time gig. You’ll have to put all of your ENERGY into it. This TIME + ENERGY means you must either have another passive source of income, or you must have enough money in the bank to withstand, at minimum 12 months of not reaching your break-even point. So save your money until you have enough money to buy a truck outright. Try to stay out of debt. Cut your lifestyle as much as possible. Anything worth having is worth sacrificing for. So ask yourself do you really want it. Also, the sooner you get your head wrapped around the concept that the quality of your marketing is just as essential to your business as the quality of the fuel you put in your truck, the quicker you’ll move forward. Customers only need you when the need you. And if you are limiting your availability you must take advantage of marketing to get the calls you want during the times that you are open.

      Hope that helps.

  7. Tony March 23, 2018 at 12:49 am - Reply

    What’s up Don? Quick question, how do I get contracted with Autoreturn in San Francisco?

    Thanks

    • Don G. Archer March 23, 2018 at 6:14 am - Reply

      Tony, Why would you want to be contracted with AutoReturn?

      • Tony March 23, 2018 at 5:29 pm - Reply

        I’m told that’s a lucrative contact to have? Is that not true?

        • Don G. Archer March 23, 2018 at 6:25 pm - Reply

          Well I guess that depends upon what your idea of lucrative is. From what I’ve been told from reliable sources, it’s not very good pay, compared to what state police calls pay. Unless you are accustomed to accepting the scraps that being contracted with motor clubs provides. Tony, seriously…read this post AutoReturn accused me of making false claims about their company, and then attempted to use the leverage of being an advertiser with American Towman Magazine to get me to stop telling the truth. They threatened to sue me for calling them parasites.

  8. Monttez March 31, 2018 at 6:07 pm - Reply

    Good evening. I am interested in starting up a tow business. I am not looking to make a living from it. I am just looking to do it as a side business and possibly hire a part-time employee to handle it when I am not around. My father passed two years ago and left me an auto mechanic shop. The facility is paid off and is in good standing. I would like to open up a tow business. The part-time employee would be a family member who does odd and end work but also needs something more consistent. What do you think and what is your advice, sir. Thank you for your time.

  9. Cindy April 17, 2018 at 1:19 am - Reply

    Hi my husband wants to start his towing/hauling business, we don’t know where to start.. can you guide us ?

    • Don G. Archer April 19, 2018 at 7:45 am - Reply

      Cindy, Starting a towing business is a huge undertaking. If you would like one-on-one coaching contact me and we’ll discuss it to see if we’re a good fit. Otherwise you can start here.

  10. William Wright April 24, 2018 at 12:00 pm - Reply

    First off thanks for all the info
    I have been working in a towing company/tire shop. I don’t make much there and want to go out on my own.
    Any advice on what banks or program’s I can look in to? I am looking to start small at first, any advice on what truck would fit me in a smaller town? Thanks again from Clarksburg, WV.

    • Don Archer April 24, 2018 at 7:37 pm - Reply

      William
      Since we all love our trucks, let’s start with the truck question. I always suggest that, for the most part, new tow company owners should start out with a flatbed tow truck, commonly referred to as a carrier, or rollback. Preferably used, and paid for with cash. A Hino, Freightliner, International 4300, Ford F650, Chevy 5500, or something along those lines with at minimum, a 21-foot bed with removable rails.

      Now for the tough stuff – banking/programs. With zero revenues, and no experience in the towing industry you’ll be hard-pressed to find anyone, outside of family, who will be willing to take a chance on you and loan you money to start a towing business. Your best bet is to save up and invest your money on your idea. Saving your own money will help you in more ways than one.

      Saving your money will help you stick in there when times are tough because your expenses will be less. Saving your money will allow to you appreciate the sacrifice, and the investment of time and energy you’ve made to get you where you are. But most importantly, saving your money will help you to begin to develop the discipline necessary for operating any business. Spending borrowed money, as most bankers know, is easy. Why? The money wasn’t earned and is therefore not appreciated. That’s why that type of money is few and far between.

      Good luck, I hope that helps

  11. Crystal williams April 27, 2018 at 11:28 am - Reply

    Hello Don,
    I am trying to learn as much as possible to create a business plan to start our own towing business. We live in Polson Montana and its a very rural area so travel and time is more than in a city. We have two competitors one with an outstanding name and one with a so-so name. My boyfriend has the experience of driving tow trucks and has been a mechanic for 20 years…I have the experience of office work, advertisement, accounting, and sales. My question is do you believe it would be lucrative to start in this area?

    • Don G. Archer April 28, 2018 at 3:52 pm - Reply

      Crystal,
      I’ll do my best to answer your question.

      You are asking if I think opening a towing business in Polson Montana will be a lucrative venture. Lucrative merely means profitable. So, if you simply want to make a profit, all you need to do is find out if you can provide enough of your services to outrun what it costs to provide them. If you can, then yes, you’re obviously going to making a profit.

      But if you want me to tell you if opening a towing business in Polson is worth your time, well the answer to that depends. Among the many things you must consider before leaping into this is the value you place on your time, the demand for towing services in your area, and what’s called opportunity cost. What other opportunities exist in your area, and would choosing one of them constitute a higher, better use of your time?

      There are various reasons for wanting to start a towing business; one is profit, another is service to the community. But, since you asked about profitability, I’ll give you an idea of how I would go about evaluating whether or not to open a towing company in Polson, Montana.

      To begin, the city of Polson has a population of roughly 4700, is located in Lake County, which has a population of 29,000, and Lake County is vast, it encompasses 1654 square miles. Your area is very sparsely populated meaning there may be fewer people who need your service.

      The county my towing company was in is 1/4th the square miles of your county, and with a population that is more than 2 1/2 times your county. If that were all the information I had, I would be inclined to look elsewhere.

      That being said, a simple Google search of “Tourism Lake County MT,” yielded this result.

      In 2017, Montana’s Tribal Economic Development Commission received legislative funding to develop the “Indian County Tourism Region.” The office is currently seeking to hire a Tribal Tourism Officer to promote “authentic and culturally appropriate tourism in Montana.” The state’s department of commerce reports that 12.5 million out of state visitors contributed $3.3 billion to Montana’s economy in 2017.

      If tourism is a huge part of the economy, or you are aware of a powerful industry’s interest in expanding in your area, say; Big Oil, then starting a towing business there might be a good fit.

      Hope that helps.

  12. Kevin ellis June 1, 2018 at 8:19 pm - Reply

    Hi don I currently have 2 semis on the road n also work for local semi wrecker company as a driver I’m looking at going all in on starting my own wrecker company as well as keeping the semi trucks rolling ive got some capital on hand i live in central Indiana area I’m wondering if it would be a wise decision since i have the trucks or would it be a bad idea I’m profitable in the trucks n have been i have a habit of getting my hands into anything n everything to make a profit but yet stay true to my drivers would this be a good route to venture into

    • Don G Archer June 5, 2018 at 3:28 pm - Reply

      Kevin,
      Thanks for the comment.

      Sounds like you have your hands full. For me to be of service and provide you with valuable recommendations I would need to know more about your situation and what your goals are. Obviously, an open forum like this is no place to discuss financial matters, which come into play when making business decisions. So, if you would like to schedule an appointment to discuss possibly engaging in an ongoing discussion you can email me at don@thetowacademy.com

  13. Dana July 24, 2018 at 9:27 pm - Reply

    Hi Don, My Name is Dana and my husband wants to start a towing business but its just him by his self for rite now…I was thinking maybe he needs to work with a towing service first to see how everything works first… once he get everything down pack slowly branch off to doing his own business… am I telling him the rite thing to do?

    • Don G Archer August 17, 2018 at 3:37 pm - Reply

      Dana,
      Clearly, having experience in an industry that you are looking to start a business in is a smart way to go. It sounds like you have a good head on your shoulders and are providing him with the right advice. Who knows, he might get involved as an employee and then learn that the towing business is not for him. This could save him thousands of dollars as well as a more valuable resource, time.

  14. Craig September 6, 2018 at 12:34 am - Reply

    Hello Don I’m Craig from Memphis Tennessee and I’m trying to decide if I should roll the dice and start a towing business. I’ve talk to several tow truck drivers and they all say that even though there are dozens of tow companies in Memphis that it’s still not enough but I was told by a few others that you can not get on the rotation list with the city county and state police unless you have more than one truck ,is this true ? I will be buying a used truck at a decent price and I don’t have much over head plus I’ll be driving my self and on top of that my kids are grown and I’ll be available 24/7 . What would you suggest ? I’m debating between a tow truck or a otr semi truck which I would hire a driver but either business would be in my gf name and I’d just be the brains and muscle of the operation so it wouldn’t interfere with my social security .

  15. Barry N Kelley September 20, 2018 at 5:27 pm - Reply

    Hello Don, my name is Neil. I am 31 yrs old from Birmingham, Alabama. Growing up here is very different from many other cities. I have a lot of knowledge on operating heavy equipment, trucks, and also mechanically inclined. I want to start my own, one truck, buisness. I have always been told for the most part you will never make any real money working for someone else. I have mid range credit,zero children, and plenty of time. I’m thinking of selling my rental home for a good downpayment on a new truck for the warranties of course. Here’s the thing it’s just my wife and I, we feel like we have one shot at this. Due to my job at a large communications company I do not have time for for both, so it’s all or nothing. This city/state is growing unbelievably fast, every new buisness seems to thrive. I have the ambition and drive to be successful. I do not want to fail as it is just us. I’m not really sure what answer I’m looking for from you but any insight at all is better than nothing. Oh and what about Uber freight heard anything positive or negative, it’s really just now taken off here, uber that is. Kinda gives you an idea how ” behind” we are. Thank you for reading this maybe I’ll get some good info.

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