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 dependent upon your choices. You’ll obviously have 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)
Insurance premiums 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 increased insurance premiums substantially. The types of insurance you’ll need are: General Liability, On-Hook, Cargo, 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 upon 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 may 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 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 over-looked 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. Why do you think motor club rates are so low? Because they have a back-log of service providers waiting for the scraps.
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 smart phone 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.
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.