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, rent, 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 on 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 upfront, but it may eat you up in repair bills. The choice is up to you.
Recurring Monthly Costs For Running A Towing Business
Tow truck mortgage $1,288– ($80,000 truck financed for six years at 6%)
I’m not suggesting here that you mortgage a truck. In fact, it can be difficult to get 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
- General Liability
- 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 seven years or older, that’s because, for the most part, these trucks 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 the simplest ways to avoid or put off costly repairs. Checking the oil and other fluids daily, changing the oil per the manufacturer’s suggestions, and lubricating all moving parts on both the chassis and bed increase 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 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 and their unreasonable customers. 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 four 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.
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 a minimum of $300 dollars per month for each 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.
Also, if you work motor vehicle accidents, you may encounter situations that are barely tenable. On some recoveries, unintentional damages may occur during the course of providing a necessary remedy to 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, if at all possible, 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.
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.