In the last 20 years, I have had the opportunity to look at many towing companies and how they run their businesses. I’ve seen the good, the bad, and the very ugly. I am constantly amazed at how many tow owners have no idea how much it costs them to run their business. Many owners have never taken the time to see if they are profitable or not. The point of the matter is, that there are times in our business, that we feel that we are being profitable if we are busy. I am here to tell you right now: IT’S A BIG, FAT LIE. Don’t get sucked in.

There are many different scenarios for why this article may be important to you.

1: The market is shrinking. With the crash of 2009, the automakers took back almost 25% of their dealerships. Motor clubs lowered their rates again. Police tows around the country are down almost 30%.

2: The cost of doing business has gone up. Our cost per barrel of oil is scheduled to go up almost 300%. Do you realize we have the cheapest fuel in the world? Most of the world is paying over $6 per gallon. What would $6 per gallon do to your business?

3: The biggest thing to be concerned about is that we are killing our industry. Every tower that believes that they need to sell on price alone is killing the industry as a whole.

The following article will, hopefully, outline what it costs to run an average four truck operation. I hope that you will take the time to analyze your own business and see if you are killing yourself and your business just to do a few more tows.

Please do not fall into believing, “Yeah, the tows aren’t profitable but I will make it up in volume.” 

Trucks: Trucks are the most important purchase you can make. If you don’t have a good truck, you can’t make any money. Every day that your truck is down, money can’t come in the door. At $35k, you should be able to purchase a decent used truck. I tried to use averages knowing that some owners only want to buy new which would increase the price of the truck payment but lower the monthly maintenance. Other owners would not or cannot afford a used truck at this expense so, in theory, the truck payment would be lower but maintenance much higher.

Sales tax: This may be lower but this is based on leasing the truck and paying it to your state.

Rent: Should go without saying. Some towers do not need storage space. If you do need storage and you are able to get an office with storage, $600 a month is cheap.

Insurance: You need insurance to tow for any of the major players. $400 dollars per month seems a fair amount.

Phones: If you have more than one truck, you need a way to keep in touch with your drivers. The fifth phone is for your dispatcher. You may be able to save a little money if you don’t use a dispatcher.

Fuel: This number is very low, I know, but I figured I made up for it with the other expenses. This figure is based on fuel at $3 per gallon and about 400 miles a week.

Dispatcher or “everything else”: I low balled this amount. I have seen many companies that do not pay the wife, girlfriend, boyfriend, or son/daughter for their dispatching job. At $12 dollars an hour, it would roughly cost $1,920 a month and this does not include labor burden.

Owner salary: $3,500 a month. This equates to $42,000 a year. Depending who you are this may seem like a lot, or not much at all. If you are paying yourself less than this: Wow, you own the business why again? I don’t mean to be judgmental, but you have over $140,000 in debts just for the trucks, you have all the risk in making the business run, and yet you are only paying yourself a pittance. Maybe you have just started out, so you are waiting to pay yourself until the business makes money. That makes good sense, unless of course the majority of your tows are based on motor club work. If so, you may be dead in the water already.

Maintenance: This number is ridiculously low, even if you are doing it yourself. But, maybe you are a master mechanic, and you bought the perfect truck that never breaks down and only needs oil changes.

License: The cost to keep your trucks licensed through out the year.

Drivers pay: I calculated this cost using minimum wage for your drivers. Again, this is probably unrealistic but with unemployment what it is now it may be possible to hire at this wage.

Total cost to run your business each month: This is the nut you have break just to pay the bills. Have I left anything out? Why yes, I have, but I am trying to keep it simple.

The breakdown 

For those of you who hate math, it really is one of the subjects you should have paid attention to while you were in school. All successful companies know the math of their business.

So here is the basic breakdown of this business. Let’s call it Joe’s Simple Towing (No offense or likeness to any company called Joe’s Simple Towing).

Joe’s truck costs are $6,179 a month. This is his total truck payment, added insurance, fuel, sales tax and maintenance. For Joe to figure out if he is breaking even, he must determine how many tows he needs to do just to make the trucks go. He figures that he can tow for his buddy Steve, who owns a repair shop, and Steve has promised all of his towing. They agree that Joe can charge $60 per tow for the first 10 miles. This is really great news, a guaranteed customer! He will only have to do 103 tows for Steve, or 26 tows per truck per month, to cover his truck operating expense. But wait, there are more costs associated with it than just truck expenses. Now he has to add in the labor which is another $7,536. Joe now has to complete 228 total tows to break even for the month. Can Joe do it? Of course he can; that works out to only 2.5 tows per day per truck!

Great, we have determined if Joe runs 228 tows per month for $60 each, he can pay for the equipment and the labor. Wait a minute. No one owns a company just to have a job do they? We need to add in Joe’s salary of $3,500. Joe’s Simple Towing now needs 287 tows per month to cover all expenses. Joe figures out pretty early on that Steve’s Automotive does not have 287 tows coming to his shop so he needs to drum up some more business.

Joe finds an excellent opportunity to advertise for $400 per month in the yellow pages (which no one uses anymore). So he advertises $60 per tow anywhere in the metro area. This surely will get him to the total that he needs. His company now has to do 294 tows per month to break even, which equates to 3.5 tows per truck each day - still not mind blowing. If Joe can get 294 tows per month at $60 per tow, he might just have an OK business.

The quandary

Joe isn’t getting 294 tows per month from Steve or anyone else. It turns out that Steve wants a discount and Steve only generates about 35 tows per month. With his discount, the average tow is only about $48. Joe is the cheapest in town, but still he hasn’t seen the numbers that he was expecting. So he decides to turn to the “dark side”: THE MOTOR CLUBS.

On average, the big five motor clubs pay $33.80 per tow. At these rates, Joe would need to complete 513 tows to break even which is more than 200 additional calls! Now we run into some more big problems. Joe cannot run 500 calls a month using only $2,000 worth of fuel. It’s probable that maintenance has gone up also with all the extra miles. Motor clubs also demand a certain ETA, to keep on their rotation, so it will be hard to dispatch from Joe’s truck, so he will have to hire a dispatcher and add the phones to get his drivers to each call.

Are motor clubs really the dark side? The honest answer... yes and no.

As an example, if you go to buy, let’s say “anything,” and you go to three people selling the exact same thing, the going price may be $60. You tell them that you are only willing to pay $35, but you will buy one hundred of them. One of them says “Why yes, I would love to sell you my widget for $35, how high would you like me to jump?” Is the seller smart? It depends. If the seller knows that he/she can get the widget for $30 and the $5 will cover overhead and still leave some leftover, then most definitely, it was a wise sell. However, if he/she is unable to buy the widget at under $35, then this seller is, obviously, not that wise. Is it the buyer’s fault that sellers are standing in line to sell their widget at below cost? No.

The motor clubs have said to the towing industry, “I am willing to pay on average $33 a tow. Who is willing to do it?” All over the country hands went up. Is it wrong to do tows for the motor clubs? It depends. It’s not wrong to do business with a national company that can provide you with a large volume of tows. If you can fill these tows in with your other tows, eventually it could take you over your break even point. In this scenario, if Joe does 294 tows at $60 apiece, his company breaks even and he starts to make some money. If he and his drivers are able to do five tows a day each then Joe would break even on day 15. On day 16 he could start taking tows from the motor clubs and everything from day 16 on will have about roughly a 10-15% profit.

He has figured it out! He will tow for the big five on the 16th of each month, and be on Easy Street in no time. Wait a minute. This is where the dark side rears its ugly head. The big five need Joe to tow all month. Joe thinks about it and decides that he will sprinkle them in between the $60 tows and get to them when he is available. Unfortunately, towing doesn’t seem to work that way. In towing, calls seem to come in together. Joe ends up having to give up some of his $60 tows for the really cheap $33 auto club tows. By the end of the third month, his employees are tired and disgruntled, because they are running twice as many calls at the same pay rate or less. The trucks have more miles on them, and are not holding up as well, and the motor clubs waited 30 plus days to pay Joe. Joe is in a real pickle. In about two years if Joe keeps running calls at this pace, he will be in no position to deal with the big five. He will have replaced 65% of his retail business with the big five’s business, and he can’t afford to stop towing for them. He realizes that there are ten more towers just waiting to give their service away for next to nothing.

Don’t become like Joe:

1. Know what it costs to do a tow for your business.

2. Don’t give your business away. Good towing is an art and a science.

3. Get involved with your state and local towing association. They won’t talk about prices that they are charging, but they do talk about “best practices.” They also make sure that laws are not passed that affect the towing industry negatively.

4. Charge a fair price.

5. Do not overcharge.

6. Train your people.

7. Pay your people fairly.

8. Stand up and tell the big five that $33 is not enough for a quality towing service.