How Much Does a Tow Business Profit?
If you want to start a new venture, a tow truck business seems like easy income. You simply buy a truck and wait for someone to call you to have a vehicle towed, right? But it’s a little more complicated than that. There are quite a few startup costs associated with getting your tow business going, as well as the ongoing costs of operation. Not only will you need to buy and maintain the tow vehicle, but there are also state licenses, insurance, fuel and repair bills.
Before you can even make your first tow, you’ll need a license with the state. This cost can vary from one jurisdiction to the next. In Washington, D.C., you’ll pay total fees of $1,809.50, which includes your license plus processing fees. You’ll also need to buy or finance a tow truck, which will cost about $1,288 a month for a basic $80,000 model, assuming a 6 year loan with a 6 percent interest rate. You can save money by buying a used model for less.
In addition to a truck and license, you’ll also need to register your vehicle and purchase general liability, on-hook and cargo insurance. If you store your truck in a garage, you’ll also need to add garage-keepers coverage. If you work with organizations like AAA or local law enforcement, you also may be required to carry an umbrella policy of a minimum amount. High-deductible insurance for a tow business can start at $800 a month.
To determine the typical tow truck owner salary, it can help to look at the national average for tow truck drivers. Nationwide, tow truck drivers make $13.30 per hour, which is a $27,664 salary, but this includes drivers who work for someone else. As a tow truck business owner, you’ll be able to retain all of your profits.
One of the biggest challenges for tow truck drivers is remaining competitive. Although you’ll want to make a profit, you can easily find other tow companies are undercutting your prices. Nationally, the average cost for a tow is $109, according to a survey conducted by Angie’s List. You’ll likely charge based on the miles, starting with a base hookup fee and adding a charge per mile. If you tow 10 vehicles per day, you’ll exceed $1,000, but you’ll need to make sure you’re charging enough to overshoot your operating expenses.
Considering payments of at least $1,000 a month for your truck, fuel and insurance, you may not see a profit for the first few years. This isn’t unusual. In fact, experts describe the third year as the year things start turning around for a new business. If you can survive those early years, you may begin seeing profits.
To maximize your profits, you’ll need to keep startup costs and monthly expenses low enough to bring in business while still taking care of operating costs. To maximize your profit, figure in your monthly expenses, then your number of tows per month. Divide expenses by tows and you’ll see how much you’ll need to make to break even. If you want to make, say, a 5 percent profit on each tow, add that on to that per-tow price and you’ll begin to see revenue per tow. You can adjust this amount up or down as revenue begins coming in.