How to Start a Towing Company: A Step By Step Guide

Author: John Alson
Updated on January 26, 2020

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How to Start a Towing Company : 5 Steps

  1. Identify your expenses
  2. Find your location
  3. Choose your tow truck
  4. Insurance
  5. Marketing-Promotion

Costs of Running a Tow Truck Business

When you're coming into the business you need to figure out upfront when you're doing your business plan. What your fixed expenses are going to be and what I mean by fixed expenses are your bills that stay the same every month. The truck payment, insurance payment, rent for a yard or garage. Your fixed expenses will be fixed and can be done at a fixed rate per month. But when you start thinking about how much you're going to make every month, that's when it gets tricky. So many people run around trying to figure out how much money they need to make for the business to be successful and they have no idea how much they're going to have to spend every month.

Towing companies are not like an insurance business where you can go and register with a state or have a state-chartered company. In order to start your own tow business in the United States, you must first become a licensed tow truck operator in your state. Once you are licensed, you can operate as a company under the authority of the state. For example, to obtain a license in California, you need to apply at the California Department of Motor Vehicles (DMV) and submit the following information: Completed Application for License as a Towing Operator with Vehicle Registration. Your current insurance card and proof of liability. Your business address. The license number of your tow truck. Your name and address and phone number. You will also be required to pay a fee that may be up to $ 200 (California), $ 100 (Oregon), $ 125 (New York), or $ 125 (Idaho).

Secondly, you need to fulfill all the legal obligations.

To get more accurate and fresh info please visit your states' department of motor vehicles website.

First, you need to have a commercial driver licence.

Cost of Tow-Trucking Licence in CA
Tow Truck Driver Certificate (TTDC) $40
Commercial Class A or B Driver Licence $82

Cost of getting a tow-truck plate in CA.

GVW/CGW Weight Code Fee
10,001-15,000 A $332
15,001-20,000 B $447
20,001-26,000 C $546
26,001-30,000 D $586

Also, nobody seems to really be looking into what the insurance cost is going to be and I'm gonna stress that before you even look at a truck. Insurance is one of the things you need to look at first. As tow-trucking is a high-risk industry, high-risk and the insurance premiums up to the roof.

To make sure your trucks and their equipment are in good condition, you need to spend a lot of money on repairing and maintenance. Therefore add an additional 35% of that on to your fixed expenses for truck repairs and truck maintenance. This will not only save you money on fuel costs , it will also make your trucks more durable and resistant to damages. You will also find that a truck maintenance fee is the same price as a replacement fee on a used truck. In the beginning, you will want to get your truck repair service done as a matter of course and you will find that the average towing truck maintenance fee is around $400/month. However, in more serious cases, you may end up paying $1,000/month. The reason for this is that towing trucks have an average life span of about 10 years and the parts and the equipment that are worn out can cost a lot.

Location

There are many reasons and many considerations that go into deciding and we'll go into a few here.

One of which is population density: population density means are there enough people in that area within that the tight area that you're going to operate to support your business not only support your business but allow you to make a lot of money. If the answer is no then you need to look elsewhere.

So how do you determine if it's big enough? I suggest that you should have at least 40,000 people within a ten-mile radius.

The next consideration is what are the requirements to operate a towing business in that area. If you decide that this area is big enough. It's at least 40,000 people in a 10-mile radius and then you go in and you find out that they're gonna require you to have 10 trucks and 20 drivers and real estate within the city limits and it's going to cost you a million dollars unless they're going to give you an exclusive to all of the business in town which is highly unlikely. I would not invest in that city.

The next thing you need to consider is the competition. Think about a small town and that means there's low competition. That's an opportunity there but I say just like if there are not enough people to support your business, steer clear. On the other side of that, you look at the big cities and you see no there are so many companies operating. How can you survive in big cities? I say the reason that those towing companies are there in the first place is big population.

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Choose Your Truck

These are the thing you should consider before buy a tow truck.

  • Size of the Truck

    • Light duty truck : For cars, small pickup trucks etc.
    • Medium duty truck : For Pickup trucks, big SUVs
    • Heavy duty truck : For trucks
  • Fuel consumption

    • Loaded consumption
    • Unloaded consumption
  • Maintenance & Repair

    • Spare part prices
    • Regular maintenance fee
    • Auto repair shops for your truck's brand

You're gonna have to use a small truck in the beginning, so it's to each of your own study, your geographic location and sees what works for you at the end of the day. You need to be able to generate money especially when you're starting up.

After starting to earn more, after some time you are gonna buy a new truck or replace it and with the help of your experience you are going to have a much better one.

Insurance

Why I say you need to look into insurance before you look into a truck because your business is new and your insurance premiums are going to be through the roof. Insurance companies are going to require a large down payment.

A lot of insurance companies now have a requirement or requiring 30% down and they're doing that because this is deposit that they're going to keep in the event a month into your business venture. You may say this is not worth it. However they keep that money because there's a big turnover rate and towing in the streets. Therefore they're requiring large down payments.

Second of all your annual premiums gonna be extremely high because you're in your first year at business and maybe like that for the first three years. Unfortunately it's very crucial that you stick it out the first three years because once you hit the third year mark your insurance premiums should decrease dramatically. On the other hand that's not always the case if you're putting in claims, if your truck is constantly being issued violations by Department of Transportation.

Marketing

I encourage to you check our article about the 5C's of marketing to make the right decisions and construct a well-defined marketing plan and strategy.

Offline Marketing

  • Networking in your location
  • Partnerships with other local businesses
  • Partnerships with insurance companies.
  • Newspaper advertisement

Online Marketing

  • Business website : You can get lots of clients by driving traffic to your website with the help of both SEO and ad campaigns.
  • Google My Business : GMB is a completely free online tool that enables business owners to mark their business on Google Maps, upload photographs, create special offers to your online customers. it's what empowers your clients to utilize Google reviews.
  • Instagram : Posting nice photos on Instagram will help your towing business attract more eyeballs
  • Facebook: Facebook is a free platform to promote your activities and business on daily basis. You can post any business updates. Facebook is more of a kind marketing platform on which you can even promote your business to targeted audience like targeting the people who have a car in your local.

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