If you’d like to establish a business that offers a profitable service that people depend on, then starting a towing business might be the right choice for you. Experience working with cars and strong driving skills will serve you well in this industry. Whether you establish a small single-driver operation or have your sights set on expanding the business to include a fleet of tow trucks, the towing industry offers plenty of opportunities.
Towing businesses offer various services, including towing passenger or commercial vehicles, as well as providing roadside assistance. A towing business may focus their operations on consent towing situations, where a driver or vehicle owner calls the company for help and pays the company. Towing businesses can also establish relationships with services like AAA and may receive service calls and payment directly from AAA.
In addition to helping drivers with disabled vehicles, towing businesses may also offer nonconsent towing services. In these situations, the towing company is called by a property owner or by the police, and they remove a vehicle without the owner’s knowledge.
Towing businesses may be single-driver operations, or they can be much larger and encompass a fleet of tow vehicles. Some towing businesses have a holding yard where they store towed or impounded vehicles, while others operate out of a single garage and do not store the vehicles that they tow.
According to IBIS World, from 2014 to 2019, the automotive towing industry underwent 3.0 percent growth, and revenue in 2019 is predicted to total $8 billion. The number of towing businesses has grown to 49,189, and industry employment has also increased to 102,873.
This growth is partially due to the improvements in the economy that also occurred from 2014 to 2019. As the economy improves and the unemployment rate declines, more people rely on vehicles to travel to work, meaning more vehicles have spent more time on the road. This increased employment rate also means that more people have disposable income, prompting them to drive on their own rather than carpool, and to even choose driving over public transportation. As the number of cars on the road increases, the chances of accidents does, too, which means that more people tend to need towing services. The same is true of vehicle breakdowns.
The towing industry is highly affected by insurance rates and the overall insurance market. According to Advantage Funding, a shift in the insurance market resulted in an insurance premium increase for tow truck operators. Towing is a high-risk environment, and some insurers have decided that they no longer want to cover towing operations and have been leaving the market.
The towing industry is also directly affected by the number of people who drive. With lower gas prices and increased employment, more Americans are choosing to travel by car. AAA reported a record-breaking 41.4 million Americans planned to travel by car on July 4, 2019. With the 41.4 million travelers on the road for the holiday, AAA alone planned to aid almost 367,000 stranded motorists.
Who is the target market for your towing business?
The business model that a towing business follows will partially determine its target market. A towing business that offers services to consumers for roadside assistance will target drivers, auto repair shops and insurance companies within its service area. Towing businesses that offer nonconsent towing services will market themselves to local businesses or, potentially, to local police departments and municipalities.
Skills, experience, and education useful in running a towing business
While starting a towing business doesn’t require a business degree, there are some other important requirements that a tow truck driver and business owner will need to have.
Driving experience and a CDL. It goes without speaking that before you open a towing business, you should be a good driver capable of skillfully maneuvering large vehicles. But, depending on the size of the tow truck you’ll be driving and the vehicles that you will be towing, you may need more than a standard driver’s license. According to Towing SOS, the U.S. Department of Transportation requires any tow truck driver driving trucks and cargo weighing over 26,001 pounds to have a commercial driver’s license (CDL). Some states also require all tow truck drivers to have a CDL.
Tow truck driver certification. Towing SOS also states that all tow truck drivers must earn their tow truck driver certification. This certification is offered by state-certified programs, and it can differ from state to state.
Physical Health. Good physical health is also important for tow truck drivers. Good vision and hearing are a must, and if a driver is applying for a CDL, they will need to pass a health screening by the Department of Transportation. Drivers must pass a drug test and will have their blood pressure, eyesight, hearing, and more evaluated during the testing.
Background in mechanics. Knowledge of vehicle mechanics can help truck drivers to provide better roadside service to drivers. Tow truck drivers who can do their own vehicle maintenance can also save money over paying a mechanic.
Problem-solving skills. Truck drivers never know what to expect when they arrive at a call, so problem-solving skills and a little creativity are valuable in this profession.
Customer service skills. Many tow truck drivers spend a large amount of their time interacting with customers. Good phone etiquette and in-person customer service skills are important for drivers. Tow truck drivers may often interact with people who are stressed or upset, so the ability to remain calm and diplomatic in higher-stress situations can help a driver to be successful in their job.
Marketing skills. When starting up a new towing business, marketing skills are important. A towing business owner doesn’t have to have professional-level marketing skills, but the ability to do some basic brochure or flyer marketing as well as some networking can help to build up a good business reputation and customer base.
Costs to Start a Towing Business
The cost of starting a towing business can vary significantly depending on details like the number of trucks and drivers, whether the business has a garage and vehicle storage yard, and more. Starting this type of business will cost about $150,000 on the low end, but startup costs can reach as much as $2 million for larger, more extensive towing operations.
Common startup costs for a towing business include:
- Tow truck(s) purchase
- Garage and/or storage yard purchase or lease
- Permit and license fees
- Tools and supplies (lockout kit, traffic cones, flares, etc.)
Steps to Starting a Towing business
Step 1. Write your Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Step 2. Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation and LLC. Each type of entity has its own pros and cons such as liability exposure, costs and administrative requirements.
Related: Comparison of Business Entities
Step 3. Select your Location
Many towing operations need significant space for their garage and for their towing storage yards, and this can mean that businesses need to pay higher lease costs.
Related: Choosing a business location
Step 4. Apply for Business Licenses and Permits
In most states a tow truck operator license will be required for all drivers, in addition to a Class B license due to the weight of the truck.
Step 5. Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a towing business is another. Funding to start a towing business can be difficult due to the expense of property and trucks. In order to get a loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs.
Step 6. Get your Marketing Plan in Place
Marketing is an essential part of building a towing business’ customer base. Marketing a towing business can include techniques like creating and managing social media pages, taking out paid advertising in newspapers and other local publications, developing relationships with driving programs and local mechanics, and even sending direct mail to local businesses. A towing business owner may take on some or all of the marketing, or may hire a professional marketer or agency to help.
Step 7. Get Insurance
A towing business needs multiple types of insurance for this higher-risk industry:
- On-hook towing insurance covers potential damage to customers’ vehicles while they are being towed.
- Garagekeepers legal liability insurance pays for damage that might occur to a customer’s vehicle while it’s being stored in a towing business’ storage yard.
- General liability insurance protects the towing business in case a customer is injured while on the business’ property, such as by a slip or a fall.
- Tow truck commercial insurance covers factors like potential damage to the truck by other drivers, or liability in case a tow truck driver causes a car accident.
- Commercial property insurance covers damage to a business’ building, storage yard, and trucks and equipment from events like floods and fires.
- Workers comp insurance is required if a business has employees and covers medical bills and lost wages if an employee is ever injured while on the job.
Policy costs will vary according to location, the value of the equipment a business owns, the number of employees to be covered, driving records, and more. To find the best insurance policy, request quotes from multiple companies and compare factors like deductibles, policy costs, coverage exclusions, and coverage limits.
Step 8. Hiring Employees
Towing businesses are unique because they can be started with a single employee, then gradually expanded once the business is established and successful. Zip Recruiter reports that tow truck drivers make an average salary of $35,087. Payscale states that receptionists earn an average salary of $32,230. Some larger facilities may also hire bookkeepers, whose salaries average $42,139, according to Payscale.
Employee salaries aren’t the only expenses that go along with hiring staff. Be sure to also budget for expenses like health insurance, retirement contributions, workman’s comp insurance, and paid time off.
Related: Hiring your first employee
Every state has specific requirements and regulations when starting a business. Select your state below to find the guide to starting a business in your state.
How much can you potentially make owning a towing business?
The profits of towing companies vary according to location, the size of the business, and the area that the business specializes in. According to Abington Tow Truck, towing business owners typically make between $30,000 and $100,000 in a year. Businesses that don’t just offer towing, but that also offer emergency roadside assistance, can increase their services and their profits, too. Other more lucrative options include offering 24/7 towing services or by leasing tow trucks instead of buying them.
Things to consider before starting a towing business
Starting a towing business does require some specialized knowledge and skill. Experience in the towing or automotive industry will position you well, and it’s important to research your local rules and regulations to make sure that your business is legal and properly insured. Towing can be a tough job, since you’ll need to work in all weather conditions, but as you develop your skills and gain experience, owning a towing business can give you flexibility and the chance to develop a profitable operation.
Towing Recovery Association of America
Additionally, Amazon has several good books for starting a towing business such as How To Price Your Towing Services And Profit: Creating A Pricing Strategy To Grow Your Business