(Article) Five Things to Consider Before Starting A Towing Company
Five Things to Consider Before Starting Your Tow Company
Starting a towing company can be both a rewarding and challenging process. But as excited as you may be to get the wheels rolling and the cash coming in, there are a few things you may want to consider before opening your doors.
What kind of company do you want to build?
Diversity in sources of business is important when running a towing company. The old adage “Don’t keep all of your eggs in one basket” holds true for the towing industry as well. Understanding the potential sources of business (or where your calls will come from) and how profitable they each are can be helpful in determining how successful you will be from the start. Having a healthy mix of sources protects you from being overly vulnerable to the ebb and flow of any source demand. For example, tow companies that relied on only servicing new car dealerships are in a world of hurt right now scrambling to find new business until the dealership business rebounds. The most common sources of work for a towing company are calls received from:
Municipal/Police Calls – These calls will come directly from the police dispatch officers at the request of officers on the scene. Towers establish formal or informal relationships with local police departments to provide towing services. Fees per call are usually the highest of all sources but usually require higher insurance coverage and quicker response times. Check with the local police departments in your area to learn what the procedure is for getting on their list of providers.
Cash Calls – This is also a profitable source of calls. These calls are performed for customers who contact your business directly and pay you directly for services performed. These calls are generated through advertising and marketing efforts organized by the tow business itself. Learning how to build a successful brand for your business and cost-effectively drive calls from cash customers can deliver profits for years to come.
Motor Club Calls – Little expense and little profit. These calls are a great way to get your feet under you while starting a new business. It’s a steady stream of work so you can learn how to run your company. You have no advertising expense and the phone just rings and rings. But with often less than $5 profit per call don’t start planning your retirement servicing motor clubs alone.
Account Calls – Every auto repair and body shop needs a tow partner. And though a discount is typically provided to the shops for their calls the profit can be 10-times that of a motor club call. But be ready to work to build these relationships. Shop owners have heard every pitch under the sun from a tow company. So another guy at the counter offering to do it cheaper is nothing new. Talk up your brand and your expertise and your commitment to making their customers happy, otherwise you’ll look to him just like every other tow company in the bunch.
Auction Calls – Providing services to an auction house like Copart can be another great way to provide some stability to a new towing business. These calls offer similarly slim profit margin as motor club calls but they have the added benefit of a flexible response time. You don’t have to be there in 20 minutes so long as you complete the call that day. So you can have the flexibility to respond to other, more lucrative calls and get to the auction call later in the day.
Private Property Calls – These calls are to remove vehicle from private property without the vehicle owners’ consent. This type of towing typically requires additional licensing and reporting and due to the fact that you are moving vehicle without keys can require additional operating training to minimize damage claims. PP towing can be a high-risk, high-reward business but may just be the perfect fit for a new and motivated company. Consider purchasing a light-duty self-loading wrecker for PP towing to make loading easier and safer.
How much are you going to charge per call?
This is the million dollar question. The answer is how much do you want to make. Working backwards from your desired income, then adding in anticipated expenses and finally dividing by the number of calls you think you will perform can give you an idea. But that is putting a lot of pressure on your ability to guess correctly at some really important numbers. Consider calling around to local tow companies and take an informal poll to see what the competition is charging. Then make some estimates on what you think your volume will be across all sources of work (most have unique prices) to get your projected annual revenue. But be sure to track these numbers closely. If you see your actual calls under-performing your projections make adjustments sooner rather than later. Most new companies will fail by allowing expenses to outpace revenue. And plan on living on a small salary for the first 6-12 months. Much of the profits will need to be pumped back into the business to acquire one-time purchases of equipment and supplies.
What assets will you have day one?
A big mistake made by new business owners is buying an expensive truck or fleet of trucks in their first month of business. Keeping truck payments and other big expenses to a minimum in the first year of operations may not be the sexist path to success but could prove to be the wisest path. Fluctuations in fuel prices, employee expenses and supplies can sneak up on a new business owner so prepare for the unexpected, even if you do not yet know what it is. Plan to have $10,000- $20,000 in cash in the business at any time. This could be in accounts receivable, cash advances for body shop clients and prepaid insurance premiums.
How do you want customers and future customers to describe your company?
Build a brand, not just a company. With an overabundance of towing companies to choose from consumers often select companies at random to call for a quote. Make your business stand out by having a good name and strong marketing plan. Having these in place before you start spending on advertising will make that money work harder for you. And be careful when committing to long-term contracts like annual yellow page business directories and online advertising commitments. Ask what you can expect in return for your money and remember, much of this can be done yourself for little or no expense.
Who will be your first customer?
Start building your contacts now. Your company doesn’t have to be up and running to print business cards and go around introducing yourself to potential customers. Tell them you are launching in 3 months but wanted to understand what they look for in a good company. It will show your dedication to providing a good product as well as provide you with some insight on how to better compete with your future fellow industry professionals.
Having your own business can be a great experience, and it will always be hard work. Preparing for some of the common pitfalls before opening your door can help ease the stress and have you better prepared to take on the daily challenges of a tow business. After running a successful tow company for several years I know much of what you will need to do is not difficult work, its just hard work. Committing to be the best when it come to solving customers’ problems by getting the job done will go a long way to ensuring your success and will give you a huge boost over your competition.
Business Side of Towing
After selling my tow company, I wrote The Black Book of Towing as a way to help new and existing towing companies become more profitable. The book is focused on skills training for the business side of towing. Its an educational tool that simply, easily and effectively tackles the biggest challenges tow companies face. It covers:
- Cost-effectively building a strong brand to make your company stand out
- Easily computing costs and revenue per call leading you to greater profits
- Adding automation methods to help your business run more efficiently
- Better managing employee relations
- Preparing your business for a profitable sale