How to Start a $40K/Month Tow Truck Business

  • by Brandon Boushy
  • 1 month ago
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Man standing next to a towing truck

Nearly 70% of people have experienced abuse or workplace discrimination when working.  Kenneth Orme was one of them, so he figured out how to start a tow truck business and work for himself.

Kenneth Orme is the owner of  K.O. Towing. When we asked how he did it, he started by telling us about overcoming cancer and getting laid off, just to find out he was “too old” and no one wanted to hire him. 

Everybody wanted me in their office till they found out I was 59. I can’t find a job. I’ll make a job. This is America.

Instead of giving up, he started his own towing business and makes $100K per truck each year. It gets even better, though. He shares strategies and tips to have year-round work before you even buy a truck. Get ready to learn how to start a towing company.

What is a tow truck company?

Tow truck drivers have all kinds of ways to make money besides just towing cars. They can offer roadside assistance to people whose batteries died, tire went flat, or even combine it with mobile mechanic services. 

You’ll need special licensing, equipment, and insurance to run a tow truck company. We’ll cover all that and more, but first, let’s discuss the towing industry.

Step 1. Research the Towing Industry

Before you start offering towing services, it would help to learn a bit about the automobile towing industry. Consider these concepts:

  • What type of business models are used in the tow truck industry? Which model is best for me?
  • Who are the major players in the towing industry?
  • What is the automobile towing industry outlook?

Keep reading to find out more.

Which business model is best for a tow truck company?

Tow truck companies use multiple business strategies to make a great living. Some of the strategies towing companies use include:

  1. Partnering with insurance companies for towing and roadside assistance
  2. Impound and repossession services 
  3. Independent towing for people or subcontracting
  4. Long haul 

Let’s look at each.

Partner with Insurance Companies

Two person shaking hands

These tow truck companies are the good guys in the industry. IF you want to help people, this is the best towing business for that service. Most insurance companies have roadside assistance, and Triple-A members love the help and security of knowing help is available.

WikiHow recommends gathering all your documents together and going to the nearest American Auto Association (AAA office) to apply to become a roadside service provider. You can also apply online.

Kenneth partners with Roadside America (link contains business inquiry contact) to offer roadside assistance. He told us:

It makes up about 15% of my revenue and is about 90% roadside and 10% towing.

Partnering with insurance companies can be great money, but they will often define the terms. Make sure you can make a profit with a tow truck based on their terms.

Auto Auctions

You might also want to partner with auto auctions. Kenneth told us:

Insurance Auto Auctions is 90% of my business.

He went on to describe how they pay. He showed us two cars he had on his truck and told us:

The Highlander is $100 and this vehicle is an $85 vehicle. They have zones for every vehicle. If I go up to Anacortes (Washington), which I’ve done,

that’s $240 per vehicle… At the end of the day, I can profit 300 for towing six cars.

Check out our interview on YouTube!

Impound and Repossession Services

Impounding and repossession services have contracts with various organizations to send tow truck drivers to pick up vehicles if people aren’t maintaining their responsibilities.

Kenneth told us:

I have three trailer parks, two apartment complexes (that I work with to tow impounds).

Some tow truck companies partner with:

  • Loan companies
  • Governments
  • Apartment complexes
  • Other businesses

When they do this, it is because the vehicle has been parked illegally, gotten in a wreck, or the owner didn’t pay their loan. There are laws in each state that govern a truck business towing cars this way. 

For instance, in Nevada, there have to be signs posted or a 24-hour notice to move the vehicle. If a towing business takes a car outside of the regulatory environment, it can face lawsuits. If you start this kind of business, make sure to consult an attorney that is familiar with the truck business in your area.

Repo.org is a great place to start learning repo laws for the truck business.

Independent Towing for People

Sometimes people need a tow truck because they have a flat tire or the car needs to go to an auto repair shop. These businesses will have higher fluctuations based on weather than some of the other tow truck businesses, but they should be a part of any independent towing company’s services. Kenneth told us:

I’m trying to get deeper into the personal towing, but I don’t have the budget everybody else has for advertising.

Who are the major players in the towing business?

Some of the largest tow truck businesses include: 

What is the industry outlook?

IBIS World values the U.S. towing industry at $11.3 billion in the US and expects it to grow around 2.9% in 2022. They expect it to continue growing at a faster rate after inflation settles down.

Any industry that exceeds the GDP growth in the U.S. is a great industry to get into as a business owner. Just make sure you follow the laws because you are driving around a vehicle that can do serious damage if you get in a wreck. 

What are the requirements for a tow company?

Man holding a jumpstarter equiptment

You will need a variety of tools, permits, and licenses before starting a tow truck company. Remember to consult with the local Small Business Office, the DMV, or a lawyer that specializes in tow truck businesses.

A tow trucking company will normally need:

  • Drivers with class B driver’s licenses
  • Business structure as a Limited Liability Company (LLC) or corporation 
  • Auto Liability Insurance: Comprehensive coverage with uninsured motorist insurance and higher limits than the state minimum (no less than $250K, but $1M is better)
  • Business insurance 
  • High physical damage insurance
  • An oversized vehicle permit (depending on what your business entity will be towing)
  • Indictment management permit (if towing without consent)

How to get a tow truck license

To drive a truck under 26,000 towing capacity, you only need a regular driver’s license.

You’ll need a commercial driver’s license (CDL) for anything bigger because of the weight of the vehicle.

They want to make sure you have the experience. That means you’ll need to take a CDL course, which takes about a month. They provide safety training and teach you how to properly operate the vehicle.

Then you’ll need to pass the DMV test.

Step 2. Create a Business Plan for How to Start a Tow Truck Business

You don’t have to write a towing business plan, but it won’t hurt. It will help you keep track of how your towing company is progressing toward your goals. Kenneth told us:

You should find clients that will agree to contracts pending the purchase of a tow truck. There’s no point in buying tow trucks if you don’t tow vehicles.

Check out the rest of his interview.

The plan should follow a process similar to this:

  1. Find customers.
  2. Get your permits and licenses to drive a tow truck.
  3. Start Your company.
  4. Buy a tow truck.
  5. Start towing vehicles.
  6. Market your business to take on more work.
  7. Buy more trucks.

We’ve provided some templates and resources for you to create a tow truck business plan.

Business Plan Templates

Here are some of the best templates for business plans:

Learn to Write a Business Plan

We even provide resources for how to write a business plan:

I’d also suggest checking out our interview with Mike Andes on how to write a business plan below:

Step 3. How Much Is a Tow Truck to Buy?

You can find used tow trucks for around $6,000 and new ones for around $50,000. We asked Kenneth, “How much does a tow truck cost?” 

He told us:

This is a 2013 Ford F 650. The bed on this truck is rated at 12 thousand pounds. … The wheel-lift is rated at 4,000 pounds. The truck is rated at a grand total of 26,000 pounds. So, I can put a medium or a heavy-duty vehicle on this bed, but I can’t tow anything else with it at that point.

Tow truck in a parking lot

He went on to tell us:

Expect to spend $25,000 on reliable ones.

Where to Find a Tow Truck for Sale 

Some of the places you can find the different types of tow trucks include:

When considering, “How much does it cost to buy a tow truck?” you’ll want to consider the type of truck. There are a few different types of trucks:

  • Flatbed tow truck for sale
  • Ramp trucks for sale
  • Wrecker truck for sale
  • Integrated tow truck for sale

How Much To Start A Tow Truck Business?

Kenneth told us a tow truck business requires around $10,000 to get a truck, licenses, and towing equipment. We’ll discuss individual costs more in other sections.

How to start a successful tow truck business with no money

Man holding a j hook infront of a towing truck

You have to start somewhere. Kenneth suggested the following solutions:

  1. Can you finance?
  2. Can you get a lease? 
  3. Can you ask friends and family?

He also told us:

I went looking for a loan so I could buy a tow truck and found out that you can’t get a loan to start a business unless you’ve been in business for two years.

I wound up going into it on a lease, rent to own. The truck sold for $50,000. By the time I’m done paying for the truck, it’ll be $106,000.

He went on to say:

The benefit of leasing is you can get into a vehicle with a limited amount of money. The downfall of it is, if you don’t find the right leasing company, you’re gonna be paying them to double whatever the original amount was. So do a little diligence and find out. If they say there’s no puny penalty for prepayment, make sure that the amount is going to be adjusted.

If you want some additional resources, keep reading for ways to fund a towing company.

Tow Truck Businesses: Startup Costs

Common funding paths include:

  • Personal funds or personal assets
  • A loan from family or friends
  • Funds from a business partner
  • Government programs

The SBA offers free courses on financing options and funding programs. For info on using personal funds to start a business, check out this article from The Hartford.

Alternative sources of funding include:

How much profit can a towing business make?

Based on the amounts Kenneth discussed, many tow truck businesses should be able to make the following profit:

Profits of a towing business

Step 4. Naming Your Tow Truck Business

When naming a tow truck company, you’ll want to consider questions like:

  • Does it include a reference to towing?
  • Can people remember the business name?
  • Does the name create acronyms? Are they good or bad?
  • Is the domain name available? Check on GoDaddy.

Try our business name generator.

Get a domain name

Besides GoDaddy, you can buy domain names through sources like these:

You’ll also need to meet other legal requirements before you can tow vehicles.

Meeting the legal requirements for a towing company

Make sure you are prepared to follow all legal requirements before you start a small business with tow trucks.

Every state has different requirements. Use the SBA License and Permits page to identify what your towing company needs. Keep reading for information on legal structures.

Limited Liability Company (LLC)

An LLC is the most common business structure used in the United States because the company protects the owner’s assets. You’ll need this because a vehicle could fall off a truck and kill someone. You don’t want personal liability for that if one of your employees failed to secure the vehicle properly.

Look for your state’s requirements when you file an LLC.

Delaware is the most common place to file an LLC or corporation because of the low costs and business-friendly environment. That’s why more than 67% of the Fortune 500 are incorporated in Delaware.

Here’s a blog on the top 10 states to get an LLC.

Corporations

Corporations are also a great way to protect business owners when running a towing company. They are more complicated than an LLC, but they offer a lot of options for growth. 

I suggest tow truck businesses consider incorporating if they know they want to try to grow across state lines. Other than for high growth desires, an LLC is better during the early stages. 

To become a corporation, find your state’s Secretary of State.

Apply for an EIN

Apply for an employer identification number on the IRS website. It’s used on tax forms when filing taxes and to tie employees’ pay to the proper employer.

Sales Tax Permit

Most states have a sales tax, and you need to adhere to their requirements. This blog isn’t the place to discuss the permits for all 50 states, but Avalara has a guide on Sales Taxes. Check it out.

Tax filing and withholding

Withholding tax showing in text

Federal and state tax filing requirements apply to new employers.

You must keep records of employment taxes for at least four years, including special forms and accounting for state taxes.

Don’t worry! We’ve got you covered! Check out the IRS guide for employers.

Federal employment and labor law posters

All employers must display Workplace Posters, which you can download from the website.

Other requirements include:

  • Employment Eligibility Verification (Form I-9)
  • State’s New Hire Program
  • Worker’s Compensation Insurance
  • Disability Insurance (varies by state)
  • Occupational Safety and Health Administration (OSHA)

Unemployment Insurance (UI)

The U.S. Chamber of Commerce has a ton of information on unemployment, and it offers links to each state agency that handles state unemployment.

You’ll have to pay about $420 per employee on a federal level plus any state UI.

Now that you are familiar with the aspects of starting your own towing company, let’s look at launching a website.

Launch a Website

Kenneth suggests using a third party to manage your website. He said:

I work so many hours a day. I don’t have time to deal with managing my website.

I wish I did have the time to do that because the first company I hired, the storyline they told about my company was a lie, and I can’t have anything in my business that’s a lie.

He also told us he has one company do his video, one for search engine optimization, and one for social media.

Step 5. Operating a Tow Truck Business

Man towing a car

Kenneth’s strategies for opening day were fairly simple:

  1. Find a customer that would keep him busy.
  2. Buy a tow truck.
  3. Take as many runs as possible.
  4. Invest in more tow trucks.

He gave some other advice about advertising that’s worth considering.

How to market a tow truck company

There are a variety of advertising strategies that you can try when starting a tow truck company, but Ken told us:

My most successful one is word of mouth. I pick up your car after it (breaks) down. I give you an experience unlike any other tow company has ever given you. Now, you’re gonna tell your friends.

How much should you spend on advertising?

Kenneth told us he spends about $300 per month on advertising. 

I’ve got three different companies that are working on my website. One does take care of all the video and all the information and everything. The other one’s trying to constantly keep me updated and keep me at the top of the list.

How much of that goes to Google?

We asked Ken about Google Ads. He told us:

I tried that in the beginning.

The problem with Google is I’m gonna spend $500 a month, but I may have people calling from 80 miles away that aren’t going to utilize my service. It’s costing me $1.50 every time those people call. 

There’s probably a way to put a demographic and make sure that those people ask. I’m not computer smart though.

Check to see if Google Local Services applies to tow companies in your area. Junk Removal is the only category showing that may apply to tow companies in my area. Check your local area’s listings in case they are different.

Tow Trucks Win With Customer Service

Kenneth emphasized that he focuses on trying to be more ethical than other towing businesses. Here’s some of what he had to say:

The one way I’m different from everybody else, is I have no hidden fees. Most towing companies will charge you anywhere from $75 to $125 just to use the winch to pull your vehicle onto their towing vehicles.

I consider that part of the job because nine out of 10 times, you’re calling because your car won’t run. So why is it fair to you if I charge you an extra $125 for five minutes of work? 

It’s a business, but I’ve been the person trying to figure out how to pay for emergency roadside assistance. I wouldn’t be happy about it as a customer. It’s not fair to put somebody through that.

Step 6. Running Your Towing Services

Man towing an suv on truck

Running the tow truck company is what you will spend most of your time doing. This includes aspects like hiring employees, helping customers, keeping inventory in stock, accounting, and payroll.

Hiring Tow Truck Drivers

Kenneth had a lot to say about hiring drivers. He said the most important aspects of drivers are:

  1. Do they have the required licensing?
  2. Do they stay in communication with the owner?
  3. Do they have mechanical experience or are they willing to learn?

Without the required licensing, they won’t be able to earn money. But the other ones are more important to focus on for the bigger picture. Here’s what he had to say about communication:

When they stay in contact with you and they keep you aware of what’s going on with your vehicle. If they’re having any problems, just tell me what your problem is. And I will give you the answer, ’cause my job is to help you.

He also emphasized the importance of being mechanically inclined:

I’ve hired three people in the last month. I had to fire one quick because I explained to ’em, you know, the truck needs maintenance. I can’t be driving 16 hours a day and work on my truck, your truck, and everybody else’s truck.

It’s just not gonna happen. You have to take care of the truck. So, if you don’t know how to be a car mechanic, that probably is a tough spot to begin with.

I’m even willing to teach you what you need to know. I don’t have a problem with that because we succeed together as a team or we fail as a team.

Job Posting 

You can post job ads in places like:

Make sure to include screening questions like:

  1. Do you have a CDL license?
  2. Do you have a clean driving record?
  3. Are you available during all business hours? If not, explain:

Interviews

During interviews, test potential drivers on their familiarity with the tools for the job. One of the best ways to get an idea of whether they are fit to do the job is to have them do a ride-along.

How much does a tow truck driver make?

When you hire employees, you have to pay them. There are three main ways to pay an employee:

  • Salary
  • Hourly
  • Commission

Commission seems like the best option based on current labor laws, but remember to consult with a professional HR representative or lawyer to establish laws in your area.

Find out the differences below.

Salary

Salary page screenshot

According to Salary.com, drivers make between $43,544 and $71,789, with a median income of $56,074. There are strict regulations about salary, so you need to make sure they qualify because it can be quite costly if you misclassify someone as salary.

Hourly

Zippia estimates an hourly rate between $14 and $29 for drivers. This may not be the best way to pay drivers as they may have lots of idle time. 

You can use on-call laws in many states, but there are strict federal restrictions that are hard to fight. The Fair Labor Standards Act (FLSA) considers on-call as normal hours worked unless:

  1. The employee can legitimately do normal personal activities
  2. The state law is stricter than the federal law

According to Replicon, California allows lower pay during the on-call time, but all on-call time must be paid. 

Meanwhile:

  • Three states have written FLSA into law.
  • New Mexico requires full payment for both employees and day laborers while on-call.
  • Twenty-two states require you to pay all employees their hourly for on-call hours.
  • The rest have not written laws and the FLSA applies.

Commission

Paying truck drivers based on commission is probably one of the best ways because then you can control your business costs. There are two primary ways to do this:

  1. Per billable mile: You want to exclude miles that aren’t earning revenue.
  2. Percent of fees earned: This is the method that Kenneth mentions in the interview.

He tells us:

I pay my drivers 33% of each job they take.

This seems like the most reasonable option to me; it gives flexibility without having to pay employees when they are not actively working.

Outsourcing

New tow truck owners might want to outsource to another vehicle owner to help during busy times. Just make sure they have the permits tow trucks need.

Tax filing and withholding

You’ll need to withhold taxes for your employees and pay them to the Internal Revenue Service and any state agencies (if applicable).

Step 7. How to Retain Customers for Your Towing Services

Ken told us the secret to retaining customers and getting referrals:

I treat ’em like family. You know, I don’t look at you as a mark. The next person on the line (repair shops try) to read your pocket …I help you in your time (of) need. Now you’re gonna pay me for those services.

If I treat you right, the next time you need help, you’re gonna call me. You’re gonna think of Ken with Charlie. I don’t care how long it takes me to do whatever I do. I don’t get upset. I don’t get mad. I do the job.

Top Influencers

Find out what other people in the industry are doing:

Hauling It Away

We’ve covered how to start a tow truck company; now it’s your turn to get the licenses and permits, find some customers, get a truck, and start towing. 

What has been the most challenging part of starting an independent towing service?

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