by Brandon Boushy 
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.
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:
- Partnering with insurance companies for towing and roadside assistance
- Impound and repossession services
- Independent towing for people or subcontracting
- Long haul
Let’s look at each.
Partner with Insurance Companies
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:
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:
He went on to describe how they pay. He showed us two cars he had on his truck and told us:
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:
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:
Who are the major players in the towing business?
Some of the largest tow truck businesses include:
- United Road Towing: Dun & Bradstreet (D&B) estimates United Road Towing’s revenue at $99 million
- Jamie Davis Towing: ZoomInfo estimates revenue is under $5 million from the towing company
- Certified Towing: Estimated $1M according to D&B
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?
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:
Check out the rest of his interview.
The plan should follow a process similar to this:
- Find customers.
- Get your permits and licenses to drive a tow truck.
- Start Your company.
- Buy a tow truck.
- Start towing vehicles.
- Market your business to take on more work.
- 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:
- Download our Business Plan Template
- One-page business plan
- U.S. Small Business Administration (SBA) Business Guide
Learn to Write a Business Plan
We even provide resources for how to write a business plan:
- UpFlip’s blog on How to Write a Business Plan
- Resources from Score
- The Complete Business Plan Course (Includes 50 Templates)
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:
He went on to tell us:
Where to Find a Tow Truck for Sale
Some of the places you can find the different types of tow trucks include:
- A bank repo tow trucks sale
- Craigslist
- Auto auctions
- Failing tow truck businesses
- Commercial Truck Trader
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
You have to start somewhere. Kenneth suggested the following solutions:
- Can you finance?
- Can you get a lease?
- Can you ask friends and family?
He also told us:
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:
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:
- Crowdfunding
- Credit cards
- Home equity loan
- Business loan (Check out our partners.)
- Rollover for business startups (ROBS)
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:
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
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 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
Kenneth’s strategies for opening day were fairly simple:
- Find a customer that would keep him busy.
- Buy a tow truck.
- Take as many runs as possible.
- 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:
How much should you spend on advertising?
Kenneth told us he spends about $300 per month on advertising.
How much of that goes to Google?
We asked Ken about Google Ads. He told us:
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:
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
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:
- Do they have the required licensing?
- Do they stay in communication with the owner?
- 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:
He also emphasized the importance of being mechanically inclined:
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:
- Do you have a CDL license?
- Do you have a clean driving record?
- 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
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:
- The employee can legitimately do normal personal activities
- 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:
- Per billable mile: You want to exclude miles that aren’t earning revenue.
- Percent of fees earned: This is the method that Kenneth mentions in the interview.
He tells us:
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:
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:
- Jamie Davis Towing: Check out his YouTube Channel
- Get Hooked: A towing industry Podcast
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?
