Do you want to start a tow truck business? If so, find here a detailed business plan guide covering towing companies with requirements, legalities, and startup costs to start a profitable toying company.
Starting a tow truck business is ideal for people having experience in the transportation sector and are passionate about working with automobiles like cars, trucks, etc. Vehicle towing service demand is driven by the average age of the motor vehicle fleet, the rate of automobile accidents, and parking enforcement by private landowners and municipalities. As this report suggests, the number of businesses has grown by 6.9% and the number of employees has grown by 4.5%.
The profitability of a towing company largely depends on effective marketing and efficient operations. This business is also considered a recession-proof business. Small companies can effectively compete with larger ones because there are few economies of scale in operations.
Tow Truck Business Plan Guide for Beginners
Here are the 8 steps to start a profitable tow truck business:
1. Understand the Market
It is extremely important to know the demand and trends of tow trucks in the local market. Conduct market research and collect information regarding the need of existing customers and local competitors. Based on the feedback, explore the scopes and gaps, and plan your business accordingly.
1. Vehicle Towing Service Business Plan
Crafting a detailed comprehensive business plan is just essential. You will need to determine how much area you will be covering and how many towing vehicles are needed. You will find there are several different types of towing vehicles providing services to different vehicles like cars, trucks, construction vehicles, etc.
Also, there are systems for wheel lifts, flatbeds, etc. Select the right one that will serve your client’s specific purpose. You also need to fix the marketing strategy and how you will compete with other established vehicle towing companies. This will also help you in calculating and understanding the financial budget. Might be it will take time to get payback, You will need to calculate an expected rate of revenue return carefully.
2. Evaluate the Cost of Running a Tow Truck Business
Running a tow truck business requires a good amount of investment. The following are the costs associated with operating a tow truck business:
- Cost of Buying Tow Trucks
- Overhead costs
- Fuel Cost
- Garage Rent
- Salaries and Wages
- Cost of Repairing Tow Trucks
- Accounting Expenses
- Compliance Expenses
- Insurance Coverage Cost
If you have budget constraints, buying a new truck would be much more expensive. It is better to buy a second-hand truck. It will cost you around $15,000 to $60,000 depending on the condition of the vehicle. Licensing is another avenue where a startup needs to invest in starting a towing business.
3. Name Your Trucking Business
A catchy and relatable name for your trucking business goes a long way in building a brand personality. Check this guide to know more about the steps associated with naming a business.
The main investment is purchasing towing vehicles. Hire purchase leasing is the best way to purchase vehicles with a 20 to 25% initial down payment. You may ask your bank. Or you can avail of this facility from dealer point also.
Compare the rate of interest and processing fees with different finance companies carefully. It is advisable to purchase chassis only. You can customize and build a towing vehicle on it according to your requirement.
5. Legalities to Run Tow Truck Business
In starting a vehicle towing service you need to register your business. Forming a limited liability company or a corporation is better than a proprietorship for a tow truck business to protect the personal assets of business owners. Some states provide special permission and license for towing vehicles. Check all licenses and permits required with a local attorney.
There are wide ranges of insurance available for tow truck business owners in order to protect them from unfortunate consequences. Some of the popular insurances for a tow truck business are auto liability, physical damage insurance, on-hook coverage, garage keeper insurance, garage liability insurance, etc.
Suggested Read: 10 Reasons Why You Should Definitely Have Business Insurance
6. Pricing For Vehicle Towing Service
Fixing proper pricing is the most crucial and difficult decision to make after equipment and insurance in the tow truck business. According to the vehicle and distance, you may fix the pricing.
You may consider calling around local towing companies and taking information to see what the competitors are 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. Smooth service with competitive charges is the most critical factor in getting success in this business.
7. Vehicle Towing Service Set-Up
It is advisable to start this business with one or two vehicles. As your business grows, you can go with multiple options. Initially, this business can be operated from home also. If you have a spare room you can set up a home office there to maintain daily activities. But you will need to arrange safe parking for the towing vehicles. An easy-to-spell name and memorable phone number will definitely help you in your business.
Hire drivers carefully for this business. Check their licenses and past criminal records. For some locations, it needs a special driving license for towing vehicles.
8. How to Promote a Tow Truck Business
In a tow truck service business, one just doesn’t build a business only, you actually build a brand. Create a proper marketing plan. The body of the vehicle is the best part to write your company’s name, logo, and contact details. Word of mouth campaign is one of the best tools. Now social media is considered as a technically upgraded format of the word-of-mouth campaign.
Establishing different business tie-ups with other automobile service providers like the workshop, dealer point, etc. will definitely help you in getting clients. You can also contact the local police department and the municipal department to get orders from them. Register your service with the local popular directory. These will definitely help you in generating leads online in the vehicle towing service business.
How Does Tow Truck Business Works?
Vehicle towing services primarily consist of consent and non-consent towing. Consent towing usually involves towing a consumer’s inoperable vehicle to a designated location, such as a repair facility. In consent towing situations the consumer orders and pays for the towing.
Non-consent towing generally is ordered by law enforcement or private property owners and is paid for by the vehicle’s owner. Vehicles are usually subject to non-consent towing if parked in clearly marked tow-away zones, or after an accident. Prices for non-consent towing are usually higher than for consent towing, as non-consent towing is not subject to consumer choice or price negotiation.
The vehicle towing service business is definitely a cost and management-intensive business. Creating standing operating procedures and following them to run the business smoothly is an essential factor in this business. Having a detailed plan and marketing strategy, any individual can initiate a vehicle towing service from his/her home location also.
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