For an entrepreneur with the right skillset, launching a towing business is relatively low-risk with high odds for success. As long as cars continue to break down and people still park in the wrong spots, the automotive towing industry will continue to thrive. In fact, US towing businesses generated 8 billion in revenue during 2019 and show little sign of slowing down.
That’s not to say starting a tow truck business will be easy: tallying up expenses, buying equipment, and obtaining the proper permits require time and dedication. What’s more, the day-to-day running of a towing business presents many challenges and difficult choices.
In this guide, we’ll look at towing industry facts and figures, examine the characteristics that make a person fit to run a tow truck company, and detail the necessary steps to get a towing business up-and-running.
Tow truck business statistics at-a-glance
- There are over 51,000 towing businesses in the United States, employing over 101,000 people.
- The market size for the automobile towing industry is over $6 billion.
- The automobile towing industry comprises mostly small businesses, with no single company having a market share of 5% or more.
- Between 2015 and 2020, the market size of the automobile towing industry has declined an average of 0.2% per year.
Is a tow truck business right for you?
Starting a towing business won’t be for everyone: the job requires hard work, dedication, and detailed knowledge of automobiles. The following are some of the traits that make someone a good fit for the towing industry.
You prefer being your own boss.
By starting your own towing company, you will be running the show instead of working for someone else. If that kind of freedom appeals to you, then starting a tow truck business could be a good idea.
You have a knack for mechanics.
While a tow truck operator may not actually have to repair the vehicles they tow, an understanding of mechanics can assist in identifying automotive issues and allow you to offer advice to customers. What’s more, if something goes wrong with a truck, you may be able to fix the problem yourself.
You thrive in high-stress situations.
If you choose to do non-consensual towing, chances are you will deal with many irate vehicle owners that will argue and may become aggressive when you attempt to tow their vehicle, even when you are following the law. Those that can aptly handle these stressful encounters are more suited to the towing business.
You want to make good money.
According to ZipRecruiter, the average tow truck owner in the United States makes $88,156 a year. This is nearly $40,000 more than the average yearly earnings of a full-time salary or wage worker, according to a 2019 report released by the U.S. Bureau of Labor Statistics.
You are able to acquire sufficient funding to support your business in its early stages.
Together, buying a truck, obtaining a towing license and other necessary permits, and opening up a brick-and-mortar business can cost upwards of $200,000. If this hefty sum seems unreachable, perhaps it’s best to consider other entrepreneurial opportunities.
You can drive a truck and don’t mind obtaining a CDL.
Obviously, a tow truck operator will need to feel comfortable behind the wheel of a medium-duty truck. Getting a Class B (or possibly Class A) commercial driver’s license is necessary for the job as a medium-duty truck weighs at least 26,000 pounds
Starting a tow truck business
1. Choose which type of tow truck business to open
Deciding to open a towing business will only take you halfway there, as you’ll also need to choose which type of towing business you want to open. There are two main types of tow truck businesses: retail towing (AKA “consensual towing”) and non-consensual towing.
- Retail towing is the type of towing when a company offers roadside assistance to a customer whose vehicle has broken down on the road or has been damaged in an accident. Many retail towing companies partner with the American Auto Association (AAA), which boosts business as AAA members will be directed to use your services if they need roadside assistance in your area.
- Non-consensual towing companies partner with private property owners and law enforcement agencies to tow vehicles that are illegally parked or in violation of the law.
Working with police and private property owners can produce a steady stream of business, but non-consensual towing businesses have their own difficulties, including belligerent, uncooperative vehicle owners and strict local regulations on where and how long vehicles can be impounded. Owners of non-consensual towing companies end up spending a lot of time in court, but they rarely lose cases.
Choosing the right type of towing business for your company depends on factors in your area of operation, and it is possible to provide both towing services.
2. Calculate your expenses and purchase equipment
Making a detailed budget sheet is an essential step that will help you understand your financial limitations and make applying for loans easier.
Here are some of the key expenses you’ll need to think about:
- A flatbed truck – Obviously you will have to purchase one or more tow trucks. As the price of a new tow truck can top $100,000, buying a used truck is a wise choice for budget-conscious entrepreneurs.
These days, the most often used tow truck is the flatbed truck, rather than the traditional “wrecker” tow truck, so that should be your company’s first vehicle. Later, you may consider purchasing an integrated tow truck, which has large axles and is equipped for towing heavy-duty vehicles.
- Towing equipment – Essential towing equipment, such as booms, winch cables, and quick picks will be necessary for attaching vehicles to trucks in certain situations.
- Renting or buying property – You’ll need to rent or purchase commercial property from which to operate your towing business. The cost is highly variable depending on where you choose to operate, but renting in a space in a central area of your city could cost several thousand dollars a month. If possible, operating out of your home could save a lot of money.
- Permits and licenses – Depending on your location, you’ll need to acquire a handful of permits to legally operate a towing business (listed in Section 9). Additionally, any tow truck drivers you hire will need Class B driver’s licenses.
- Insurance – Purchasing several forms of insurance will be required for your towing business, while others are recommended. Section 11 elaborates on the types of insurance that are necessary for your towing company.
- Payroll – You’ll have to account for the salaries or hourly pay of any employees that you hire.
3. Acquire funding, choose a business entity, register your business, and obtain federal and state tax ID numbers
Refer to our How to Start a Business Guide for instructions on how to complete these essential steps.
4. Obtain the necessary licenses and permits
Running a towing company requires the acquisition of a number of licenses and permits. While the Department of Transportation in the state where your business operates will offer the definitive list, the following licenses and permits will likely prove necessary:
- Class B commercial driver’s licenses – Required for drivers of vehicles weighing 26,000 pounds or more, and for those towing vehicles 10,000 pounds or less.
- Oversized vehicle permit – Required to operate large tow trucks that exceed the standard load limit
- Consent tow permit – Allows drivers to tow vehicles with the consent of the vehicle’s owner
- Private property permit – Necessary for towing vehicles on behalf of a private property owner without the vehicle owner’s consent. Required for operators of non-consensual towing businesses.
- Indictment management permit – Required for towing vehicles without the consent of the vehicle owner by law enforcement request.
- Towing company license – Some states require that businesses obtain a special license exclusive to towing companies
5. Select a location
Location is a major concern for tow truck companies because trucks will regularly be dispatched to all areas throughout a town or city. Operating from a central location within a municipality is key, and if possible, being located near the impound lot your company uses will save time and money.
Tow truck company owners must also consider whether their town or city is large enough for their company. If a municipality has a small population that is already home to several competing tow truck services, it may not be a suitable environment for a new company.
For towing entrepreneurs with just one or two trucks, it is not uncommon to operate out of a private residence. Doing so will save significant money on rent.
6. Buy insurance coverage
Insurance coverage is an essential means of protection for any business, and towing truck companies in particular benefit from being well-covered.
Although businesses with employees are required by the federal government to have two types of insurance, others are strongly recommended or required at the state level.
Here are the most important forms of insurance to consider:
Required forms of insurance for all businesses with employees:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance for all businesses:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business-owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
Recommended forms of insurance for tow truck companies:
- Auto-liability insurance – Covers the medical and vehicle damage expenses of other drivers in the case of an accident when the driver of the tow truck is deemed at fault
- On-hook coverage – Offers coverage for vehicles that get damaged after being hooked to the tow truck
- Physical damage insurance – Covers repair costs to a tow truck in the wake of an accident
- Uninsured motorist insurance – Coverage for injuries or property damage as a result of a hit-and-run, or an accident where the other party does not have insurance
7. Market your tow truck business
No business can thrive without local advertisements and a well-established online presence. Here are the key steps for promoting your business:
- Create a website. Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, or Namecheap.com). Hire a web designer to develop the website (or do it yourself). Be sure to include detailed contact information on the site.
- Open social media accounts. Register accounts on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile. This will allow you to add pictures of your business, respond to positive customer reviews, and address customer concerns.
- Respond to online customer feedback. Register accounts on business review platforms such as Yelp and TripAdvisor. This will allow you to write thank-you notes in response to glowing reviews and address negative reviews.
- Take out ads on billboards and in local publications. It still pays to increase visibility by buying ads in local newspapers and on highway billboards.
Tow truck business resources
- American Automobile Association – A large federation of United States motor clubs that offer roadside assistance and other benefits to its members. Partnering with AAA is a great way for a towing company to increase business.
- Federal Motor Carrier Safety Administration: Regulations – Answers important questions regarding tow truck company operations in the United States.
- Truckpaper.com: Tow Trucks For Sale – An extensive listing of used tow trucks for sale in the US.