One of the trickiest parts of being in the towing industry (other than tow truck insurance) is figuring out how much to charge for your towing services. Setting your prices can be difficult – you want to make a profit and keep your business running, but you also want to keep your pricing competitive. There are a lot of other tow truck businesses out there, after all, and you’re all competing for the same potential customers. To help you get an idea of how to price towing, we’ll give you the average cost of a tow and some tips for calculating a rough estimate for prices.
What is the average cost of a tow?
Angie’s List puts the average cost of a tow at $109. So, that gives you an idea of a baseline for how much the average tow costs.
However, many tow truck companies charge extra for towing on weekends, on holidays, or at night. And they will usually charge extra if a car is stuck and needs to be winched out of a ditch or mud.
How does tow pricing work?
Most towing or wrecker companies will charge a base fee or hook-up fee to attach the car to the truck. Then they will charge a per-mile fee on top of that, so the cost of the tow can really depend on how far the car needs to go. The hook-up fee could be anywhere between $35 and $100, and the per-mile fee could be between $2.50 and $5, according to CostHelper. Some tow companies will include the first five to seven miles in the hook-up fee, so you have to decide if that’s something that will work for you or not.
How to price towing for your tow truck operation.
Now. That’s a lot of numbers and a lot of averages, but how much should you charge for your towing services? Don Archer of Tow Academy posted an article in which he shares a trick to get a rough idea of how to price your towing. You don’t want to shortchange yourself by making your prices too low– the goal is to make money, right? Money’s great. So, grab your calculator and let’s crunch some numbers!
Okay, so here’s Archer’s formula for setting tow truck prices:
Cost of doing business (per job) + ROI (Return on investment) or profit you want per job + Tow truck maintenance and repair (per job) = Rough idea of pricing
Let’s break each piece down.
Business expenses are the first chunk of that handy little formula for prices. First, you need to take all of your expenses from the previous year and all them all up. This includes anything that is a part of how much it cost you to run your business last year. This can include your tow truck insurance, gas expenses, marketing, your employees’ wages, office supplies, your rent, your utilities, your computers, all of that good stuff. Don’t forget to include any relevant interest, too, like the interest on your vehicles or property. Once you’ve got that sum, divide it by the number of calls you did in that last year. (If you’re a new venture, you may have to estimate some of these numbers.)
Let’s say you had $120,000 in expenses and you do 5,000 calls in a year. $120,000/5,000 = $24. That means that your “cost per call” is $24.
Your desired ROI or profit is the second chunk of the formula – basically, your Rate of Investment is how much you want to make off of your initial investment in the tow trucks or wreckers. Your tow trucks and towing equipment are a significant investment, and you want them to pay for themselves, right? You can get an idea of what you want your return on investment (ROI) to be by considering the costs of all of your equipment and real estate. Let’s say that comes to $450,000. If you want a 15% ROI, multiply $475,000 by .15. That comes to $71,250. Now, divide that sum by the number of calls you do (for our example, 5,000.)
$71,250/5,000 = $14.25. So, you need to add $14.25 to your price to make the desired ROI.
The final leg of the formula is how much equipment and tow truck maintenance or replacement will cost. Tow trucks are very pricey, as you’ve probably noticed. And that means they can be very expensive to maintain. Archer recommends including this in your calculations for prices because the more miles you put on your truck, the more worn-out it becomes and the less it’s worth. Eventually, you’re going to have to throw some money into maintaining or replacing your tow trucks, and that can be a financial blow. Archer suggests factoring in $1 for every mile driven as your “replacement/maintenance cost.” So, if you do 70,000 miles in a year, you need to make $70,000 from your 5,000 tows.
That comes to $14 per job in maintenance and replacement costs ($70,000/5,000 = $14.)
To get your rough estimate, which Archer calls a starting point, add those three together: $24 (cost of business) + $14.25 (ROI) + $14 (to account for maintenance and replacement) = $52.25.
Keep in mind that this is a place to start. Of course, there are going to be some jobs that are more expensive. There will be some that are less so. You may have to make changes based on how things are going at your business.
You have to understand what the market is doing and how your business (and prices) fit in. While the tool above is helpful to make sure you’re not short-changing yourself, you may need to do some research and figure out what other businesses in your area are charging. You also must consider the service you’re offering to your clients – like we said, some tow companies charge more for weekends, holidays, and nights.
Remember, you provide a valuable service. Don’t feel as though you have to charge dirt-cheap prices to attract customers. Focus on providing quality service, hiring great drivers, and charging a fair price. It may take some trial and error, but in time you’ll find the sweet spot and get your towing company off the ground and thriving.
If you need tow truck insurance for your wrecker business, we would be happy to help with that. We can help you shop around for tow truck insurance rates so that you can be sure that you’re getting the best coverage at the best price. All you have to do to get tow truck insurance quotes is fill out our online form or give us a call today.