Tow trucks are a part of our lives, and even if you didn’t have to use one, you probably saw someone else using it on the road.
They haul cars from the road whether they have had an accident or the car just broke down.
They are one of the most important businesses in the car industry, as everyone needs them at one point.
Considering their importance in the industry, owning a tow truck business might seem like a good idea as they look lucrative.
It’s true that the potential to grow is there, and you must know the tow truck business startup cost if you want to open one.
This article will cover all the details about the startup costs of the tow truck business.
Average Tow Truck Business Startup Cost
Finding the average cost of a tow truck business is hard because it generally boils down to you and your decision as the business owner.
How many tow trucks will you have, how big the store will be, and where is your store? For example, everything will be much more expensive in Los Angeles than it is in Texas, so the costs will shoot up.
However, if we consider an average-sized tow truck business with understandable numbers of tow trucks, we could come up with an average number.
It could be anywhere between $20,000 to $215,000. If you buy the tow trucks in cash and do not take out a loan, and the number of tow trucks is higher than the average, this cost could be as high as $1 million or more.
Here is a simple breakdown with realistic and average estimates:
| Type | Average Cost |
|---|---|
| Truck Payment (Down Payment) | $6,000 – $170,000 |
| Equipment and Supplies | $1,000 – $5,000 |
| Licenses and Permits | $300 – $1,900 |
| Legal/Accounting Fees | $250 – $5,000 |
| Insurance | $8,000 – $28,000 |
| Marketing and Advertising | $2,000 – $5,000 |
Truck Types
The biggest cost driver of any tow truck business is the trucks themselves. There are four types of tow trucks, and each comes with a different cost.
In each of these tow trucks, you have the option to either directly buy them in cash, a new one or a used one, or get a loan and pay a down payment on each. Here is a breakdown of both options:
| Type | Avg. Total Cost | Avg. Down payment |
|---|---|---|
| Flatbed | $40,000-$500,000 | $6,000-$40,000 |
| Hook and Chain | $20,000-$150,000 | $4,000-$30,000 |
| Wheel Lift | $15,000-$50,000 | $3,000-$20,000 |
| Integrated | $100,000-$850,000 | $40,000-$170,000 |
Equipment
You will need a variety of equipment to ensure you perform your job safely and securely.
Some of the equipment includes dollies and skates, chains, straps, hooks, and safety equipment. Each of these has different costs.
For example, a single-tire skate costs between $15 to $75. If you get a set of four, then it’s between $60 to $300. Different varieties of skates and dollies can go as high as $3,000 per unit.
Licenses and Permits
Similar to most businesses, you are also going to need to have certain licenses and permits.
Without these licenses and permits, you can’t operate your tow truck, and in some cases, you can’t operate as a business.
They also change from state to state, so it’s better to ask around in your state for exact requirements.
| Business License | $50-$400 |
| Towing License | $100-$1,000 |
| Vehicle Registration | $150-$500 |
| Legal Fees (if applicable) | $500-$5,000 |
Insurance Choice and Its Costs
Because you are using trucks and going on the road, you are going to need different types of insurance to protect both you and your customers.
Some states make it obligatory to get special insurance, and some don’t, and it’s up to you. There are three very common insurances, and here is their cost breakdown:
| Liability | $5,000-$20,000/year |
| Collision | $2,000-$5,000/year |
| Comprehensive | $1,000-$3,000/year |
Marketing Budget
In this digital age, it’s impossible not to spend on marketing, especially digital marketing, and have a website.
A new tow truck business’s average annual marketing budget is between $2,000 to $5,000. But it boils down to your decision, and you can spend more or less than this number.
To create your website and develop it, the cost on that is generally between $200 to $500, depending on the type of website and design you want.
Profit Margin
The profit margins boil down to how much you spend for your business. Generally, a tow service costs about $95 in the United States, and when you remove all the expenses from this number, you get your net profit and the profit margin.
On average, you get about 70% of this $95 as net profit, so the profit margin would be 70%.
However, there are cases where the profit margin can go as high as 90%, giving you a tremendous net profit margin.
Average Salary Tow Truck Employees Earn
A tow truck business could have several different roles within the business, but perhaps the most necessary and the most needed is the truck driver.
The average national salary for truck drivers is about $60,000 annually. The top earners can earn close to or over $100,000, and the lowest earners can make about $50,000 annually.
The salaries for other professions are also close to what truck drivers make. It mostly depends on your experience in the industry.
If you have a lot of experience, you can always be in the top earner part and earn over $100,000 annually.
Factors That Affect the Startup Cost of a Tow Truck Business
A tow truck business’s income greatly changes depending on important factors.
If you are aware of these factors, you might be able to make better decisions that will allow you to economize on certain things.
Some of these might not be easy to change, like your location, if you don’t want to move.
Here are some of the factors:
- Location of your business
- Size of the office and the fleet
- Number of employees
- Overhead and maintenance costs
Tips To Save Money on Tow Truck Business Costs
Even though most things are fixed when it comes to startup costs, there is also a lot of stuff you can do to economize as much as possible.
You can utilize some tips and tricks here and there to create the most financially positive environment.
Here are some of those tips:
- Make smart decisions on equipment: Your equipment is the thing that’ll make or break your business. Don’t go cheap on your equipment, and make the smartest decisions possible with them. Do your research.
- Rent the equipment if it makes more sense: Sometimes renting stuff is financially more viable than owning them, depending on the situation. Evaluate both options of equipment, and see if renting is a better option than buying one.
- Build your own fleet: To keep the costs as low as possible, you need to have ultimate control over everything. Build your own fleet to start with and buy the trucks.
How Much Does a Tow Truck Business Make?
The income of tow truck businesses mostly depends on the location, overall expenses, and the profit margin on the services.
When we look at the national average numbers, we see that a tow truck business owner’s net profit is between $32,000 to $150,000 annually.
These numbers could be lower or higher depending on the factors we mentioned above.
On the lower end, there are tow truck business owners making around $20,000 annually. The higher end can go as high as $228,000 annually for tow truck business owners.
These numbers are the net profit that you get when you remove all the expenses and other costs of the business.
Conclusion
Tow truck businesses are necessary businesses in the industry, making them lucrative both in big and small regions.
To open an average-sized tow truck business, you need between $20,000 to $215,000 on average.
This number could go as high as $1 million or more for bigger tow truck businesses.
The deciding factors in your costs are generally the location, size of the businesses, number of trucks, employees, and your overall costs.
You generally have a 70% profit margin, but by understanding these factors, you could increase it to even 90% and make more.
The average income of a truck business owner is between $32,000 to $150,000 annually. Overall, a tow truck business could be very profitable and a good business to own.
FAQ
What is the average cost to open a tow truck business?
The average cost is somewhere between $20,000 to $215,000, but this is quite a general and average number. You could also spend $1 million or more depending on other factors.
Do I need to get all the licenses to open my tow truck business?
Yes. You need to get all the obligatory licenses and permits to start operating as a tow truck business.
The exact list of needed licenses and permits depends on your state, so you have to talk to the administration in your state.
How much profit margin can I expect in my overall revenue?
The industry standard is about 70% profit margin in the overall revenue, and per towing, you do.
However, in some cases where the costs are lower or where you don’t have a lot of competition, you can hit a 90% profit margin.
Sources
https://www.salary.com/research/salary/posting/tow-truck-driver-salary
https://www.profitableventure.com/income-tow-truck-business-owners/
Amit Gupta is an experienced expert in digital marketing and co-founder of DrFranchises. With more than 11 years of knowledge in franchise digital marketing, SEO, email marketing, and social media marketing, Amit has helped many brands achieve incredible success online. As a passionate entrepreneur and owner of 7 franchises, he continues to study franchise models, looking at costs, revenue, and profitability to guide brands toward profitable growth. When he’s not working on digital marketing, Amit enjoys spending time playing with his beloved dog.