How Do Towing Companies Price Their Services?

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February 12, 2020
White Flat Bed Towing Service Truck Carrying A Vehicle

White Flat Bed Towing Service Truck Carrying A Vehicle

One of the most challenging elements in the towing business is nailing down how much to charge for the company’s towing services.  It’s no secret that the towing industry in general doesn’t have the best public image, so having competitive prices while still being able to keep the establishment running, make a profit, and pay business expenses can be a bit difficult, and it’s important that we get it right.

The tricky part is when people can’t find an explicit dollar amount on any towing company’s website. This is mainly because each situation is different and more often than not there are too many variables at play. Although the price range may differ from one company to the other, there is a basic formula that these businesses follow.

So if you’ve been wondering how do towing companies price their services, read along to find out.

Cost of doing business

Business expenses are the first step a towing company takes to calculate its starting price point. There is a simple equation that any business can follow to get a rough idea of how much they should be charging. Cost of doing business (per job) + Return on investment (ROI) + Equipment value, maintenance, and replacement.

Now, when considering the cost of doing business, a lot of towing companies include rent, fuel expenses, marketing, insurance, employee wages, phones, utilities, computers, office supplies. Sometimes damages, taxes, bank service charges, credit card expenses, legal fees, or licenses can also be included in the cost of being in business.

Taking into account every dollar spent in this category can prove to be a challenge. However, a lot of towing companies generally operate through a separate, business-only account to make it easier to track each and every expense. It’s not unusual to use accounting software as a business practice to stay up-to-date on how much it costs to stay in business.

Companies calculate the cost of business by adding up all business-related expenses, any mortgages or interest paid on real estate and equipment and then diving that number by the number of calls they did on that particular year. This gives them an estimate of how much the average call costs.

E.g: if the cost of business if $150,000 and the company has had 5,000 calls that year, then 150,000/5,000 = 30. In this case, $30 is the overhead cost per call.

Return on investment

Return on investment is essential to every business and company out there because it involves how much profit they make or expect to make off of their initial investment (towing equipment). The way they calculate the return on investment is by adding up the value of their trucks, equipment, and real estate (or at least the part of real estate they operate from), including taxes.

After finding out how much they invested in their towing company, they then decide on the margin of profit they want to be within. So, let’s say the value of their investment all comes down to $400,000. Then, if the company wants to make 10% or 15% profit, they multiply that $400,000 by the percentage they aim to reach, then divide the result by the number of calls they did that year.

This should look something like this: 400,000 x 15% = 60,000 and again 60,000/5000 = 12. In this case, twelve dollars is how much should be added to the initial cost of doing business in order for the company to make a 15% profit.

Equipment value and replacement

Trucks and equipment, maintenance, repairs, and potential replacement also make the equation for how much towing companies are pricing their services. This goes without saying, but trucks are also an expense because each time a towing company dispatches one of their vehicles, that puts more miles on the trucks. This means that each time equipment is used, it loses a bit of its market value. And after a lot of wear and tear, these trucks will eventually need to be replaced by better and more technologically advanced vehicles.

So the equipment value, maintenance, and replacements should also be included in the overall service fees. Most towing companies will generally follow the one dollar per mile rule. For example, if the trucks drive 80,000 miles per year (combined) then they need to get that $80,000 from the 5,000 calls they made that year. Accordingly, 80,000/5,000 = 16. So that’s $16 on each call on average, which is also added to the ROI and cost of doing business.

Thanks for reading our very first article!  Keep a lookout for more on a periodic basis.

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