How to Start a Towing Company

Part 1 - How to start a Towing Company business - Background

Starting a towing company can be a profitable venture, especially with the growing demand for roadside assistance.

This guide will walk you through the key aspects of the industry — including the startup costs and earning potential involved — and provide a step-by-step process for launching your business.

Our guide is in 3 parts:

• Part 1 - How to start a Tow Truck business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

Industry Overview

The towing industry has experienced steady growth in recent years, which is driven by the increasing number of vehicles on the road, stricter enforcement of parking regulations, and a vehicle fleet aging faster than in previous decades — with the average vehicle age in the U.S. now at a record 12.6 years.

The industry as a whole consists of over 43,000 registered businesses and nearly 98,000 employees, and is currently valued at $10.3 billion, with a projected compound annual growth rate (CAGR) of 3.5%.

It should be noted that even though the towing industry is largely dominated by big players like AAA, United Road Towing, and Copart, there is still ample room for smaller businesses to enter the market, especially by focusing on local services and specialized niches.

These include specialized services like luxury or exotic car towing, off-road recovery, eco-friendly towing with electric or hybrid trucks, and repossession services, along with securing in-house contracts with local repair shops for consistent business.

Startup Costs

If you’re considering whether a towing company is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own towing company?

Well, it depends. The initial investment for a towing company varies widely based on factors such as location, size of the operation, and the quality of the equipment and inventory you choose:

• Tow Trucks ($30,000 – $200,000+ Per One): You’ll need at least one tow truck to start, but having two or three is ideal for managing multiple incidents at the same time. The cost will depend on whether you buy new or used, as well as the type of truck needed for your services (e.g., flatbed, wheel-lift, heavy-duty, etc).

• Staffing Costs ($87,000 – $244,000 Annually): For a small startup towing company, you’ll typically need at least two drivers ($60,000 – $100,000) and a part-time or shared dispatcher ($12,500 – $20,000); you will also need to budget for payroll taxes and employee benefits ($14,500 – $24,000).

• Insurance ($4,000 – $15,000+ Annually): You’ll need to secure comprehensive insurance to protect against liabilities, vehicle damages, and other risks, with costs varying based on your fleet size, requested coverage, and location.

• Licenses and Permits ($100 – $2,000+): You’ll need to secure several licenses and permits to get your towing business up and running — such as a business license, towing license, and motor carrier permit — with costs depending on your location and the services you plan to provide.

• Dispatch Software ($50 – $500+ Per Month): You’ll need dispatch software to manage calls, optimize routes, and streamline communication — with costs varying based on the complexity of the system and any extra features, such as integration with accounting or customer management tools.

• Storage Yard ($2,000 – $10,000+ Per Month): If you are offering impound services, you will need to rent or lease a storage yard to store vehicles — with costs depending on the size and location of the property.

Note: It’s common for new towing business owners to manage dispatching themselves during the early stages of the business to reduce costs. This can help lower overhead until the business grows and can afford dedicated staff.

Earning Potential

A towing company’s earning potential depends largely on factors such as the types of towing services provided — such as roadside assistance, accident recovery, or long-distance towing — along with operational efficiency and local demand.

For the purposes of estimating revenue, you will need to think on a per-truck basis, with each truck generating an average of $150,000 to $450,000 annually as a general rule of thumb.

This is because a well-managed truck will typically handle anywhere between five and 15 tows per day, at a rate of $50 to $450 per tow, depending on the distance and the type of vehicle.

When you take into account that towing companies typically operate with profit margins between 20% and 35%, it’s easy to see how lucrative even a small operation with two to three trucks can be.

Day-to-Day and Growth

Is towing a good business to start?

Yes, towing can be a good business to start if there’s sufficient demand in your area.

With profit margins between 20% and 35%, even a small operation with 2-3 trucks can be quite lucrative.

How do tow truck owners make money?

Tow truck owners make money by charging fees for towing services, typically ranging from $50 to $450 per tow based on distance and vehicle type.

They also earn income from storage fees, impound fees, roadside assistance, and specialized services like heavy-duty or long-distance towing.

What do I need to operate a tow truck?

To operate a tow truck, you’ll need a towing license — which may require passing a test and a background check — on-hook and general liability insurance, and a commercially registered tow truck equipped for your services.

Additionally, you’ll need to obtain all specific permits required by your state and local regulations, such as motor carrier permits or emergency vehicle permits.

What are the profit margins for a towing company?

The profit margins for a towing company typically range from 20% to 35% after expenses, meaning that for every dollar of revenue, you can expect to keep $0.20 to $0.35 as profit.

This margin depends on factors like your operational efficiency, the types of services you offer, the local competition, and how well you manage costs such as fuel, maintenance, and insurance.

Part 2 - Is a Towing Company business the right fit for you?

Part 3 - Action plan to launch your Towing Company business in 90 days