58 | TOWPARTNERS ADVISOR | SUMMER ISSUE 2008 WWW.TOWPARTNERS.COM

Today’s towing company has many challenges that companies twenty years

ago did not have, such as hours of service, incident management or human resources, but one thing that has remained is that making a profit is still the most important objective of a business. In order to know if you are making a profit you must first understand what it costs you to run a call. Some own-ers still feel that if they have a few hundred dollars in their pocket, they must be making a profit, but are they really?

What about when you want to purchase a new truck or buy the property you are leasing? When you go to the bank, almost all banks today won’t take your word that you are financially viable, they need to see proof. Many of you may remember the days when you knew everyone at your bank and they knew you. You could walk in, sit down with the bank manager, fill out a short form and he or she would approve your loan right on the spot. Well, not anymore. With many banks con-solidating and having corporate offices in God knows where, the person that will be approving your loan doesn’t know you or your business. They don’t care that

you are a hard worker or if your son played ball with their son, they want to see numbers. They need to ensure you will make the monthly payments; they need to see a profit and loss and your business tax returns in order for them to determine whether your company is viable. Remember, they have someone they have to answer to as well.

So, where do you go from here? Well, let’s look at revenue. Re-cently, towPartners had a survey on their website, www.towpart-

ners.com, asking the question, “What is the minimum revenue per month a light duty carrier has to run to be profitable”? We were pleased to see that out of 235 people responding to the question, 25% felt that the mini-mum amount should be $8000. It was somewhat surprising that 14% answered $4000 and 7% answered more than $16,000. These num-bers will fluctuate based on your geographic region, but how do you figure out how much revenue each of your trucks is producing?

Based on the amounts that we have given above for each classification of truck; is your truck producing enough revenue each month for you to make a profit? If not, here are some suggestions on increasing revenue.

First, evaluate where your revenue sources are coming from, i.e.: com-mercial accounts, cash, auto clubs, and private property or police rotations. Try not to have all of your eggs in one basket. Make sure that if something happens with a particular account it is not going to cripple your business. A good rule of thumb is not to have one revenue source be more than 25% of your total revenue.

Once you have determined where your revenue sources are coming from you can start analyzing where you might need to make chang-es. Here are some questions to ask yourself:

Would I make more of a prof-it if I downsized or changed the mix of my fleet? Downsizing or changing the mix of your fleet does not mean that you are not a good business

Just How Much Revenue Does It Take To Be Profitable?

SO, YOU WANT TO KNOW…

Below is a guideline to help you calculate how much revenue each of your trucks is making per month, quarter or year.

To calculate how much revenue each type classification of truck is earning, divide your average monthly tow revenue by the number of trucks in that classification

When using annual or semi-annual revenue figures, divide the revenue by the number of months for a more accurate average.

Divide each truck classification by the number of trucks in that category to determine the revenue per truck.

Example: Annual Tow Revenue (Light Duty Carrier) is $480,000 / 12 months =$40,000 per month.

Average Monthly Tow Revenue (Light Duty Carrier) is $40,000 / 5 carriers in fleet = $8,000.

Average Revenue Per Light Duty Carrier Truck = $8,000 per month.

Essential Revenue Minimums – Per Truck

Light/Medium Duty: $8,000 per month

Medium/Heavy Duty: $9,000 - $10,000 per month

Heavy Duty: $12,000 per month

Transport: $10,000 - $11,000 per month* Numbers can fluctuate depending on your region

TOWPARTNERS ADVISOR | SUMMER ISSUE 2008 | 59WWW.TOWPARTNERS.COMWWW.TOWPARTNERS.COM

person. On the contrary, it shows that you are able to analyze your business and make the necessary changes to ensure your business is making a profit.

Is it time to raise my rates?Raising rates is never easy, but it’s an inevitable part of doing busi-ness. You cannot expect to charge the same rates today that you did in 2005. If you say yes I can, you’re also saying that your costs have not risen one penny since 2005. Before you answer yes, take a look at a few items. Is the price of fuel the same today as it was in 2005? Is the price of a new tow truck the same as it was in 2005? What about insurance, rent or a number of other things that you must purchase in order to run a professional, profitable tow busi-ness? Some businesses increase their rates a percentage every year while others do it every two years. This is the time to analyze your business to see if you are making a profit. Remember, you did not start or acquire this business to buy yourself a job.

Do I have too many eggs in one basket and need to increase my customer base?Sometimes in business we get complacent and allow ourselves to be satisfied with where our revenue is coming from, even though an ideal ratio is no more than 25% with any one revenue source. It is sometimes difficult to increase a particular customer base to balance out the pendulum. In order to do this, you MUST get out there and sell. If you do not feel comfortable selling then you need to hire someone that is.

When we speak about selling, we are not talking about just new business. Part of selling includes open communication with cur-rent commercial accounts, police departments, auto clubs, chamber of commerce, and so forth. You should join and participate in your

State Towing Association, Rotary or Kiwanis. If you are not able to participate then assign this task to someone on your team. You will not be able to grow or maintain your customer base if you do not reach out to them. Another way to increase your customer base is to diversify your company. Have you looked at a battery service truck? Or, why not look outside the box and see what other areas to utilize the equipment that you have.

The above questions will not have simple answers. Answering yes to any or all of the above questions will take a commitment on your part to come up with a strategy, execute it and follow through with it. As we said at the beginning of the article; the most important thing is that you are making a profit in your towing business. Profit can be simply defined: Revenues - Expenses = Profit. So, to increase profits you must increase revenues, lower expenses, or both. When you are quoting prices, be a price leader. Do not undercut your competi-tion just to get the job or contract. Pride yourself and your com-pany on professional, well trained employees that care about customer service; not just getting the job. Create a niche for your company and above all, track your income and expenses monthly.

Michele Godwin joined Tow Consulting Group after seventeen years in the towing industry, as-suming the position of principal for the group. Michele also currently serves as Marketing Director for the California Tow Truck Association. Michele can be reached at michele@towconsulting.com.

“When we speak about selling, we are not talking about just new business. Part of selling includes open communication with current commercial accounts, police departments, auto clubs, chamber of commerce, and so forth.”