How to Start a Towing Company

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.

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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.

5 Steps to Starting a Towing Company 

In order to start a towing company, you’ll need to complete the following steps:

1. Planning Your towing company Business
2. Registering Your Business
3. Finding the Right Location
4. Getting all Applicable Licenses and Permits
5. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Towing Company

Before diving into your towing company, you’ll need to spend some time conducting thorough market research.

You’ll need to evaluate the demand for towing services in your target area, identify your competition, and determine which types of towing services are most needed.

To do this, you will need to analyze local demographics, assess the population size within a reasonable service radius, and investigate the specific needs of your potential customers.

When collecting this data, you should always use official sources such as your local chamber of commerce, government databases, and industry reports — never rely on unverified online searches, as they can lead to inaccurate or outdated information.

You should also speak directly with potential customers and industry professionals to identify any gaps in the market.

Remember, cold calling, engaging on social media, and networking with local business communities can provide invaluable insights — you can never be too prepared when planning your business.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

This is because your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide.

If you do have a name in mind, we recommend researching the following:

• Your state’s business records
• Federal and state trademark records
• Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for a towing company. main name before someone else does.

Choose Your Towing Services

One of the most important decisions you’ll need to make when starting your towing company is choosing the specific towing services you’ll offer. 

Below, we’ve outlined the main types of towing services to help you decide which ones best suit your business:

• Light-duty towing: If you’re operating in urban or suburban areas, light-duty towing will likely make up the bulk of your business. This is one of the most common towing services, primarily used for towing smaller vehicles such as sedans, motorcycles, and small SUVs in situations like roadside assistance and everyday breakdowns.
• Medium-duty towing: This service is designed for larger vehicles like delivery trucks, vans, or small buses. If you engage in medium-duty towing, you will typically work with commercial clients, such as delivery companies or contractors, who need designated towing for their work vehicles.
• Heavy-duty towing: This service is designed for large commercial vehicles like semi-trucks, buses, and industrial equipment. It typically caters to clients such as logistics companies or construction firms that frequently need towing for their heavy vehicles, often to transport them between job sites or projects.
• Specialty towing: This service focuses on transporting high-value vehicles, such as luxury cars, classic cars, or vintage automobiles, as well as offering long-distance towing. It typically serves clients who don’t mind paying premium rates to ensure their valuable vehicles are handled with extra care and expertise.

Keep in mind that no one is forcing you to stick to just one type of towing service; you can offer a mix of light-duty, medium-duty, heavy-duty, and specialty towing based on your market’s needs.

Step 2: Register Your Business

One crucial aspect that cannot be overlooked when starting your towing company is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your towing company  were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

Step 3: Find the Right Location

The next step you’ll want to take is to find (and secure) the right location for your towing company.

Ideally, you’ll want a location that sits near major roads and highways and is in an area with a strong demand for towing services.

Population is a major factor in determining your success, as your customers will generally not be actively searching for your services until they have an accident or breakdown.

In this business, it’s a numbers game, and so if you’re in a small town or an overserved area, your chances of thriving will be much lower.

We generally advise new towing companies to choose a location with at least 60,000 people within a ten-square-mile radius — this is an absolute minimum to ensure a consistent flow of potential customers and to reduce the risk of oversaturation in the market.

Before finalizing your choice of location, it’s important to thoroughly research the towing regulations and requirements in your city, as they can have a significant impact on your business plan.

For instance, while you may assume you’ll be placed on the local police department’s rotation for towing contracts once you start, many municipalities have strict requirements for contractors working with law enforcement.

These may include 24/7 availability, a certain number of trucks and operators, and a secure facility with cameras and other security features.

Choosing this location means also committing to these requirements, which you may not be able to meet right away. However, you might be able to satisfy them in another municipality, so it’s worth considering different locations to find the best fit for your business capabilities.

Note: You will also need to make sure that your prospective property is zoned for commercial use and complies with all applicable local and state regulations (discussed in more detail in the next step).

Step 4: Secure All Required Licenses And Permits

The number of licenses and permits required to operate your towing company will depend on the regulations in your state, city, and municipality.

Even so, most towing companies will likely need to obtain a combination of the following licenses and permits to operate legally:

• Towing License: This is the most important license you’ll need to legally operate your towing business. The exact requirements vary by state but typically involve passing a test, submitting documentation regarding your towing equipment, and in some cases even passing a background check.
• Motor Carrier Authority: If you plan to operate across state lines, you’ll need to register with the Federal Motor Carrier Safety Administration (FMCSA) to obtain Motor Carrier Authority, which allows for interstate operations.
• USDOT Number: If your business operates commercial vehicles that transport paying customers or cargo across state lines, you’ll need to obtain a USDOT Number from the Federal Motor Carrier Safety Administration (FMCSA).
• Storage Yard Permit: If you intend to store towed vehicles, many municipalities require a special permit for your storage facility to ensure it complies with local zoning and safety requirements.
• Emergency Vehicle Permit: In some states, tow trucks are classified as emergency vehicles, which means you’ll need to obtain an Emergency Vehicle Permit from your local Department of Transportation or motor vehicle authority in order to operate legally.

Note: Currently, most states allow you to run your towing business from your home, and many new towing companies choose this option to save on costs when starting out. However, be sure to check your local zoning laws and regulations, as some states do require a dedicated building or commercial space for towing operations.

Step 5: Secure Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on factors such as location, size, and unique risks, there are several key types of insurance that most towing businesses should consider.

We’ve briefly outlined these below.

On-Hook Insurance

Even with the most careful towing practices, accidents can happen, and on-hook insurance ensures you’re financially covered for any damages to the towed vehicle.

This coverage safeguards your business from liability in case of accidents, collisions, theft, fire, or vandalism while the vehicle is “on the hook” or on your truck.

In many cases, it’s not just a good practice — it’s often required by contracts with motor clubs, insurance companies, or state and local regulations.

The cost for this coverage is calculated on a per-truck basis and typically ranges from $1,000 to $5,000 annually, depending on factors such as the area you operate in, the value of the vehicles you tow, and the scale of your operations.

General Liability Insurance

General liability insurance is another foundational coverage that every towing company should obtain. You may think that On-Hook Insurance is comprehensive enough, but that’s not the case. This is because both policies cover different types of risks and are equally important for protecting your business.

While On-Hook Insurance covers any damages that may happen to vehicles while they’re being towed, General Liability Insurance covers everything else — such as injuries to third parties on your premises, accidental damage caused by your employees while not towing, or other incidents unrelated to the towing process itself.

In short, On-Hook Insurance protects you while you’re towing, but General Liability Insurance protects you from the broader risks of running your business.

Your general liability insurance costs will depend on several factors — including the size of your business (number of trucks and employees), your annual revenue, the coverage limits you choose, and your personal claims history.

Having said that, for a small operation with 1-3 trucks, you can generally expect to pay anywhere between $1,000 and $2,000 per year for this coverage.

Cargo Insurance

If you frequently transport vehicles that carry personal belongings or if you haul cargo on separate loads, cargo insurance is going to be a must for your towing company.

This is because this coverage protects you against financial loss in case the cargo you’re transporting is damaged, lost, or stolen during transit.

It should be noted that, in addition to protecting your company from potential losses, cargo insurance is often a contractual requirement when working with commercial clients or transporting goods across state lines.

The cost of this coverage typically ranges from $200 to $800 annually per truck — the exact number will depend on factors like the types of cargo you typically transport, the value of that cargo, your area of operation, and your personal claims history.

Workers’ Compensation Insurance

Since your towing company will have employees, workers compensation insurance is likely going to be a legal requirement depending on your state.

This insurance policy provides coverage for medical expenses and lost wages to employees who are injured during work.

The average cost of workers’ compensation insurance ranges between $45 per month, but this can vary based on factors such as payroll, location, and (once again) your business’s specific risk profile.

Ready to Get Started?

How to Start a Towing Company FAQs

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.