Winning Pricing Strategy for Your Towing Business

How to Plan for a Winning Pricing Strategy for Your Towing Business

An ongoing challenge for most towing company owners in achieving optimal pricing for their services.  Pricing is tricky because it must be low enough to attract customers but high enough to pay the bills and reward you for your investment.  Here are a few tips to help you re-evaluate your pricing strategy:

1. Average Revenue Per Call.  Start by understanding how much gross revenue your average service call generates.  Pull out your tax filings from last year and locate your gross income.  Simply divide that by the number of service calls your business responded to last year.  That will give you a baseline average of how much revenue a single call generates.
2. Allocation for Capital.  All the capital you’ve poured into your company is your investment, and you should be earning income from it.  For example, instead of investing $500K in your company, you could invest it in the stock market and perhaps (if you’re lucky) earn 10% or $50K a year.  This concept is called “opportunity cost,” as it represents the revenue you could receive from your next best option.  Use this formula to determine how much you need to make on each service call to cover the opportunity cost of your investment:

To continue with this example, if the company made 2000 service calls last year, it would need to generate an additional $25 per service call to equal what the owner could have earned from investing his money elsewhere.

1. Allocation for Equipment Replacement.  Next, you should be planning to replace your equipment in the future.  Depreciation represents the decrease in the value of an asset. It is an excellent place to start to evaluate how much money you need to earn to prepare for future replacement costs. There are several ways to do this.  If you still have your tax filings out, look at how much your account expensed as equipment depreciation and divide that by the number of service calls you made last year.  That will approximate how much you should charge on each call just to cover this expense.  Alternatively, you can take that same number and divide it by the total number of miles driven last year.  This will give you a variable amount to charge for each service call depending on the location of each specific tow.
2. Allocation for Operational Expenses.  Finally, consider your total operational expenses (excluding depreciation) and complete the same exercise by dividing total expenditures by the number of service calls.  Total expenses should include payroll, benefits, rents or leases, mortgage interest, vehicle loan interest, utility costs, licensing and legal fees, estimated taxes, and all other expenses you pay each year.  This number will tell you how much revenue you need to make on every service call just to cover expenses.
3. Determine Estimated Profit Per Call.  Now take all of these numbers to see how profitable your current pricing is:

Average Revenue Per Call

Less Allocation for Capital

Less Allocation for Equipment Replacement

Less Allocation for Operational Expenses

= Estimated Profit Per Call

1. Adjust Pricing if Necessary.  If your ending profit number is negative or not as big as you’d like, it’s definitely time to adjust your pricing.  The first place to start is by reviewing survey information about what other towing companies in your region charge.  Avoid low-balling your prices because even if you gain more customers, you could be cutting into profitability.  Survey data will give you an excellent range to make sure your pricing is relevant to the marketplace.

Keep costs low with quality equipment from Collins Dollies another Winning Pricing Strategy for Your Towing Business:

Collins manufacturers the strongest, safest towing equipment to help your team move vehicles from the most challenging environments.  Your team can easily extract vehicles from tight spots with our dollies and tow them wherever they need to go securely.  Our lightweight construction reduces risks for back injuries, while our safety ratchet system prevents accidents from unexpected vehicle drops.  An investment in Collins equipment is a solid step towards profitability.  When business success matters, choose Collins.  Contact us today for more information.