How to determine your rates
A huge part of owning a successful towing business is setting your basic towing and service call rates. Most new towers are so excited to be in business that they lose their heads when the phone rings… In an effort to run every call they will do and say anything to make the sale and practically give their services away in the process.
Before you can properly charge for your services, you need to know what it costs to be in business. There are two types of costs in any business: fixed costs and variable costs
Fixed costs are what you pay, whether or not you turn a wheel, and they include your truck payment, rent or mortgage, your telephone, utilities, bookkeeping, uniforms, advertising, insurance and other expenses like licensing and registering your trucks, business and merchant licenses, association dues, subscriptions and ongoing education, among others.
Variable costs vary with the amount of work performed and they include fuel, repairs, tires, servicing, parts, windshield washer fluid, miscellaneous expenses like damages, office supplies and shrinkage.
Determining Your Rates
What we’re doing here is determining what rates you can charge, not setting up your books for accounting purposes. Your truck and any real estate owned are assets, but for the purposes of setting your rates they’re considered liabilities.
The four steps for determining your rates for your basic services are:
- identify and enumerate both fixed and variable costs
- determine how many calls you run monthly
- use the Profit Calculator to find your desired rate for basic services
- test them in the market and consult your competition
Identify Fixed and Variable Costs
When you’re just starting off you won’t have most of the information you need to complete the list. This leads many new towers to take the easy route and fall in line with the lowest competitors’ rates or even worse, they’ll come in a few dollars under. It’s a bit harder but instead I suggest you take the time to make some calls and gather the average costs. Assume you will be replacing tires annually, and for repairs & parts take the cost replacing an engine and divided by 24 months. It won’t be completely accurate, but you will have a conservative starting point.
Determine the Potential Number of Monthly Calls
Use a conservative number. I suggest eight calls per day multiplied by twenty two work days per month (weekends off) which comes out to 176 calls per month. if you work eight hours per day, you should easily be able to run one call per hour. You can adjust this as needed.
Find Your Desired Rate
Plug all the numbers into the Profit Calculator: fixed costs, variable costs and days work per month then multiply the number of calls you believe you’ll be able to run by an average sale per call trial rate. This gives you your average monthly sales. Subtract your cost from that number and you have a before tax monthly profit. Adjust the average sale per call until you have a monthly profit amount that you can live with.
Test and Review
Now that you have your average sale per call trial rate, the rate at which you should receive the desired monthly profit, everything being equal you need to test it. But before you do that, make a few calls to your competition to see what their rates for some more services are. Call a couple repair shops and inquire as to the rates they pay and then allow the market to help you decide. If what you’re charging for basic services is reasonable and somewhere between highest competitor’s rates and lowest competitor’s rates you should be fine. Within a short time you’ll know and you can adjust accordingly if necessary