How Many Tows Until You Break Even?

[Don Seeley]

Topic originally created on Tow411 in 2014:

Beacon's Break Even Calculator compares an estimated monthly payment to your production volume to calculate whether you'll make enough profit to cover your monthly payment on a new truck. When you understand the return your new truck will produce versus your monthly payment, you can make an informed decision on whether a purchase or upgrade makes sense.

Calculate now!

https://www.beaconfunding.com/equipment-financing-calculator-estimate-your-monthly-payment

Break Even Example

Tow Truck	$65,000.00
Profit Per Tow	$30.00
Estimated Monthly Payment	$1,207.00
Tows To Break Even	2/Day

 

 

 

In Memory of National Autow who said:

I'm sorry but that is a bit oversimplified isn't it?

If your major concern is the note on the truck then you probably need to rethink how you think about the business finances.

The TOTAL cost of operation obviously must be considered. The amount of money put into debt service (truck notes) is only a part of that equation.

IMO

 

krnydsl said:

Truck payment is only maybe a fourth of the cost. Fuel and wages are the two biggest expenses. Then insurance, rent, advertising, phone,maintenance and a little for the boss to buy some rolaids. And you still haven't saved any for a new truck. Recalculating, recalculating...

 

EKYTow55 said:

That formula wouldn't work for me, 60 bucks a day profit on towing = $1800.00 for 30 days won't even pay the payment and insurance let alone make any money for the business to run!

 

Wade200  said:

Too bad everything else we have to pay out makes the truck cost seem insignificant.

The variables involved with truly knowing your cost is so complex that it's nearly impossible. Randomness is a huge factor in towing. Tomorrow I may have a $10k recovery, I may run 1,000 miles towing or I may sit in the office. The problem is all the bills have to be paid either way.

 

Dodgetowguy134  said:

#1 rule in business is to KNOW/Understand YOUR costs (operating expenses) to be able to figure it all out

 

rdonchann said:

The example says PROFIT, I took that to mean after the other fuel,insurance,labor etc expenses.

 

donseeley  said:

The formula is here to show people a simple way to figure out thier price range when purchasing or upgrading a truck. The example of $1,800 monthly income is based off of 2 tows a day at $30/tow X 30 days. A payment on a $65,000 would be around $1,200..$600 would be the profit. It doesn't take into account the fuel, insurance etc cost.

Don Seeley
Equipment Financing Consultant

Beacon Funding Corporation
847.897.1761
dseeley@beaconfunding.com

 

generaltow said:

In figuring out your price range, how do you run the truck to make a profit without adding in fuel, ins, driver pay, oil changes, normal service, tires, etc. In all my years in business, these things all cost me money. I have never found a truck that don't have to have these things. That is not even getting into office expense, phone, etc. I can not make myself understand the simple formula.
Steve

 

In Memory of National Autow who said:

Back in the day (man, I am getting old) it was common place for a lender to seriously question you about your ability to generate enough revenue to not only make the payment of the loan but also to see if you have enough revenue to pay your operating costs.

It seems today that lenders are primarily getting you rolling, one way or another.

A good example of the change would be the mortgage crisis of the last several years. Mortgage brokers were writing non-conforming mortgages and investors were buying them up. When the market crashed, the Federal government actually stepped in to some institutions and loaned them money to keep them solvent. In the mean time, mortgages were renegotiated but more importantly, it got a lot harder to get a mortgage. You had to be more credit worthy and that is something we had not seen in a long time.

This remake of the mortgage industry put some people out of work. A friend of mine was a mortgage broker thst lost his job. He only lost it because the scum bank he worked for stopped writing mortgages for prople that should never had gotten a mortgage in the first place.

This same kind of thing happens with business and equipment financing. Often times, there are middlemen that first sell you on the loan and then sell the investor on the idea to fund the loan. In equipment financing, there are few rules compared to mortgages for real estate.

Bottom line - Understand what you are getting into and don't believe everything you hear. You often must consider the source of information before lending credibility to it.

That was a long rant but I have seen people get burned on the financing on equipment purchases. I have been to tow shows and heard some of these guys sales pitches. By contrast, there are also good lenders at the shows. Just make sure you know who is who before you sign on the line.

 

 

donseeley  said:

i like the idea of running this scenario with the added fuel, insurance etc. Would someone be willing to give me a rough idea of the extra monthly cost that's assoicated with running a truck? I then can revamp the formula for everyone to play with.

Don Seeley
Equipment Financing Consultant

Beacon Funding Corporation
847.897.1761
dseeley@beaconfunding.com
 

generaltow said:

Just a real brief list that is bare bones only. truck payment 1207.00, 100 mile a day average at 8 mpg is 12.5 gal at 3.759 makes 1409.40 month in fuel. Ins at 6000.00 yr makes 500.00 month. Driver at 16.00 hr for 30 days makes 3840.00 month. 36000.00 miles makes one set tires which makes 150.00 monthly. This is bare bones with no phone, etc or any unforeseen extras or an office and lot. This makes that truck cost $7106.40 a month with zero profit margin. This very basic but gives you an idea what is involved. Buying the truck is only a drop in the bucket.
Steve

 

lantz70 said:

Size of the company plays a HUGE role in figures.
A single truck company might be 600 per truck, when a company with 20 might only be 200 a truck or less for insurance.
Truck only costs are about $1 -1.50 a mile. This is tires, brakes, oil changes, and some other bs stuff.
Depreciation is another key factor.
A formula should be mileage based to be acurate at all.

 

generaltow said:

Miles run will make a lot of difference in insurance average as well as number of trucks on the policy. Most other expenses stay the same per mile without a lot of variables. The numbers I used above are just a general reference to give an idea of what is involved in arriving at an operating expense number. My numbers at my business average around $1.50 mile for the light duty trucks.
Steve

 

Dodgetowguy134  said:

Not knowing your costs or being able to calculate them is all bad....

People need to be careful of "automatic calculators" that don't take into consideration your own operating costs...the one size fits all usually end up only fooling those who don't understand all the details

 

goodmichael said:

There is such a randomness to towing that the business is predictably unpredictable. There are no guarantees that you will get a phone call for service every day. There are slow periods where you have just enough work to keep you from hanging it up, and then you get a deluge where you do not sleep for 54 hours. Nothing is guaranteed. This industry is not like the post office either where you can run five billion dollars in the red, then cry to politicians for more money. You pay your bills and live on what work you do. Many markets as well as many business plans will not support new equipment. New equipment is nice, but unfortunately in this industry so many people are so concerned with generating cash flow that they lose sight of their best friend profit. I speak with people on a consistent basis who do not know what their cost is to run a basic call. They can tell you what their cash flow is, but have no earthly idea what it costs to run a call, what their cost per mile is, or what their margin of profit should be. Fuel and labor are the biggest costs in this business. The direction the country seems to be going in, health care might soon be a close third.  

 

Occupant272 said:

You have to base this on the gross margin. If you're towing a car ten miles away ten miles further away and then driving twenty miles empty back to the shop for say, a hundred bucks, but it costs you (labor, insurance, advertising, maintenance, fuel, etc) $70 to run the tow, then you have a $30 PROFIT left over.

I just finished figuring this all out and posted my novel in the wrong thread (the new website thread in this same forum).

It definitely made me think more about how to price things because it doesn't matter what you make per mile or how much it costs to run each of those miles, but what the difference is between those two numbers. The margin. That's where the money is.

 

MrsHook said:

$16/hr labor? You know better than this. If the operator is taking home $16, it's costing you twice that. $30 tow is costing you money long before you begin to consider the cost of the truck. Better off going fishing.

 

Tow Chef said:

you could not get me to crank a rollback for a dollar less than $50 for a 2 mile tow. $75 for a ten mile tow. I will let my trucks sit before I run for nothing. over the past years I have watched several tow companys come and go. They get aaa to finance their trucks, run the crap out of them for pennies and wear them out in a year. they lower the rates for the whole area because they cant pay their bills. it hurts everyone around them. they go out of business but the rates are already lower now. now we have agero financing trucks and making them there #1 provider in order to get there money back. these last couple years have been tuff on us. it seems there is no loyalty any more. everyone is trying to save a dollar. what about service and relationships. if you want guaranteed work barrow money from agero or aaa. get used to paying them so you can work. profit, that's funny

 

In Memory of National Autow who said:

To borrow money on equipment with ANY link to ANY customer is merely becoming an indentured servant, in my opinion.

Finance companies and motor clubs will TELL you that you can get a better rate that way but the smart money says otherwise.

They tend to appeal to people that are only worried about the dollar amount of the payment and not what the actual finance contract costs.

My suggestion is to look at the WHOLE deal and NEVER become an indentured servant.

 

 

[GRUMPS The Towman]

about 12 years ago i took the time to break down my operating costs for 1 light duty truck to operate for 1 mile. i figured out all the math and accounted for everything imaginable and it came up that it didnt matter if i was going for a slice of pizza or running a call, it was a minimum of $ 2.00 per mile to run that truck down the road. it really makes you think about your operating procedures when you break it down and figure it all out. certainly made me think twice about running across town just to grab a bite or help a buddy out as a favor. like i said, this was 12 years ago, im afraid to do it now.