Friday, March 23, 2007

Tow Trucks

Last month I put up a post about ambulance rates. Now comes the other side of the coin: tow trucks. Comparing tow trucks and towboats from a business standpoint becomes rather complicated, because the list of differences is at least as long as the list of similarities. (Perhaps even more so than comparing ambulances.) So, one needs to make a very narrow comparison, rather than a broad one, to derive meaning from the exercise.

To begin, tow trucks are rated in categories dependant on the truck's capacity to handle different loads. While you may be free to tow a 50' sportfisher with an 18' plywood skiff and 40hp outboard bolted on the transom (been there - done that), tow trucks are not. Tow trucks are usually categorized into three basic classes: light, medium, and heavy - sort of like the three ACAPT classes of Utility, Coastal and Offshore. Unlike our industry, the mature and deeply regulated tow truck industry long ago recognized that different kinds of equipment should be charged out at vastly differing rates. So, to make some comparisons, we need to know what kind of tow truck we are talking about. Most of the towboat fleet is ACAPT Cosatal, which means the boat is capable of towing a disabled vessel in the 50' range. If you examine the tow truck classes, a Coastal towboat would be roughly comparable a the capabilities of a standard duty flatbed tow truck; ie. it can move 2-3 times it's own gross weight. The truck pictured above is what I'm talking about. see the ad here "2002 FORD F650, Tow Truck, Black, 2002 Ford F650 XLT, 7 spd, CAT 3126 210hp, 150k Miles, Century 20'2" Steel Carrier, 3 Toolboxes, Rem Rails, $32,000"

Say the seller accepts $30k. Ok, you've got thirty large tied up in a piece of towing equipment, powered with a 210hp CAT diesel. Now, we gotta make some money with the thing. Not cash flow, but profit.

Well, lets open a shop in Ft Worth, TX. According to the chart at left, we would get $135 for the first 30 minutes, then an additional $100/hr charged in 15 minute increments. So, bill your truck for 2 hours, and you earn $135 for the first half hour, then $150 for the remaining 90 minutes = $285. That averages about $143/hr. But what does it cost to operate the equipment?

Well, here is a screen shot from the career opportunity page at the University of Phoenix It's a safe bet that that they are probably presenting the best case scenario. Think you can find a full time, year 'round towboat captain for $25k/year? Good luck. I think it's fair to say that the tow truck driver needs very little training. Most states require a commercial driver's license. Unlike a towboat captain, the tow truck driver certainly doesn't need to document 720 days of field service before being allowed to apply for a CDL. So can we agree that a towboat captain is more highly trained, or at the very least, held to a higher licensing standard, than a tow truck driver? I make that point to imply that the captain deserves a higher salary than a tow truck jockey. As far as I can tell, tow truck driver's are not required to enroll in a random drug testing program.

I don't have the space to get into the insurance costs, but I'm willing to wager that it's less than offshore boat towing. The final point is that a tow truck in a busy metropolitan area will probably be much busier than the average towboat, i.e. more billable hours per year. The one above did 150,000 miles since new in 2002. Figure an average of 30 mph, that's 5000 hours. Figure 85% of those are billable = 4000 profitable hours, times $143/hr (average) Of course, that's if we only figure an hourly fee structure.

The flat rate structure means that you could do 3, or even 4 jobs in a single hour, at $135 each. So in reality, our tow truck could conceivably bill $540 in a single one hour period. Perhaps the real average for this analysis would be about $200/hr. over the life of the truck. $200/hr times 4000 hrs = $800,000 gross. Pay the driver top wages of $25k/yr for 5 years. Say $30k per year for fuel, insurance and maintenance....lets see...thats leaves $525,000 profit in 5 years on a $30,000 investment.

Ok, the $30,000 was for a used truck. But a new one would be about $60,000. That means it would cost $1000/month to amortize that asset over 60 months. Meanwhile, you're profiting $8750/month owning the thing. Try that with your towboat...