Do You Really Know What It Costs You to Repossess a Vehicle?

Guest Article I’ve been thinking a lot lately about the actual cost of operating a professional repossession company. Not what we charge. Not what somebody else charges. Not what we think a repo “should pay.” I’m talking about one simple question: What does it actually cost your company to repossess a vehicle? I’ve been in this business for more than 30 years, and I believe this is something every recovery company owner—whether you operate one truck or 50—should sit down and calculate for themselves. It’s easy to look at a $300, $350 or $400 recovery fee, subtract the fuel burned that night and conclude that you made money. But that isn’t the actual cost of the repossession. That recovery also had to help pay for the truck, insurance, driver, office staff, software, maintenance, tires, cameras, secured storage, fencing, gates, lighting, personal-property storage, condition reports, releases, accounting, phones, computers and everything else required to operate a professional repossession company. And there is another expense that is particularly easy to overlook: The successful repossessions have to help pay for the assignments you worked but never recovered. That is where the real calculation begins.

Start With Your Activity

Before looking at expenses, look at what your company actually did over the last 12 months. You should know your:

• Total assignments received
• Successful involuntary recoveries
• Voluntary recoveries
• Assignments closed without recovery
• Total field attempts
• Total miles driven
• Deadhead miles
• Average attempts per successful recovery
• Average attempts on accounts that were never recovered
• Vehicles processed through your lot
• Debtor vehicle releases
• Auction and transporter releases
• Personal-property releases

One important point: Don’t simply divide your expenses by the number of assignments you received. The assignments that never produce a recovery still consume time, fuel, labor, mileage and technology. Ultimately, the successful recoveries have to support that work.

What Does the Truck Really Cost?

Your truck costs considerably more than its monthly payment and the fuel you put in it. Consider the purchase price, financing and interest, depreciation, replacement cost, fuel, DEF, oil changes, tires, brakes, batteries, hydraulic and wheel-lift repairs, engine and transmission repairs, registration and taxes. Then consider the equipment carried on that truck: dollies, GoJaks or skates, jump boxes, lockout equipment, key equipment, GPS, tablets, phones, dash or body cameras and everything else required to perform the job. Once you have the numbers, determine your actual truck cost per mile and per operating hour. That number may surprise you. The same principle applies to camera cars and LPR operations. If you operate them, calculate the cost of the vehicle, depreciation, camera and LPR equipment, subscriptions, data fees, cellular service, fuel, insurance, maintenance, tires, driver wages and benefits, mileage and driver hours. Then look at the results those vehicles actually produce. How many hits did they generate? How many recoveries? What does that operation really cost per recovery produced?

Labor Is More Than an Hourly Wage

Labor is another area where it is easy to underestimate the true cost. Obviously, there are field agents. But there may also be dispatchers, skip tracers, account managers, office and lot personnel, condition-report staff, personal-property personnel, release personnel, bookkeepers and compliance staff. Then add payroll taxes, workers’ compensation, unemployment, health insurance, retirement contributions, paid time off, training, recruiting, background checks, uniforms and employee phones. And if you operate a small, owner-run company, don’t forget the person most likely to work for free: You. If you’re working 60 hours a week driving a truck, answering calls, managing employees, dealing with clients and doing paperwork, but you aren’t assigning a fair market value to your own labor, your numbers aren’t telling you the truth. The same applies if a spouse or family member is handling bookkeeping, phones or paperwork without being compensated. Ask yourself: What would I have to pay someone else to do the work I am currently doing? That is a real business cost whether you write yourself a paycheck for it or not.

Insurance, Facilities and Security

Insurance is another expense that has to be allocated across your actual production. Look at commercial auto, general liability, garagekeepers, wrongful-repossession coverage, on-hook or cargo coverage, property insurance, workers’ compensation, umbrella or excess coverage, cyber coverage and employee dishonesty or crime coverage. Don’t forget deductibles and claims that your company paid out of pocket. Then there is your facility. A secured storage lot isn’t free simply because you own the property. Consider rent or an appropriate occupancy cost, mortgage interest, property taxes, insurance, building depreciation, gravel, asphalt or concrete, drainage, fencing, gates, gate operators, access-control systems, security lighting, electricity, water, internet, mowing, trash service, repairs and maintenance. If you spent $40,000 fencing and securing a property, don’t treat that investment as having cost you nothing just because you paid cash. That fence has a useful life. The same is true of buildings, gates, cameras and other capital investments. Their cost should be allocated over the period in which you use them. And how much money do you have invested in protecting everyone else’s collateral? Cameras, NVRs and servers, hard drives, cloud storage, cellular backup, alarms, monitoring, access control, lighting, installation, repairs and replacement equipment all have a cost. Annualize those expenses and determine what your security operation costs per recovery.

Personal Property Is Part of the Job

Personal-property handling may be one of the most overlooked costs in the business. Once a vehicle arrives, someone has to remove the property, inventory it, photograph it, bag and tag it, complete the necessary forms, upload information, move the property into secure storage and maintain that storage. Then the customer may call the office. Someone has to answer questions, schedule an appointment, verify identity, locate the property, meet the customer, complete the release paperwork and document the transaction. Eventually, unclaimed property may require additional handling. How many employee minutes does that entire process consume? Multiply that time by the employee’s fully burdened hourly cost, not simply their wage. The same concept applies to vehicle intake and condition reports. Someone has to verify the VIN, record mileage, photograph the vehicle, complete the condition report, document damage and keys, inventory property, upload photographs, update the client’s system, move and park the vehicle and, when necessary, jump-start it or air up the tires. Time is money, even when nobody sends you a separate invoice for it.

Releases Cost Money Too

The work doesn’t necessarily end when the vehicle is recovered. Debtor or redemption releases can involve phone calls, emails, scheduling, authorization, identity verification, paperwork, locating and moving the vehicle, jump-starting vehicles, meeting the debtor, opening and closing the facility and final documentation. Auction and transporter releases require time as well. If an employee spends 30 to 45 minutes handling a release, that service has a cost whether or not you are separately compensated for it.

Technology and Administrative Overhead

Pull your credit-card and bank statements and start adding things up. Repossession management software, assignment platforms, client-required platforms, LPR systems, skip-tracing databases, GPS, mapping and routing, accounting and payroll software, email, cloud storage, phone systems, website hosting, cybersecurity, antivirus, electronic signatures, texting services, internet, cellular plans, computers, tablets, printers and IT support all represent real expenses. Then there are the less obvious administrative costs: accounting and CPA fees, legal expenses, licenses, registrations, permits, association dues, training and certifications, audits, background checks, drug testing, recruiting, office supplies, printing, postage, certified mail, bank and merchant fees, travel and cleaning. A $20 expense here and a $100 subscription there may not seem significant. Add them together over an entire year and the number can become substantial.

Compliance Has a Cost

Compliance is another area where companies routinely provide labor without attaching a dollar value to it. Think about the time spent on client audits, compliance questionnaires, insurance certificates, employee training, licensing, complaint responses, data-security requirements, background screening, incident reports, required condition reports and photographs, status updates and entering the same information into multiple client portals. Track the hours. Then multiply those hours by your actual labor cost. Compliance isn’t free simply because nobody sends you a separate check for doing it.

The Assignments You Didn’t Recover

I believe this may be one of the most important numbers an owner can understand. Imagine receiving 1,000 assignments and successfully recovering 400 vehicles. The other 600 didn’t cost you zero. You may have skip-traced them, called references, driven to addresses, made multiple attempts, burned fuel, put miles on trucks, paid drivers, used LPR data, updated client portals and had office personnel working those files. Suppose your company spends $80,000 during the year working assignments that never produce a recovery, and you recover 800 vehicles. That’s: $80,000 ÷ 800 successful recoveries = $100 That means every successful recovery has to carry an additional $100 of unsuccessful-assignment expense before you even consider the direct cost of recovering that particular vehicle. That is a number every owner should know.

Don’t Forget the Capital You Have Invested

How much money is tied up in your business? Look at the realistic value or replacement investment in your trucks, camera cars, land, buildings, fencing, gates, security systems, LPR equipment, computers, shop equipment, personal-property storage and office equipment. Don’t overlook working capital. There is a difference between a company producing a positive bank balance and a company producing an adequate return on hundreds of thousands—or even millions—of dollars invested in the operation.

Risk and Losses Are Costs Too

Look back over several years and calculate your average losses associated with wrongful-repossession claims, property damage, employee injuries, truck accidents, insurance deductibles, attorney fees, uninsured losses, theft or vandalism, vehicle damage, chargebacks and client nonpayment or bad debt. Risk is part of the cost of doing business.

Put It All Together

Ultimately, what we’re trying to determine is the fully burdened cost of one successful repossession. That calculation should account for: Direct recovery costs + Unsuccessful assignment costs + Truck and equipment costs + Labor + Insurance + Facility and secured-storage costs + Personal-property handling + Condition reports and releases + Software and technology + Office and administrative overhead + Compliance + Depreciation and equipment replacement + Claims and risk expense = YOUR FULLY BURDENED COST PER SUCCESSFUL REPOSSESSION And we’re still not talking about profit. This is simply an attempt to determine what it actually costs you to provide the service. Once you know that number, you can ask the second question: What return does my business need to earn to justify my time, investment and risk?

Try It Yourself

You don’t need an accounting degree to start figuring this out. Take the last 12 months of information from your accounting software, payroll reports, repossession software, fuel records, insurance bills and bank or credit-card statements. Then put the information into ChatGPT or whatever AI program you use. You can tell it:

“Help me calculate the fully burdened cost of one successful repossession. Ask me for all of my business expenses, annual assignments, successful recoveries, unsuccessful assignments, attempts, mileage, labor, equipment, facilities and overhead. Do not let me leave out depreciation, unpaid owner labor or the cost of unsuccessful assignments.”

Then start feeding it your real numbers. You might be surprised at the answer. A company can stay extremely busy and still not be building wealth. Gross revenue isn’t profit. Cash flow isn’t profit. Being busy isn’t necessarily being profitable. Sometimes we confuse activity with progress. Before deciding whether you’re doing enough repossessions, it might be worth finding out what every repossession is actually costing you.   Michael Beene Action Towing & Recovery LLC www.ArkansasRepos.com E-Mail-Dispatch@ArkansasRepos.com PH: (501)490-1700