How Important are Freight Broker Margins? - Freight 360 (2024)

Whether you are a licensed freight broker, a freight agent, or employed by a freight brokerage you need to understand margins. Margins are what ultimately pay freight brokers and are often a leading cause for the failure of some brokerages. Below, I’m going to discuss what the margin is for a freight broker and why it’s important to understand.

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What are Freight Broker Margins?

Simply put, a margin is the difference between your accounts receivable (AR) and accounts payable (AP). It can be represented by a dollar amount as well as a percentage. We can use a simple example to break this down. Let’s say you have a customer paying you $1,000 for a load, and you book a carrier for $850. That means your AR is $1,000 and your AP is $850. Your margin on this load is $150 ($1,000 – $850), which is 15% ($150 / $1,000). It’s that simple to calculate, buy why is it important and what should you aim for?

What Should Your Margins be?

As a freight broker, your margin is the only money that you can use to cover your expenses and earn a paycheck. Once the carrier has been paid, the remaining money must be enough to cover every expense associated with that load otherwise you essentially lost money. It’s more realistic to track your average margin over a certain timeframe such as a week, month, or year since they can change dramatically from load to load.

For example, loads with a higher AR usually have a lower margin percentage since the actual load profit is a small fraction of the customer invoice compared to a lesser paying load. A simple example is comparing a short LTL run versus a long-haul FTL shipment.

Some LTL shipments can pay as little as $100 with the broker only profiting $20 as an example, while a long haul FTL shipment might pay $5,000 with a $500 profit built in. The LTL example gives us a 20% margin, while the FTL shipment only yields 10% margin.

Obviously, the dollar amount is higher on the FTL shipment, which is why we need to always consider the dollar amount and the margin percentage together. At the end of the day, you get paid in dollars and cents, not percentage points. That being said, higher margin percentage will always lead to higher margin dollar amounts. Your totals and averages for the month will give you a good insight into the health of your book of business

Depending on which sources and data you look at, you can find various reports on the average margins for freight brokers. Data from throughout 2020 has shown us that freight brokers are averaging around 15% overall with each load yielding around $270 in profit. I tend to find most successful brokers average somewhere between 12-18% in margin. Sure, there are some outliers that are above or below that, but this is the bulk of brokers that I’ve worked with.

Why do Freight Broker Margins Matter?

As mentioned previously, the margin pays you and your expenses so depending on your overhead and expenses, your margin needs can vary. No matter what kind of business you have, you need to have a positive margin to stay afloat. Some newer brokers attempt to move freight at a loss to gain accounts in the beginning. This is a slippery slope since they need to make up for the loss over time to become profitable.

No customer wants to have price increases for no realistic reason other than the broker priced them negative on purpose. Even if your margin is positive, it’s not smart to price a customer super low in the beginning just to gain their business. Brokers that try and operate close to 5% margin to be the “cheapest option” often shut their doors because they aren’t making enough money to keep the lights on.

A customer’s payment terms also play a role in margins. Let’s say for example that you pay your carriers in NET 21 (paid 21 days after they invoice you), but your customer is on NET 45 (45 days to pay their invoices). You must cashflow the difference, which requires excess money in the bank or the use of a factoring company. Factoring companies charge a percentage of your revenue, typically around 3%, which takes even more money out of your bottom line.

Many brokers will set customers and carriers up both on NET 30 to keep cashflow strain as limited as possible, but that doesn’t stop a customer from slow-paying when they are financially strained, not to mention no-paying if there is a claim or dispute. Healthy margins and customers that pay promptly are two huge factors to the success of a freight broker.

Calculate Your Cost per Load

You might be a savvy salesperson on the phone or cover freight with ease, but that doesn’t mean you understand financials and break-even points like a pro. It’s crucial that you understand the financial aspect enough to determine your cost per load, or breakeven point. For example, if you move 100 loads on average each month and you have $5,000 in expenses before you turn a profit (software, insurance, load boards, etc.) you can calculate the average expense on a per-load basis. $5,000 / 100 loads equates to $50 per load.

This gives you a good idea of how much you need to earn on each load before you really turn a profit. Some larger brokerages will require their employees or agents to make a certain amount on each load before they are eligible to collect a commission. This is precisely why.

Prepare for Fluctuations

Margins can change through the year and throughout a typically market cycle, and you should expect them to. For this reason, it’s healthy to keep enough retained earnings (cash reserves) to cover the ebb and flow of your margin. Many financial experts recommend having 3-6 months of expenses as your reserves.

As capacity tightens in certain lanes, seasons, or due to other factors you will see an increase in the cost to book a truck. That increase usually doesn’t catch up to the customer’s rate right away which leads to brokers having a lower margin during that transition. On the flip side of this is when truck rates decrease. When this happens, brokers often see an increase in the margin before they pass the cheaper rates on to their customers. This natural shift occurs during every normal market cycle.

Look to the Future

If you are a W-2 broker, you likely don’t have to think about all of this too much. Your employer probably just tells you what you need to produce, what margin you need to be at, and how much you need to make on each load. They’ve done their homework already. Licensed brokers really need to figure the margin piece out to be successful and profitable enough to continue the life of the business.

Freight agents fall somewhere in the middle since they aren’t an employee, and don’t have to run the company’s financial books. Agents simply move a load and earn a percentage of the load profit. All that said, good paying customers and healthy margins are usually requirements for an agent to be offered a home at a top agent-based brokerage with a high commission split.

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How Important are Freight Broker Margins? - Freight 360 (2024)

FAQs

How Important are Freight Broker Margins? - Freight 360? ›

As a freight broker, your margin is the only money that you can use to cover your expenses and earn a paycheck. Once the carrier has been paid, the remaining money must be enough to cover every expense associated with that load otherwise you essentially lost money.

What is a good margin for a freight broker? ›

Interestingly for the long-distance OTR crowd, the study found that "margin decreases as the length of haul increases," which Adamo attributed to fixed costs of truckers and brokers on a per-load basis amortizing over longer distances. The average margin under 250 miles sat at 15.2%.

What makes a successful freight broker? ›

To be a successful freight broker, you can't stress about the things you can't control. When an issue arises, act quickly, solve what you can and communicate your solution with all impacted parties.

Why are freight brokers important? ›

One of the main jobs of a freight brokerage is to monitor the transportation market. As a whole, this market is often subject to price volatility, making it difficult for an outsider to know what the “best price” is for a shipment. This is where a freight brokerage can help.

What percentage of freight is moved by brokers? ›

In 2000, freight brokerage was a cottage industry, representing a small percentage of the trucking industry — 6%. Fast forward to 2023, and freight brokers handle more than 20% of all trucking freight.

Can freight brokers make 7 figures? ›

Yes, freight brokers can indeed make 7 figures – many have successfully grown 6, 7 and even 8 figure businesses.

What is the average salary for a freight broker in the US? ›

The average freight broker salary in the USA is $72,500 per year or $34.86 per hour.

What are the disadvantages of using a freight broker? ›

You Don't Have Complete Control Over the Shipment

One of the biggest downsides to using a freight broker is not having total control over the shipment. Once the load is given over to the broker, the shipper's ability to manage that load may be hindered.

Is becoming a freight broker worth it? ›

On average, the yearly freight broker salary in the U.S. is $71,500 ($36.67 per hour). Entry-level positions begin at $45,000 per year, while most experienced professionals earn up to $107,500 per year. As a freight broker, you can start your own trucking business and become your own boss.

Why do freight brokers make so much money? ›

Freight brokers make their money in the margin between the amount they charge each shipper (their customer) and what they pay the carrier (the truck driver) for every shipment. Although it varies from one transaction to the next, healthy freight brokers typically claim a net margin of 3-8 percent on each load.

What is the average margin for a freight broker? ›

Depending on your expertise, your salary range can be anywhere from 10% to 35% commission for each truckload. Ultimately, the average broker ends up getting margins of around 15%. This percentage is a portion of the total amount of money that customers give you. So, how much do freight brokers make?

Why are freight brokers going out of business? ›

Compared to trucking carriers, freight brokerages can avoid shutdowns even during nasty freight recessions. But, since new capacity flooded the trucking industry and consumers stopped buying as much stuff, third-party logistics companies have seen an unusual threat to their business operations.

How do freight brokers find clients? ›

8 Ways To Find Clients as a Freight Broker
  • Expand Within Your Clients' Companies. ...
  • Look Up and Down the Supply Chain. ...
  • Make Cold Calls. ...
  • Utilize Social Media. ...
  • Create a Referral and Rewards Program. ...
  • Reach Out to Similar Businesses. ...
  • Offer to be a Backup. ...
  • Offer a Free Audit.

How much profit do freight brokers make? ›

Licensed brokers who own their own freight brokerage business, have the ability to earn a higher salary. Freight brokers typically earn between 10% to 30% profit margins on a shipment, depending upon the mode of transportation, the complexity and distance.

Can you make a lot of money as a freight broker? ›

The national average salary for a freight broker in the United States is $62,105 per year , with an average additional compensation of $28,000 per year for commissions.

What is the average markup for freight? ›

Data from throughout 2020 has shown us that freight brokers are averaging around 15% overall with each load yielding around $270 in profit.

Is freight brokering lucrative? ›

On average, the yearly freight broker salary in the U.S. is $71,500 ($36.67 per hour). Entry-level positions begin at $45,000 per year, while most experienced professionals earn up to $107,500 per year. As a freight broker, you can start your own trucking business and become your own boss.

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